Going Global – doing business in Indonesia

The Republic of Indonesia spans over 17,000 islands in Southeast Asia. With 273.5 million people, Indonesia is the fourth-most populous country in the world and has a median age of 29.9.

Classified as a newly industrialized country, Indonesia is Southeast Asia’s largest economy and is the region’s only G20 country. Its GDP in 2020 was 1.058 trillion USD, and the World Bank projects growth at above 5% for every year from 2022 to 2024. The country has made enormous gains in poverty reduction, cutting the poverty rate by more than half since 1999, to just under 10 percent in 2020.

The usage and trends of digital technologies are immensely positive, with 202.6 million internet users (73.7%) and 170 million active social users. As of 2020, 67.15% of the population was using a smartphone, with projections of 82.45% by 2026.

With its large, youthful population, strong economic growth and rapid digitization, Indonesia will become the world’s 4th largest economy by 2050.

Indonesia quick stats

Sources: World Bank, Datareportal

Fintech in Indonesia

According to the Fintech Indonesia Report (2020), 322 fintech companies operate in Indonesia. In terms of the number of companies, the most significant sectors are:

• Payments, 50%
• Lending, 23%
• Blockchain/crypto, 8%
• Personal finance, 7%

The dominance of payments and lending reflects the low penetration of banking accounts and limited credit information. While the number of bank accounts is increasing, only 48% of Indonesians had a bank account in 2020.

Fortunately, the widespread adoption of mobile internet and government policies creates a favorable environment for fintech initiatives. According to the legal firm Ashurst, which operates in the country, “Indonesian authorities are strongly supportive in developing the fintech space, including supporting the once seemingly unlikely collaboration between a bank and a non-bank fintech company.”

The government created a digital banking framework in August 2021. Requirements for getting a digital bank license include:

• Innovative and safe technology to serve customer needs
• Ability to manage a prudent and sustainable digital banking business model
• Adequate risk management
• A board of directors with IT competence
• Protecting customer data security
• Contributing to the digital financial ecosystem or financial inclusion

Similar to existing financial institutions, these entities will report to the Financial Services Authority, commonly referred to as the OJK.

One specific fintech area that is experiencing rapid growth is cryptocurrencies. In 2021, the value of transactions in Indonesia totaled 859 trillion rupiah (~ $59.83 billion), which is a 1431% increase from 2020. There are already over seven million Indonesians who hold crypto.

Using crypto for payments is not allowed, but assets are tradable on the commodities exchange under the oversight of The Commodity Futures Trading Regulatory Agency. A Digital Futures Exchange is expected to launch in Q1 2022.

Indonesia AML and KYC considerations

Indonesia is a member of The Asia/Pacific Group on Money Laundering (APG), which follows the Financial Action Task Force (FATF) recommendations. The (most recent) report of 2018 indicates specific issues around terrorist financing and proliferation financing but was largely compliant or compliant on most of the FATF recommendations.

Bank Indonesia, Indonesia’s central bank, and the OJK are the Anti-Money Laundering (AML) regulators. The Indonesian Financial Transaction Reports and Analysis Centre  (PPATK) is the agency that receives and analyzes financial transaction reports. AML laws include Law no. 8 of 2010 and Presidential Regulation no. 6 of 2012.

Under Law no. 8, all financial service providers need to perform Know Your Customer (KYC) procedures and report suspicious activities to the PPATK. Electronic verification of customer identity is acceptable. The following KYC information requires collection:

For individual customers

• Identity document data: name, identity number, address, place and date of birth, gender and citizenship
• Current home address (if different from the identity document)
• Phone number
• Marriage status
• Occupation
• Office address and phone number (if any)
• Average annual income
• Source of funds
• Investment goal and purpose
• Identity of Beneficial Owner (if any)

For entities

• Name
• License number or business license number from an authorized agency
• Type of business/activity
• Address
• Phone number
• Place and date of establishment
• Identity of beneficial Owner (if any)
• Source of funds
• Investment purpose and goal
• Bank’s name and account number (if any)

More than 98% of Indonesian adults already have an e-KTP identity card, the Indonesian identity card with embedded electronic features. The e-KTP can provide biometric identity authentication when combined with a reader and in-person registration. Some fintech companies use a picture of the e-KTP along with a selfie as identity verification.

But remote real-time onboarding of a customer using e-KTP is not currently available. MicroSave Consulting, a boutique consulting firm that pushes for meaningful financial, social and economic inclusion, suggests

While efforts are underway to develop the next generation of infrastructure for micro-payments, it is equally important that the Government of Indonesia takes concerted measures to build a robust infrastructure for digital identity verification, which is key to the adoption of most digital services.

Government initiatives in digital identity are progressing. According to Director-General of Informatics Applications at the Ministry of Communication and Informatics (Kominfo), Semuel Abrijani Pangerapan,  “Kominfo will continue to prepare regulations related to the growth of Indonesia’s digital identity, build a trust-based digital ecosystem, and also strengthen domestic digital human resources.”

Opportunities in Indonesia

While the pandemic did pause the consistently high growth of GDP, Indonesia is again tracking for solid growth. Many of the elements for a prosperous digital economy are in place. For example, about 90% of internet users aged 16 to 64 have made online purchases, ranking among the highest eCommerce adoption rates.

While consumers are quickly adopting digital channels, the same can’t be said for micro, small and medium-sized businesses. For example, less than 10% of micro-businesses use any digital tool for managing their business. Considering that these enterprises account for 60% of GDP and 97% of employment, improvements in these areas can go far in helping the overall economy.

The opportunities in Indonesia are significant. Many enablers for a robust and scalable economy are in place or in development. Similarly, the entire Southeast Asia region is growing fast economically and in digital opportunities.

If you are considering expanding into Indonesia or the region, Trulioo can help. With Trulioo GlobalGateway, you can instantly verify identities and businesses in Indonesia and surrounding ASEAN countries, including Brunei, Cambodia, Timor-Leste, Laos, Malaysia, Myanmar (Burma), Philippines, Vietnam, Singapore and Thailand. Contact your account manager for details or, if you’re not an existing Trulioo customer, please get in touch with one of our Identity Specialists for a demo.