The Dark Side of Fintech Industry in Indonesia
Mon, 31 Dec 2018 || By Ahmad Najmi Ramadhani

The digital revolution has arrived in Indonesia. With its 261 million population, 143 million of them already penetrated with internet by May 2018[1]. There are 67 million mobile internet users in 2015, increased by 12 million from 2014[2]. This growing numbers of users are backed upon the affordable price of internet access in Indonesia compared to neighbouring countries as shown in (exhibit 1). This condition is an opportunity for entrepreneurs to develop an enterprise that could flourish in the age of digitalization. One industry that emerged from this condition is financial technology industry or fintech in short. There is a wide range of services that fintech offers such as lending, payment, cryptocurrency, to crowdfunding. Still, lending and payment are the most adopted services compared to others as shown in exhibit 2. The most adopted business model in the lending services is peer-to-peer lending. As for September 2018, the number of lending in P2P lending had reached 13.83 trillion rupiahs with 2.3 million user account registered in the system (exhibit 3). The number is growing 360% from 3 trillion rupiahs in January 2018 (exhibit 4).

dark side of fintech

Exhibit 2 Percentage distribution of the Indonesian fintech ecosystem. Source: Indonesian Fintech Association.

dark side of fintech

Exhibit 3 Total number of fintech borrower account. Source:

dark side of fintech

Exhibit 4 Total number of money borrowed. Source:

Despite its sound penetration, fintech industry in Indonesia has a dark side. According to the report of Lembaga Bantuan Hukum (LBH) Jakarta, there are 1,330 victims of fintech practices by October 2018[3]. The user can be a victim when they cannot afford to pay back the loan and its interest within the deadline of the payment. Some fintech company uses an unethical method of debt collecting by misusing the personal data (mostly contact data) of a user to persecution on a user and its family[4]. This kind of practices infringes Otoritas Jasa Keuangan (OJK) Regulation Number 1 of 2013 concerning Protection of Financial Services Consumer Data and Ministerial Regulation Communication and Information Number 20 of 2016 concerning the protection of personal data in electronic systems.

Historically, the financial service industry is the most regulated industry in every business spectrum. By theory, the less regulated industry makes people easily build enterprises in that industry. This precondition always makes financial service hard to enter because the barrier to entry is very high. However, with the emerging of information technology, financial service industry got disrupted too. At the beginning of the emergence, the regulation is not so rigid. The argument backed by the fact that from 89 reports that LBH Jakarta received, 25 of the application officially registered at OJK fintech database[5]. According to OJK Regulation Number 77 of 2016 concerning Information Technology Based Lending and Borrowing Services, OJK watch over fintech company that already listed and holds a license to operate. By December 7th, 2018, there is 75 listed fintech company on OJK database[6].

dark side of fintech

Exhibit 5 ASEAN Fintech company perception on regulation. Source: EY.

To this point, we can analyze the ecosystem by dividing from the viewpoint of fintech company and support ecosystem (investors, regulators, and association) and the viewpoint of the consumer. From the viewpoint of fintech company, there is a dilemma. The higher degree of rigidity on the regulation can make the transaction safer to a consumer. However, it will be hard for the newcomer to get the license and the industry will not be significantly improving. On the other side, with a low level of rigidity in regulation, a consumer will be at risk in every transaction although it will be very easy for an enterprise to get the license to operate. Knowing this condition, regulators (Bank Indonesia, OJK, and government) and fintech company should find the equilibrium point from the dilemma.

From the viewpoint of the consumer, there is some consumer behaviour that is harmful to the consumer itself. Two of them are the habit to make a loan for consumptive needs and low level of understanding on financial and technological literacy. The first issue is common in the low education and low-income segment of people. Some people have more than one lending application. Even there are some people installed 13 application[7]. The habit goes like this when the deadline of payment is approaching, one installed another application and make a loan on them, after the deadline of payment is approaching again, one installed another application, it will make a never-ending loop of borrowing without real intention to finish the debt. In this point, education and consumer protection are imperative for each stakeholder.

Editor: Anisa Pratita Mantovani

Read another article written by Ahmad Najmi Ramadhani

[1] Singapore, F. (2018). Fintech Indonesia Report 2018 - The State of Play for Fintech Indonesia. [online] Fintech Singapore. Available at: [Accessed 24 Dec. 2018].

[2] McKinsey Global Institute. (2016). Digital Finance For All: Powering Inclusive Growth in Emerging Economies. McKinsey Global Institute.

[3] Indonesia, C. (2018). LBH Pidanakan OJK Jika Tak Selesaikan Masalah Pinjaman Online. [online] CNN Indonesia. Available at: [Accessed 24 Dec. 2018].

[4] Syafina, D. (2018). Kasus RupiahPlus, Saat Urusan Utang Meneror Data Pribadi - Tirto.ID. [online] Available at: [Accessed 24 Dec. 2018].

[5] Indonesia, C. (2018). LBH Pidanakan OJK Jika Tak Selesaikan Masalah Pinjaman Online. [online] CNN Indonesia. Available at: [Accessed 24 Dec. 2018].

[6] Ibid.

[7] Cahyani, D. (2018). Korban Pinjaman Online: Diancam Dibunuh hingga Menari Telanjang. [online] Tempo. Available at: [Accessed 24 Dec. 2018].