Anri Amir David

FinTech Regulation: Is Indonesia following Singapore’s example?

FinTech is now a crucial component of the growing financial services sector. In the post-pandemic era, digital financial services are even more critical as the business community moves to meet growing demands.

Recently, experts have noted trends that show FinTech development activity is accelerating in Indonesia, which is marked by significant startup venture capital rounds, accelerated growth of local financial services startups, and increased participation of foreign companies in the domestic market. FinTech lending services reached 27.2 million people, or 10% of the population, in August of this year according to the Indonesian Ministry of Communication and Informatics. Additionally, the sector lent Rp14.95 trillion ($1.06 billion USD) last year. These statistics make Indonesia one of the most successful Asian countries in terms of attracting investment, after Malaysia, Singapore, Thailand, and Vietnam.

Accelerated development of the FinTech sector in Indonesia comes on the back of strong support from the government to encourage digitalization in the financial services industry and increased supervision of online financial activities. For instance, in August, new regulations were introduced to facilitate the establishment of digital banks, allowing near-full foreign ownership of local lenders and reducing red tape for new services.

However, government support has been coupled with strong action against abuses in the industry. In October 2021, President Joko Widodo (known as “Jokowi”) ordered a moratorium on license issuance for FinTech lending as the country seeks to eradicate the rampant illegal businesses that have trapped many people and small businesses with high-interest loans. His cabinet also reassured the population that the government will also work with the police to take firm action against current illegal online lending practices.

Moreover, Jokowi  has asked regulators to improve overall governance of the FinTech lending business domestically, which have extended 260 trillion rupiah ($18.5 billion USD) of loans to more than 68 million people. Currently there are 107 FinTech lending companies registered with the Financial Services Authority to date, while authorities have shut down more than 1,800 unlicensed lenders that exist online and as social media applications. A total of 4,875 illegal loan accounts have been blocked by the government since 2018.

The idea behind Jokowi’s approach is that tightened regulations are needed to limit risks for the fast-growing sector, which will, in its turn, generate additional growth. One could argue that this new Indonesian regulatory model derives from the Singaporean experience. As an expert in financial technology and Cyber Security, I personally am a strong believer in the value of effective government regulation in this space.

Singapore is chosen as a base for over 40% of all FinTech businesses in Southeast Asia, with more than 750 companies registered and operating. This is primarily due to the implementation of the Payment Services Act of 2019 (“PS Act”). The PS Act is a statute of the Parliament of Singapore that provides a framework for the regulation of payment systems and payment service providers in Singapore. According to the Monetary Authority of Singapore (MAS), the PS Act provides for regulatory certainty and consumer safeguards, while encouraging innovation and growth of payment services and financial technologies.

The PS Act regulates seven activities: (1) account issuance services, (2) domestic money transfer services, (3) cross-border money transfer services, (4) merchant acquisition, (5) electronic money issuance, (6) digital payment token services and (7) money-changing services. In summation, it is a FinTech-friendly supervisory regime that enables new players to enter the digital finance market while holding them accountable, minimizing risks and ensuring best, prudent market practices.

As a result, the country has become an attractive investment landscape: clients’ trust in the system and rotate towards Singapore-based companies. If Indonesia follows a similar path, it is likely that it will reap similar rewards.

On the other hand, if we investigate our domestic market here in Israel, things might be moving in a different direction. There are currently 600 FinTech companies operating in Israel and, according to the Israel Innovation Authority, the main challenges facing them stems from the fact that they operate within a complex, heavily regulated environment – contradicting the tendency we observed in the two Asian countries.

It is a known fact that these regulations are aimed at ensuring the stability of financial bodies from market failures and risks that are unique to the financial world, for the benefit of the general public. However, the business sector in Israel argues that these regulations pose an obstacle to the launching & developing new companies in the sphere, and to ability of FinTech companies to offer products and services competitively. Fortunately, Israel’s FinTech ecosystem has been readying for potentially “dramatic” banking reforms, as part of the Economic Arrangements Bill (which passed its first reading in September 2021). These reforms propose reducing the regulation of non-banking entities within the financial system and promoting innovation and effective competition, while boosting consumer protection.

Given the recent success of boosting regulations – done in a smart way – in Singapore and Indonesia, could Israel be taking a step backwards? Could this reduce the trust in the Israeli financial market? Those are questions that will need to be answered in the upcoming months – we shall see how the Israeli FinTech landscape will yet respond to this set of reforms.

About the Author
Anri Amir David is a well-known international expert in FinTech, Cyber Security, A.I. and innovation. Anri is the founder & CEO of Black Wall Global, and Anri was a strategic partner at Mellanox Technologies & worked closely on cyber products of Rafael Advanced Defense Systems while also being a board member of The International Police & Security Consultants (IPSC). In addition, Anri Amir David is a fellow of the Russian Academy of Technological Sciences.
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