Banks, fintechs can tie up for loan, e-wallet growth in Indonesia: Report

INDONESIAN banks and financial technology (fintech) players are on roughly equal footing in their digital financial product offerings, although incumbents and disruptors serve different markets.

That's as fintechs have gained market share by converting consumers from cash transactions, rather than cannibalising bank clientele, according to an industry survey.

Morgan Stanley analysts found in a recent report that app providers and banks "are not playing a zero-sum game", despite the higher growth momentum in fintech e-wallet use, as startups are more likely to bring the unbanked population on board their products.

The analysts also noted that banks still hold the upper hand in the e-wallet market, as regulators have capped the float balance size for fintechs' products, unlike traditional bank deposits.

Banks can also pay interest on deposits - which fintechs are not allowed to do for e-wallet balances - and enjoy the perception of having higher security than fintechs.

While startups such as GoJek and Traveloka have rolled out "Pay Later" digital lending products, Morgan Stanley noted that fintechs are referring customers to partner banks or affiliated lender entities, since they would need licences to offer loans on their own.

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To benefit from the growing digital ecosystem, banks could extend loans to e-commerce merchants, as well as earn fee income from e-wallet top-ups, the report suggested.

"The digital economy is one of the prime drivers of Indonesia's next phase of structural transformation for sustainable growth," the analysts added.

Morgan Stanley polled more than 1,500 online users from eight major cities in Indonesia in September, including Greater Jakarta, Surabaya, Bandung, Medan and Palembang.