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The Indonesian government is keen to support e-payments and other forms of fintech to boost the country's digital economy. (Photo by Akira Kodaka)
The Big Story

Indonesia offers a fresh battleground for fintech

From microloans to cryptocurrency, startups are competing for a huge market

ERWIDA MAULIA, Nikkei staff writer | Indonesia

JAKARTA -- Bank Indonesia's decision late last year to slap a ban on cryptocurrency payments has not deterred Coinhako, a Singapore-based startup that operates a trading platform and e-wallet services for bitcoin and other virtual currencies.

Coinhako launched its trading platform in Jakarta in August because Indonesia has so much "growth potential," Coinhako co-founder Yusho Liu told the Nikkei Asian Review in an interview. He noted that there are already about 1 million Indonesians who are trading in bitcoin, which remains legal in the country.

But for Liu, the real prize would be tapping the market for using cryptocurrencies to make payments among Indonesia's huge unbanked population. "I think [the unbanked] is where cryptocurrency can have impact," he said, without making a prediction about whether cryptocurrency payments will ever be made legal in the country.

Coinhako is just one of the many "fintech" startups flocking to Indonesia. The Indonesian Fintech Association said there are more than 200 fintech companies in the country, including the 31 e-payment providers that have secured licenses from Bank Indonesia and more than 60 peer-to-peer lending companies registered with the Financial Services Authority.

On the back of President Joko Widodo's digital economy ambitions, the top two fintech sectors -- e-payment and P2P lending -- have been enjoying exponential growth in the past few years. The value of e-money transactions grew sixfold between 2012 and 2017 to 12.3 trillion rupiah ($840 million). The amount of P2P loans disbursed doubled to 6.2 trillion rupiah between January and May this year alone.

The president has set a target of making Indonesia the largest digital economy in Southeast Asia by 2020. This entails an annual e-commerce transaction value of $130 billion and the creation of 1,000 tech startups with a value of $10 billion, among other things.

This has translated into government support for ride-hailing apps like Go-Jek and Grab despite continued resistance from conventional taxi operators, as well as assistance for fintech startups.

The freewheeling atmosphere has been intensified by well-heeled investors from outside Indonesia who are pouring money into the market, turning four of the country's startups into unicorns.

Since its launch of mobile wallet Go-Pay in April 2016, Go-Jek, Indonesia's first unicorn, has raised more than $2 billion through three funding rounds.

In August 2016, it raised $550 million from KKR, Warburg Pincus, Sequoia and other private equity funds. In February, it closed a $1.5 billion funding round from investors including Tencent Holdings,, Google, Temasek and local conglomerate Astra International. In April, German insurance company Allianz Group announced a $35 million investment in Go-Jek.

Chinese e-commerce giant Alibaba Group Holding led an investment of $1.1 billion in online marketplace Tokopedia, another local unicorn that has created its own e-payment service, TokoCash. In March, Alibaba launched mobile wallet Dana with local media company Elang Mahkota Teknologi.

Despite still seeing fintech companies as potential threats, Indonesia's major banks are also investing in local startups. Bank Mandiri has invested in P2P lending startups Amartha and KoinWorks through its venture capital arm Mandiri Capital Indonesia.

But not all is rainbows and sunshine. Worried about potential systemic risks to the economy, Bank Indonesia has enacted policies some see as restricting market access. In May, the central bank issued a regulation capping foreign ownership in e-money providers at 49%, which may explain its suspension of some e-wallets like TokoCash and GrabPay, a mobile wallet originally used by Singapore-based Grab, since they submitted license applications late last year.

The ban on cryptocurrency payments has also forced Jakarta-based blockchain startup Pundi X to postpone its domestic ambitions. The company -- whose mission is to become "the Walmart and 7-Eleven of cryptocurrency" and "make buying cryptocurrency as easy as buying bottled water" -- is expanding aggressively elsewhere. It recently announced the opening of a South America head office in Brazil and sales of its point-of-sales devices for cryptocurrency transactions in Colombia.

Despite lingering regulatory risks, Indonesia Fintech Association chairman Niki Luhur believes working together with regulators is the best solution.

"They care about consumer protection, systemic risk, shadow banking, terrorism financing ... all things that we care about as well," Luhur told Nikkei in May. "Sometimes the issue is communicating with the same vocabulary."

Nikkei staff writers Shotaro Tani in Jakarta and Wataru Suzuki in Tokyo contributed to this story.

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