Indonesia’s fintech industry has seen incredible momentum in the past 19 months. Catalysed by quarantine restrictions introduced by the Covid Pandemic, we’ve seen rapid growth in all verticals of fintech, including payments, lending, and investments. On its current trajectory, digital payments is forecast to grow to US$351B, digital loan books to reach US$35B, and fintech investment AUM to achieve US$28B by 2025; according to research from Google, Bain, and Temasek. This has driven stronger investor interest ever into the sector, and 3 of Indonesia’s 4 Unicorns in the past 12 months are in the fintech space, including Xendit, Akulaku, and Ajaib.
However, the opportunity in fintech continues to be enormous as despite these advances, adoption numbers still constitute just a fraction of the total addressable market. Consider, for example; there are still a total of 47 million underbanked and 92 million unbanked adults.
As of 2021, P2P loan book accumulation only reached US$20.4 billion from 103 fintech companies officially listed by the Financial Services Authority (OJK). This only covered 26 million borrowers throughout the country. There are also 63 million MSMEs in the country, constituting over 60% of the country’s GDP, but estimates indicate that only 19% of these businesses have access to financial products resulting in an estimated US$80BN lending gap.
Finally, within the investments space, even as the number of retail investors in the past three years has increased by 362%, current estimates are a total of 7.5 million retail stock investors, which is only 4% of the total adult population.
Crypto investment, an alternative investment asset class to stock, also saw astronomical growth touching over 10M in the number of investors; yet again, this is less than 10% of the total adult population in Indonesia. Clearly, in all of these major categories, there is a lot of room to grow.
Various fintech sectors
Opportunities for investment in the above fintech sectors today are not simply investing in new entrants employing similar strategies. As the market evolves and consumers demand differentiated offerings, new products can be built and introduced through various strategies. For example, in payments, as social commerce takes off through chat, new interface layers that aggregate payment methods and introduce single checkout can become hugely popular, like Juspay of India.
Besides solving for the front-end customer-facing payment experience, there are also opportunities to create a business banking interface to help streamline manual payment processes such as invoice payment, similar to what Razorpay is building in India. Addressing MSMEs previously relied primarily on working with eCommerce marketplaces to receive transaction data or working with already banked SMEs to provide underwriting data. The rapid emergence of MSMEs adopting technology for processing payments, managing their businesses, and procuring supplies have enabled companies such as Bukuwarung, Majoo, and Ula to obtain data from which they can underwrite loans.
We’re seeing the rapid rise of crypto brokerages and exchanges in the investment space as the allure financial returns from trading this asset have grown phenomenally. A potentially even larger opportunity in the investment space involves building single interfaces for already banked consumers to glean personal finance insights and eventually Robo-investment strategies to help the mass affluent consumer to invest automatically in multiple investment assets. The other opportunity of this will be in combining social media and investments, whereby an investor can follow experts’ investment portfolios or even trading strategies.
Fintech opportunities are boundless as financial transactions stand between almost every exchange of product or service between businesses or consumers. Five of the top 10 largest companies by market capitalization on IDX are traditional banking companies, even when only an estimated 33% of the population are banked. We’re likely to see an upheaval of this order in the next five years as fintech ventures finally bring financial inclusion to the underbanked and unbanked. The coming of the age of fintech has arrived.
This story was originally published in Forbes Indonesia (March 2022).
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