Indonesia’s fintech sector has grown at a fast pace these past couple of years, driven by a dynamic startup ecosystem, supportive governmental initiatives to encourage innovation and help improve financial inclusion, as well as rapid adoption of digital financial services by both consumers and businesses.
Evidence of the sector’s rise is seen in the surging number of people participating in the formal financial system, and the significant growth fintech companies have experienced over the past years.
According to Inarno Djajadi, Indonesia Stock Exchange’s president director, a total of 6.4 million individual identity investors participated in the stock market as of September 2021, a figure which represents a staggering 156% increase from the end of 2019 during which that number stood at 2.5 million, data from Indonesia’s Financial Services Authority (OJK) show.
Cryptocurrency markets have seen a similar growth with the total number of crypto investors doubling in the past year to more than 12 million people, according to data from the Commodity Futures Trading Regulatory Agency (Bappepti).
Local wealth management mobile app Pluang has experienced the rise first-hand, witnessing a 22 times growth in monthly transacting users between January 2020 and November 2021. The startup claimed over four million registered users, in January 2022.
Digital payments are another segment that’s risen considerably, a trend that’s reflected in the surge in cashless transactions. In 2021, the value of transactions using electronic money and QRIS, Indonesia’s QR code payment standard, grew 49% and 237% year-on-year, respectively, data from Bank of Indonesia (BI) show.
Micro, small and medium-sized enterprises (MSMEs) have responded promptly to these market shifts, with a BI survey conducted in 2021 revealing that 20% of Indonesian MSMEs have effectively mitigated the impact of the pandemic by embracing business digitalization and online tools.
Government-led initiatives like QRIS and BI-FAST, the newly launched national real-time digital payments system, have contributed to Indonesia’s shift to cashless transactions, a transition that has benefited fintech startups and digital finance players.
Ovo, Indonesia’s top digital wallet that served a reported 20.8 million monthly actively users, said it saw a 267% increase in new users after the onset of COVID-19. During 2020, the number of MSMEs on the OVO platform grew by a staggering 95%.
Similarly, rival Dana said its number of digital wallet users rose 40% from 50 million in December 2020 to 70 million in the first half of 2021, while daily transaction volumes grew from 3 million to 5 million.
Buy now, pay later (BNPL) arrangements have also seen booming adoption. Akulaku, a local startup which operates a BNPL and consumer financing platform, reached unicorn status this year after closing a US$100 million Series E funding round in February. The startup says it disbursed over US$2.2 billion of credit in 2021 to over 10 million users.
Competitor Kredivo, a platform operated by Singapore-headquartered fintech company FinAccel, said in June 2021 that its total user base had doubled in the previous ten months, with annualized revenue doubling in the last seven months. Serving some 4 million approved customer in Indonesia, Kredivo claims it is the country’s largest BNPL platform.
The state of fintech in Indonesia
Indonesia, Southeast Asia’s largest economy, is poised to become one of the region’s biggest fintech hubs. As of July 21, 2022, Indonesia’s fintech startups had a combined enterprise valuation of US$14.8 billion, data from Dealroom show, up 26.5% from 2021 (US$11.7 billion).
Homegrown fintech unicorns Ovo, Akulaku, Xendit and Ajaib accounted for half (US$7.4 billion) of that value, while soonicorns valued in the US$200 million-US$1 billion range like LinkAja (valued between US$400-600 million), Bibit Tumbut Bersama (~US$320-480 million) and BukuKas (~US$320-480 million) accounted for 34.5% (US$5.1 billion).
Despite a slowdown in fintech funding globally, Indonesia’s fintech companies have maintained their appeal to investors as evidenced by the slew of big-ticket deals observed so far this year.
Pluang closed a US$55 million funding round in January to fuel its expansion plan across Southeast Asia and extend its product range amid rapid growth recorded in 2020 and 2021.
Consumer payment platform Flip announced a second close of its Series B in June, bringing the total amount raised in that round to more than US$100 million. The startup said it plans to ramp up its workforce with a focus on engineering and product teams. Flip, which claims to be serving more than 10 million users and processing over US$12 billion in transactions annually, had already increased its team by 30% in H1 2022.
The year also saw more established fintech companies snapping up smaller players to deepen their foothold and expand overseas.
Payment platform Doku bought Malaysian online payment gateway senangPay for US$7.5 million earlier this month, marking the beginning of the company’s expansion overseas.
Kredivo’s parent company FinAccel acquired a majority stake in local Indonesian bank PT Bank Bisnis Internasional, Tbk. (Bank Bisnis) as part of a plan to expand into the broader digital banking space and offer larger-ticket loans.
And Razer Fintech, the fintech arm of gaming company Razer, said in June that had bought PT E2Pay Global Utama (E2Pay), one of the leading digital payment facilitators and e-money players in Indonesia, as it strives to expand its footprint in Southeast Asia’s most populous country.
Featured image credit: Edited from Unsplash