How to set up a Fintech in Indonesia

Michael Correa sheds light on the key opportunities in the Indonesia market for aspiring fintechs, according to the findings of the 2018 Westpac EIU Fintechs in ASEAN Report.

1. Based on the recent Fintechs in ASEAN Report, why do Fintechs typically choose Indonesia as a base for their operations?

Fintechs typically choose Indonesia to create a regional base to market their existing portfolio of products and gain access to capital.

Housing 20 per cent of all fintechs in the seven ASEAN markets, Indonesia has a large potential for future customer growth with a smartphone penetration rate (24 per cent) below the ASEAN average and 49 per cent of the population aged 15 and above holding a bank account. Indonesia's below average ICT capabilities and financial inclusion rate presents a huge opportunity for technological change that can enhance the support for fintechs.

2. What is the market outlook/opportunity for Fintechs in Indonesia?

Indonesia is one of the largest consumer markets in South-east Asia, with a favourable demographic profile for consumer-oriented sectors. In the medium to long term, this is likely to create a sizeable pool of customers and talent for fintech firms.

GDP per head measured at market exchange rates is expected to increase by 54 per cent from US$3,897 in 2017 to US$5,991 in 2022, increasing individuals' purchasing power and boosting demand for financial services. At the same time, a growing population of city dwellers, many of which are high net-worth individuals, will enable fintechs to tap into the potential of rapid urbanization.

Indonesia's global business environment ranking is expected to improve from 62nd in 2014-18 to 55th (out of 82 countries) in 2019-23, enabling foreign fintechs to set up operations with increasing ease. Furthermore, the macroeconomic policy mix will continue to make progress, with government efforts to reduce red tape benefiting the business environment.

3. What are the key challenges Fintechs in Indonesia face, and how can these be overcome?

Some of the major challenges in Indonesia include navigating the regulatory environment and gaining acceptance from the local market. For example, in the Indonesian market, there is a lack of openness among local businesses to collaborate due to a general preference for local money, people and companies.

To overcome this, the fintech businesses we surveyed all echoed the importance of leveraging partnerships with commercial and non-commercial organisations, and even competitor organisations to gain new ideas and advice on market and regulatory knowledge.

In fact, forming a distribution or other strategic partnership was the most common measure taken among companies surveyed (cited by 44 per cent of survey takers) to successfully crack the ASEAN markets, including Indonesia.

Benefits of such partnerships may include market intelligence, technology exchanges, referrals to potential customers, talent and funding for projects. When businesses with the right values enter partnerships, everyone benefits.

4. What key advice or tips do aspiring Fintech entrepreneurs need to consider before setting up in Indonesia?

We believe in strategic partnerships - establishing the right local partners (whether with traditional local banks with local connections, vendors, universities and research institutions, or other innovators) are absolutely key to success not just in Indonesia but in every market. This has been at the heart of the inspiration behind our dedicated regional innovation hub based in Singapore, co.lab, where we bring our bank's expertise together with the rich fintech talent that is here in Asia, to help drive tomorrow's solutions.

I wish you the best of luck in your journey and look forward to seeing more fintechs thrive in this exciting market.

For more insights on Fintech opportunities in ASEAN, please view the full report, Fintech in ASEAN: Unlock the Opportunity. The writer is general manager, Asia Pacific, for Westpac.

If you are interested in finding out more about setting up a Fintech in other Asean countries, consider visiting:

- Setting up a Fintech in Singapore

- How to set up a Fintech in Malaysia