Skyrocketing fintech industry must proceed with caution: PwC. The rapid development of financial technology (fintech) is vital to propel future economic growth, but it requires a prudent regulatory approach to avoid a boom and bust, according to PricewaterhouseCoopers (PwC) Indonesia.
A survey published by the professional services firm on Thursday indicates that fintech lending could bolster economic growth by extending credit access to individuals “underserved” by financial institutions. The study projects that peer-to-peer lending can add 19.4 trillion rupiah in loans to micro, small and medium enterprises (MSME) by 2020, while contributing 12.4 percent to individual credit access by the same year.
PwC Indonesia deals strategy and operation leader Sharly Rungkat said pushing the industry further was more crucial than ever, particularly after recent data from the International Monetary Fund projected Indonesia’s capacity to produce only 32 percent of the United States’ gross domestic product (GDP) per capita, even at its peak working age population in 2031.
Fintech companies have sprouted drastically this year, growing in number from 88 registered firms in December 2018 to 113 as of May 15.
“We need to have a tailored approach to target these credit invisibles, and it won’t be a one-size-fits-all solution,” Sharly said in a public seminar on Thursday.
She added that the low percentage of loan disbursement to GDP showed that there was still untapped potential for fintech to propel economic growth. Statistics from the IMF and Asian Development Bank showed that household debt in Indonesia had reached 17 percent of GDP in 2017, much lower than China’s 49 percent or Thailand’s 78 percent.
Statistics Indonesia (BPS) data from 2018 also show that at least 71 percent of middle-to-low-income households and 76 percent of MSME lack access to loans. This leaves an immense chance for fintech lending to provide the much-needed access to credit, Sharly argued.
But both PwC and the Indonesian Fintech Lenders Association (AFPI) warned that the fintech industry could experience a boom and bust if stakeholders refused to proceed with caution.
They noted that the Chinese government had only begun to implement strict regulations and stringent compliance procedures in 2017, after an increasingly large number of “delinquent” fintech firms emerged since the technology’s debut in 2013. The sudden intervention had caused the market to falter, they claimed.
In Indonesia, the Financial Services Authority (OJK) issued a regulation on fintech in September last year to provide a more comprehensive basis for transaction settlements, investment management and fund collection, among other aspects.
The AFPI, meanwhile, issued its code of conduct in March, capping the interest rate and penalty fees at 100 percent of the principal and prohibiting lenders from collecting debt prior to 90 days after the loan is due.
Despite the existing regulations, PwC Indonesia risk assurance leader Subianto argued that stakeholders needed to educate customers on risk considerations. In the survey, fraud and data privacy concerns were ranked among the top factors discouraging fintech usage, yet only a few respondents said they were fussed about a fintech firm’s OJK registration.
OJK’s fintech licensing and supervision director Hendrikus Passagi took a step further by calling on lawmakers to promptly ratify the law on private data protection, a problem he said had been haunting fintech consumers amid numerous data leaks in recent months.
He was also pushing lawmakers to formulate a law on trustee funds, which could help regulate unscrupulous fund collection by fraudulent third parties, including fintech.
Still, AFPI vice chairman Sunu Widyatmoko argued that the government was currently in a wait-and-see stance in regulating the emerging fintech landscape. Nevertheless, he said, decision-makers should leave room for the community to self-regulate through its association, so that government intervention would not kill creativity.
“What we want is to strike the right balance between stimulating our own innovation while having a set of corridors for everybody to follow, so that everyone is on a level playing field,” Sunu said. Skyrocketing fintech industry must proceed with caution: PwC (Made Anthony Iswara, The Jakarta Post)