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action or later. Please see Debugging in WordPress for more information. (This message was added in version 6.7.0.) in /var/www/html/wp-includes/functions.php on line 6114This blog discusses the impact of COVID-19 on FinTechs in Indonesia. It also highlights the coping strategies of start-up FinTechs and provides recommendations for the stakeholders, government, and policymakers to help them survive and catalyze their growth.
Indonesia is a silent giant in the startup ecosystem. As per the Startup Ranking site, with over 2,200 startups nationwide, Indonesia ranks among the top five countries in terms of the number of startups.
It is also the second-largest recipient of investments in Southeast Asia, which is an intensely competitive region.
Fintech is the biggest segment within Indonesia’s startup ecosystem. Fintechs in Indonesia have been hailed as the agents of change that can close the financial inclusion gap in the country and help conquer the digital divide. According to the World Bank’s Global Financial Inclusion index database, the country has made impressive strides toward financial inclusion. In 2018, approximately 50% of Indonesian adults owned bank accounts, up from 20% just four years earlier. At the same time, the country has made rapid strides to boost its digital economy, which is predicted to reach US $133 billion by 2025.
Super platform fintechs such as Gojek, Tokopedia and other large person-to-person lenders can take most of the credit for this success. They have promoted inclusion for underserved communities, such as small merchants and ride-hailing drivers. Together, these superplatforms and fintech startups have channeled loans worth approximately US $7 billion to date – with shorter turnaround times and lower overhead costs than banks.
However, with the onset of the COVID-19 pandemic, all the progress made by Indonesian startups is at risk of dissipating.
The impact of COVID-19 on fintechs in Indonesia
Our study on the impact of the pandemic on fintech in Indonesia revealed some alarming trends:
These trends are in sharp contrast to the experience of established fintechs – i.e.: those that have advanced beyond series-A funding. Here are some prominent examples:
The coping strategies of startup fintechs
Most startup fintechs we interviewed had to implement coping mechanisms to survive and extend their runways. For instance:
Tweaking or pivoting business models is another survival strategy. For example:
Recommendations for fintech stakeholders
An old saying says that “Necessity is the mother of invention.” But in today’s world, necessity has become the mother of disruption – and stakeholders must support young businesses in that process. Ignoring startup fintechs in Indonesia would undermine their potential to solve existing problems through scalable solutions. This would be a big mistake, given that startups are poised to change the business landscape in the country. We recommend the following measures for fintech in the startup ecosystem, which can fast-track Indonesia’s economic recovery from the pandemic:
Recommendations for government and policymakers
The government can and should be the main catalyst for the survival and growth of fintech startups. But to date, the government of Indonesia has no specific regulations or measures to support fintechs, big or small. Instead, it is offering a general package of assistance for small and medium-sized enterprises, and fintechs are expected to accommodate themselves to it. This package does not really address the needs of tech-enabled startups.
A tailored and sustained push from the government for fintech startups could include:
Even though the current situation facing Indonesia’s startup ecosystem looks bleak, pushing the potential of fintech as a complement to traditional banking is our best hope for recovering its momentum. Fintechs are more agile and adaptive than traditional banks which still rely on legacy technology of its core systems. Hence, FinTechs will adopt automation and digitalization of banking processes in a much more agile manner and provide relevant use cases for banks to leverage this strength. Dedicated support from the government and more enabling regulations for these businesses can give a boost to the economy, and retain Indonesia’s position as a top destination for startups in the ASEAN region.
The blog was also published on Next Billion on 27th August 2020
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