What Does Indonesia’s Fintech Scene Look Like in 2023?

What Does Indonesia’s Fintech Scene Look Like in 2023?

by May 2, 2023

Indonesia’s fintech industry is expanding rapidly, driven by rising consumer adoption, demand for innovative digital financial products and a dynamic venture capital (VC) landscape.

Moving forward, the sector is poised for further growth, owing to compelling market demographics, low formal banking penetration and increased innovation in the finance landscape, a joint report by Indonesian early-stage venture capital (VC) firm AC Ventures and global consulting firm the Boston Consulting Group (BCG) says.

The report, titled Indonesia’s Fintech Industry is Ready to Rise, looks at the progress of fintech in the country, delving into the sector’s major verticals and emerging trends.

Among the key trends outlined, the report emphasizes the rise of embedded finance, noting that business-to-consumer (B2C) e-commerce, e-hailing and food delivery, business-to-business (B2B) commerce, and fintech software-as-a-service (SaaS) solution providers are actively embedding financial services across product flows.

By integrating lending, payments, wealth and insurance products into the customer journey, these companies strive to improve customer retention, reduce friction at the point of sale, and diversify beyond core business products and services towards higher margins and improved product monetization, the report says.

In addition to embedded finance, digital banking is another booming sector in Indonesia that has risen on the back of accelerating adoption rates. For example, SeaBank Indonesia, a digital bank subsidiary of Singapore-based tech conglomerate Sea Group, recorded a 158% year-on-year (YoY) increase in customer deposits in 2022 to IDR 21.6 trillion (US$1.5 billion) versus IDR 8.3 trillion (US$559.5 million) in 2021.

Bank Jago, a homegrown digital bank, saw its number of funding customers reach 2.3 million in March 2022, rising 71% YoY from 1.4 million in 2021.

And Bank Neo Commerce, a subsidiary of Indonesian fintech unicorn Akulaku, had 19.8 million users in the end of Q3 2022 versus 8.2 million at the end of Q3 2021, representing a 1.4-time YoY increase.

The Indonesian fintech sector

Indonesia has witnessed a six-fold increase in the number of fintech companies over the last decade, rising from just 51 companies in 2011 to 334 in 2022, the report says.

While lending, payments and wealth drove most of the growth in the first years, a new generation of fintech startups operating in the segments of wealthtech, fintech-focused SaaS and insurtech has started to emerge.

These verticals represent “a new, emerging driving force,” the report says, and show that the Indonesian fintech ecosystem is maturing beyond payments to include increasingly sophisticated products and services.

The rise of the Indonesian fintech sector these past couple of years has emerged on the back of increased adoption of digital financial services. According to the report, the Indonesian payment segment counts over 60 million active users, and that number is expected to grow at a rate of 26% annually between 2020 and 2025.

In the lending space, the number of peer-to-peer (P2P) borrower accounts reached 30 million in 2021, rising at a compound annual growth rate (CAGR) of 50% between 2018 and 2022. Total loan disbursement totaled US$17 billion in 2022, growing at an annual rate of 140% between 2018 and 2022.

In the wealth vertical, the total number of investors in the Indonesian capital market increased 37.5% YoY, reaching 10.3 million investors in December 2022 from 7.48 million investors at the end of December 2021, according to data from Kustodian Sentral Efek Indonesia (KSEI), a central securities depository in the Indonesian capital market, show.

Another fintech vertical that has witnessed staggering adoption is fintech SaaS. According to the report, these platforms are now used by six million small and medium-sized enterprises (SMEs) in Indonesia, representing a 26-fold increase over the previous three years.

Customer penetration for payments, lending, and wealth in Indonesia, Source: Indonesia’s Fintech Industry is Ready to Rise, AC Ventures/BCG Group, March 2023

Customer penetration for payments, lending, and wealth in Indonesia, Source: Indonesia’s Fintech Industry is Ready to Rise, AC Ventures/BCG Group, March 2023

Fintech funding activity

Fintech funding in Indonesia has increased significantly over the past years, driven by soaring adoption of digital financial services and compelling growth prospect.

Investment into fintech in Indonesia totaled US$3.2 billion between 2020 and 2022, a sum that represents 4.6 times the funding seen during the three preceding years, demonstrating strong investor confidence and commitment.

Equity funding into fintech reached a new record in 2021, totaling US$1.5 billion. The sum represents a 330% increase from 2020. Payments and lending attracted most of that sum though wealthtech players witnessed significant traction by securing more than US$500 million, the report notes. This trend is reflective of the growth of emerging fintech verticals including wealthtech, insurtech and fintech SaaS.

Number of Indonesian fintech companies by segment, Source: Indonesia’s Fintech Industry is Ready to Rise, AC Ventures/BCG Group, March 2023

Number of Indonesian fintech companies by segment, Source: Indonesia’s Fintech Industry is Ready to Rise, AC Ventures/BCG Group, March 2023

Following global trends, fintech funding in Indonesia dipped last year, falling to US$1.4 billion in 2022. The amount represents a slight decline of 6.7% from 2021.

Global fintech funding dropped by 46% in 2022 from 2021’s record levels, data from business analytics platform CB Insights show. The downturn came amid a challenging macroeconomic environment marked by rising inflation, a looming global recession and a contraction in VC funding.