INNOVATION & FINTECH DEVELOPMENT IN RETAIL PAYMENT SYSTEM IN INDONESIA 1
OUTLINE 1 2 FINANCIAL INCLUSION FINTECH DEVELOPMENT Rp 3 CREATING INNOVATION 4 5 FINTECH RISKS MAPPING KEY TAKE AWAY 2
OUTLINE 1 2 FINANCIAL INCLUSION FINTECH DEVELOPMENT Rp 3 CREATING INNOVATION 4 5 FINTECH RISKS MAPPING KEY TAKE AWAY 3
THE ROLE OF BANK INDONESIA BI Objectives on maintaining payment system efficient, safe, and reliability, and eficiency unseparated from other BI Objectives at Monetary and Financial System side Price Stability and Financial System Stability Impacting Economic growth Monetary Stability Payment System Stability and Cash Managament Financial System Stability Monetary Policy Effective Transmission Increasing in Velocity of Money (V=PT/m) Low Cost of Fund Transaction Volume Money Supply The growth of Payment System Instrument Payment System Efficiency Faster money circulation Lower cost transaction Longer instrument duration Intermediation and Financial System Stability Increasing in Volume Transaction Low cost
FINANCIAL INCLUSION Only 36% of Indonesians adult have accounts in formal financial institutions, thus technology will play important role to reach the Unbanked people... innovation and Obstacles i.e. (1) the high cost of opening bank branches; (2) takes time and cost for the community to go to the nearest bank branch INDONESIA NOW! 99,4% Retail Transaction Using Cash (McKinsey 2013) The Level of Inequality is High Non-cash transaction infrastructure is not evenly distributed. Limitation of financial access points. Underbanked Low equlibrium banked Middle equlibrium banked Overbanked 1 Overbanked 2 (Jawa, Bali) Overbanked 3 (DKI Jakarta) Source: Bank Indonesia, 2013 5
OUTLINE 1 2 FINANCIAL INCLUSION FINTECH DEVELOPMENT Rp 3 CREATING INNOVATION 4 5 FINTECH RISKS MAPPING KEY TAKE AWAY 6
FINANCIAL TECHNOLOGY Financial Technology (FinTech) is a fusion between Financial and Technology Services which can also support reaching the unbanked people Change of Business Model BENEFITS TO CONSUMERS More choices of products Better quality of services Lower prices TECHNOLOGY FINANCIAL SERVICES Less Barrier to Entry FINTECH BENEFITS TO FINANCIAL SYSTEM Decentralisation and diversification can dampen the effects of financial shocks. Efficiency in operations. Improving transparency (less asymmetric information). Supporting financial inclusion BENEFITS TO THE ECONOMY Supporting monetary policy transmission Increasing money velocity Supporting economy growth 7
FINTECH NOWADAYS While FinTech Transaction in Indonesia 2017 +18,6 billion, 99% of it is in digital payments area accordance to the number of FinTech players which majority in Payment, Clearing, and Settlement area 42% (77 players) Payment Systems, Clearing & Settlements 33% (61 players) Deposit, Lending, and Capital Raising 11% (20 players) Market Support Source: Indonesia FinTech Association Data August 2017 (modified) Source: Indonesia FinTech Association Data August 2017 (modified) 14% (26 players) Investment and Risk Management 1,025.5 bn USA 2,412.68 190 bn 31.6 bn Estimated transaction value (statista, 2017) Transaction per capita (worldbank, 2014) Investment Value (LondonFinTechWeek, 2015) Source: Statista (2017) 2,610.01 UK 5.4 bn 1,086.5 bn Singapore China 323.2 3.5 bn 14.0 bn 1,739.92 Hong Kong 18.6 bn 56.98 13.5 bn 1,937.94 0.16 bn Indonesia India 44.1 bn 25.48 2.2 bn 26.7 bn 1,107.79 Australia 0.15 bn N.A 0.30 bn 8
OUTLINE 1 2 FINANCIAL INCLUSION FINTECH DEVELOPMENT Rp 3 CREATING INNOVATION 4 5 FINTECH RISKS MAPPING KEY TAKE AWAY 9
FINTECH ECOSYSTEM Condusive FinTech Ecosystem is needed in order to stimulate innovations... Educate people about digital economy literacy, producing talented workforce and FinTech Community Improve efficiency of existing financial services business models START-UPS ACADEMICIANS, RESEARCH INSTITUTION FinTech Ecosystem Provide supportive regulations to help FinTech grow and to protect consumer. BI, GOVERNMENTS & AUTHORITIES Provide capital and looking at FinTech as viable instrument INVESTORS Source: KPMG (2016) Users of new services or experience from corporates to retail customers provided by FinTech Supporting from technology (Hardware/Software) TECH VENDORS Engage or compete with FinTech players Provide tools for big business to engage and assist young companies INCUBATORS, ACCELERATORS & INNOVATION LABS 10
