Fintech in Indonesia: Understanding Basic Compliance

The growth of fintech in Indonesia is getting supported by the government to push financial inclusion and transition to a cashless society

Indonesia’s Financial Inclusion

The Indonesian government continues to push for financial inclusion amongst Indonesian citizens. Due to the Indonesian government’s driving force, over 167 financial technology (fintech) companies operating in Indonesia have seen notable growth. Aside from that, such inclusion could be attributed to the general Indonesian population that is getting familiar with technological advances, such as having access to the internet and own mobile subscriptions.

Being an archipelagic country, Indonesia often faces difficulties providing banking services to remote areas; thus, providing fintech companies with room for growth might be appropriate to cater to the situation. Also, Indonesia is actively transitioning to a cashless society. This plan then further supports the development of fintech companies.

Indonesia Financial Technology Landscape

Since 2018, the country has seen a significant increase in the value of investments made in the fintech sector. Indonesia is home to approximately 300 fintech startups. The pandemic proved to be a blessing in disguise as it has fuelled Indonesia’s fintech sector with over 77 new deals valued at USD 329 million.

The fintech sector has also seen a number of mergers and acquisitions within it, posing as big deals and birthing successful unicorns from it. These consolidations are often done as companies identify prominent competitors and allies that would hinder or support their growth.

Indonesia is home to 63 million small and medium enterprises primarily looking to digitize their operations and improve productivity. They often opt to do so, allowing fintech companies to reach newer heights. Taking all these factors together would enable us to deduce that Indonesia is one of the world’s most prominent fintech ecosystems. It may also be worth noting that there are still untapped markets that are open for continuous growth.

Basic Compliance of Fintech in Indonesia

As a whole, the industry is regulated by two entities – Bank Indonesia and Otoritas Jasa Keuangan. Where the central bank, Bank Indonesia, regulates fintech companies relating to payments, the Otoritas Jasa Keuangan, or Financial Services Authority, handles the regulations for entities that provide services such as digital banking, crowdfunding, P2P lending, and others.

Fintech companies looking to establish themselves should look into the OJK Regulation No. 13/POJK.02/2018 which acts as a legal umbrella for all types of fintech companies. The regulation is designed to highlight the responsibilities for digital finance innovation. Aside from the regulation, as mentioned earlier, several other regulations are specifically aimed at and govern various sectors and fintech products available in Indonesia.

Most of them take the form of an OJK Regulation released sometime between 2016 and 2018. Fintech companies looking to operate in Indonesia must first register themselves to the Financial Services Authority before further securing the permit. It is integral for companies to secure the permit within 12 months after successfully registering themselves. The registration process may often be tedious, especially for foreign companies unfamiliar with domestic laws. Cekindo is available to provide special assistance regarding such matters.

Important Legal Issues for Fintech in Indonesia

The immense growth seen in the fintech market implies that the risks faced by the same are definitely something to note. Regulations surrounding the financial sector are becoming increasingly complex to avoid fraud and other risks. The most prominent one would be regarding data protection. Fintech companies are often in possession of significant amounts of data regarding their existing or potential customers. They, therefore, must ensure compliance with data protection laws to protect all parties involved.

Also, fintech companies that use distributed ledger technology that allows for synchronized digital data to be utilized and spread across many sites and institutions would face major legal risks. This is because distributed ledger technology often operates across various jurisdictions and may be subjected to conflicting regulations, leading to high legal uncertainty.

Fintech companies that utilize Robo-advisors or automated portfolio management service makes it tricky to identify the liability shared between the parties involved for the Robo-advisors’ activities. Storing large amounts of data by entrusting cloud service providers would also be tricky as failures by the providers to provide transparency could pose legal and security risks that would have repercussions across jurisdictions.

There is a dire need for institutions to assess and verify compliance with the minimum standard of transparency required by the regulations. It may be wise to conduct legal consultations with Cekindo personnel before establishing in Indonesia to ensure effective legal risk mitigation by filling out the form below.

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Tjhia Edy Tarlesno

Edy is the Legal and Delivery Manager at Cekindo. He focuses on internal and external legal compliance with the laws of the Republic of Indonesia. During his career, he specialized in bankruptcy and insolvency at a law firm and also led a prominent social foundation in Indonesia. He is a sworn advocate at the Indonesian Bar Association, a licensed mediator from the Supreme Court of the Republic of Indonesia, a Certified Legal Auditor from the Indonesian Legal Auditor Association, and a Certified Legal Translator from the University of Indonesia.