The startup scene, including fintech, has been hit hard in the current macroeconomy. However, our visit to the Indonesian Fintech Summit on 11 – 12 November 2022 revealed a sense of optimism despite the uncertainties in the tech space. Founders, investors, and regulators were all equally positive on what’s next.
Capital is still pouring in for fintech, however with different expectations from investors. Fintech normally playing the hypergrowth game will now need to change ways to achieve profitability. Founders need to “pivot” to creating higher product margins and diversifying product offerings. Volatile company movements, previously encouraged to achieve growth, must now be mitigated through stronger risk management and internal governance.
Regulators are also closely monitoring the changing fintech landscape. Always armed with a double edged open to innovation attitude and proactive crisis prevention, I’ve observed several regulatory trends for fintech players to anticipate.
1. Fintech increasingly required to support conventional financial companies
OJK has openly endorsed fintech companies to acquire banks or multifinance companies. Fintech, operating with a conventional financial license, will have more regulatory flexibility to expand the business. Initiatives to raise capital, disburse funds and launch products will be easier.
This “best of both world” approach aims to continue opening financial access to unbankable customers supported by strong fundamentals. The flipside: fintech will need significant investment and resources. A tough feat in the midst of “tech winter”.
2. Fintech licensing for new clusters tightened
The P2P licensing moratorium is now also affecting other fintech business models, especially those offering fund disbursements. OJK is taking a more risk-averse stance after reports of payment delays to P2P investors. In turn, other fintech offering innovations arguably outside of the “loan/financing” bucket but with similar financial exposure are also facing licensing challenges.
Fintech trying to enter the regulatory sandbox process, particularly those creating a new business model outside of the 15 existing clusters, have experienced delays. This prudent and precautionary principle aimed to protect consumers and safeguard financial stability will also slow down new product innovation for the fast paced fintech sector.
3. New “financial sector technology innovation” category may shift regulatory approach
The draft Financial Sector Omnibus Law, a sweeping set of regulations to reform the finance sector, includes a specific item on financial sector technology innovation (ITSK/Inovasi Teknologi Sektor Keuangan) to regulate fintech. Regulators will play a deeper role in supervising the fintech sector.
The latest draft shows OJK will appoint a dedicated Commissioner overseeing fintech and expand its authority for all fintech business models. While this may benefit the industry through a centralized licensing process to increase certainty and reduce approval time, it can also result in creating a heavier regulatory regime.
4. Crypto is here to stay…. with stricter supervision
Cryptocurrency exchange FTX collapse has caused growing anxiety for industry players and regulators. With a larger investor base than the stock market, there are increasing calls for crypto to be regulated.
Currently under the Trade Ministry supervision, the upcoming Financial Sector Omnibus Law may place cryptocurrency regulation under OJK and/BI. If passed, this will hugely impact the status of crypto from a “digital commodity” into a “financial sector technology innovation”.
We observed that regulators will take a middle ground approach here. Pushing the rigid compliance lens for fintech models under public scrutiny, emphasizing the risk factor for new fintech innovations and encouraging growth for fintech in small segments with limited financial exposure.