CONCERN OF BI POLICY RESPONSE Bank Indonesia responded to FinTech challenges by encouraging innovation while maintaining stability... INNOVATION STABILITY Required: Controlled environment for innovative products 1. Promote innovation in the financial sector 2. Boost economic growth utilizing digital technology Balancing Innovation & Stability 1. Maintain monetary stability 2. Maintain financial system stability 3. Maintain a secure, smooth and efficient payment system 4. Mitigate risks and encourage consumer protection Required: Tools to observe developments in FinTech FinTech REGULATION
DIGITAL REVOLUTION Technology Innovations bring impacts to many industries, such as media, film, music, telecommunications, commerce, transportation, etc
INNOVATION : REGULATION Balancing the fast growth of innovation that boost the financial technology, regulatory sandbox play significant role on how innovation can be balanced with customer protection... Regulatory Sandbox Basic Scheme ❶ Disruptive Innovation? ❷ Licensing and Implementation Requirements ❸ Regulatory Sandbox ❹ A 'safe space' where businesses can test innovative products, services, business models and delivery mechanisms. A means for regulator to facilitate the development of innovation and communicate regulator s policy. Authorization 13
INNOVATION : Interconnection dan interoperability National Payment Gateway (NPG) brings interconnection and interoperability as a solution to infrastructure inefficiency, high cost transaction, and domestic transaction which is processed overseas... Before NPG After NPG Transaction process Basic Principle of NPG Domestic transaction process Not connected Interconnected Operator Held by NPG Institutions (Standard, Switching, Services bodies) Business Arrangement Price scheme which settle by Interconected among provider Card can only be processed by similiar payment channel Payment channel that can processed from multi card issuer Branding Local Branding as National Identity 14
INNOVATION : REACHING THE UNBANKED PEOPLE Electronic government subsidy has opened up access to financial services for government subsidy recipient through innovation of combo card and the presence of Agent Banking... Electronic Government Social Aid Leveraging the use of Agent Banking Ewarong Agent Rumah Pangan Kita Basic Saving Account social aid amount FINANCIAL INSTITUTION Combo Card RETAIL TRANSACTION G to P Receipient ID & social aid amount 1 Basic Saving Account for saving & Conditional Cash Programme e-wallet for each G to P Programme (i.e Non Cash Food Aid, Energy Subsidy (next)) ewallet TRANSPORTATION 15
INNOVATION : CREATING THE MARKETPLACE Fintech also supports the fast growing e-commerce in Indonesia, giving SME a broader market place... E-Commerce Ecosystems & Parties + 2 Million SMEs Both Tokopedia & Bukalapak have + 2 millions SMEs selling their product through the marketplace + Thousand Individuals 300 (drivers) 100 Thousand SMEs (restaurants) Source: William Tanuwijaya (CEO Tokopedia), Muhammad Fajrin (CFO Bukalapak), & GoJek Aug 2017 *) illustration 16 16
OUTLINE 1 2 FINANCIAL INCLUSION FINTECH DEVELOPMENT Rp 3 CREATING INNOVATION 4 5 FINTECH RISKS MAPPING KEY TAKE AWAY 17
FINTECH RISKS The rapid development of FinTech can create risks in both micro and macro dimensions... FinTech RISK MAPPING MACRO RISKS MICRO RISKS Contagion Risk Procyclicality Excess Volatility Too Big Too Fail Financial Risks Maturity Mismatch Liquidity Mismatch Leverage Business Risk Operational Risks Governance/ Process Management Cyber Attack Third Party Reliance Legal/Regulatory Risk Source: FSB, modified 18
OUTLINE 1 2 FINANCIAL INCLUSION FINTECH DEVELOPMENT Rp 3 CREATING INNOVATION 4 5 FINTECH RISKS MAPPING KEY TAKE AWAY 19
CONCLUSION We live in a time of extraordinary technological change We should be open to the new ideas and innovations Authorities will insist on safety and security, while also working to assure that our citizens benefit from payments system innovation (Jerome H. Powell, Board of Governors of the Federal Reserve System) Bank Indonesia will continue to : Maintain proportional balance between the role of formal and informal financial sector, Risk mitigation through proportional regulation which leaves rooms for innovation in financial services while balancing with customer protection. Strengthen coordination amongs regulatoy bodies in the domestic and international level. Closely monitor the techfin development and its dynamic 20
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