- Proposes regulation should put consumer interest first
- Expects fintech to stand as new industry
THE fintech (financial technology) revolution has had a mixed reception in Indonesia over the past two years: Some say it is inevitable and unstoppable, others say its disruption of a key economic sector goes beyond just the business ramifications.
Sooner or later, there will be calls for fintech to be regulated in much the same way the greater financial services sector – a key component of any country’s economy – is regulated.
Whatever the view, the reality is that fintech startups are flourishing in Indonesia, attracting even more such players to the game.
But for now, the country’s Financial Service Authority (OJK) has no clear definition of fintech, and no idea where to position it in its existing regulatory framework – that is, whether fintech should be classified as banking or non-banking financial services.
“As long as this remains unclear, regulations for fintech will also suffer the same fate,” says Charya Rabindra Lukman, legal counsel for fintech startup UangTeman, which operates a direct lending platform.
But regulation is important because it will help the industry grow.
“Being regulated means we are recognised by the Government, and we can use that recognition to market ourselves and expand our service to more people in the country,” says UangTeman chief executive officer Aidil Zulkifli.
“It will also protect the industry from fraud as we would have legal guidance on how to do business and protect our customers,” he adds, speaking Digital News Asia (DNA) in Jakarta recently.
As one of the first fintech startups, UangTeman decided not to wait around and initiated regulatory discussions with OJK, even submitting a paper policy to the authority.
The 70-page document, dated June 2016, is a proposed regulatory framework which takes into account similar legislation in countries like Australia, China, the United Kingdom and the United States.
The company is hoping that fintech will eventually be recognised as a standalone industry, and that some general regulations would be implemented by the end of this year, or early next year.
For its part, OJK has been holding discussions with fintech startups on the state of the industry and to determine what kind of regulatory framework would be best to ensure the business practice is secure, yet not hamper industry growth.
Wait, why be regulated?
So here’s the question: Why is UangTeman bothering with its own paper policy and asking itself to be regulated?
“Being in an industry where most of the players are regulated, we need to embrace regulation as well – we need to show our willingness to comply and protect consumers,” Aidil (pic above) tells DNA.
When DNA talked to UangTeman investor Alpha JWC Ventures in April, one of its senior executives pointed out that regulation is an inherent part of the financial sector.
“By choosing to have a business in the financial sector, startups need to be proactive and even work together with the government,” Alpha JWC cofounder and managing partner Will Ongkowidjaja said then.
“From Day One, we advise our portfolio companies, including UangTeman, to approach regulators and explain their business to them. Trust me, that effort would be appreciated,” he added.
Meanwhile, UangTeman’s Aidil says that paying attention to regulations and compliance is the one thing his investors expect of him, as he has a legal background and was a practicing lawyer for a few years.
The fact that fintech startups are disrupting a traditional industry also brings to mind the simmering tensions within Indonesia’s public transport sector, where taxi companies and drivers have even held violent protests against ride-hailing startups.
Being proactive also gives UangTeman the advantage of setting the standard for the direct online lending industry, as there are still only a few players in the market, and regulators have little understanding of the industry.
“One thing you must remember, that no matter how great it is, innovation must fall within regulatory parameters, and when you know exactly what the regulations are, you will know how to sail the ship,” says Aidil.
When asked about its view of UangTeman and other direct online lending platforms, OJK’s Hendrikus Passagi – senior research executive at its strategic policy development department – notes that this is only a case of a private lender using technology and a digital platform.
“Private lending is regulated by civil law and it is legal in the country, not to mention that there is a need for such lenders to operate, given that borrowing money from banks can take a long time,” he says.
“The act is legal – now what needs to be watched closely is the debt collection practice, and how the platform can expand to cities outside Java,” he adds.
UangTeman recently expanded its operations to West Java, opening a contact centre office in Bandung to support the business there.
Meanwhile, UangTeman has granted DNA an exclusive look at its policy paper, and the following is a summary of some of the proposed regulations, with a focus on direct online lending platforms.
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