How Fintech Affects
BUSINESS AND THE ECONOMY IN INDONESIA

There are varied ways to perceive the term "financial technology." Financial technology, oftentimes called Fintech, according to Rhodes-Kropf in Mayor (2021), refers to any company using technology to support financial service of any type, which can include regulatory tech, lending, payments, saving, investing, insurance, robo-advice, accounting, risk management, claims processing, and underwriting. Here, Fintech is defined through what Van Loo (2018) called the institutional approach, as the definition is oriented toward the corporate body that provides certain kinds of financial services. He contrasts this paradigm with the product perspective, which focuses on technologically supported financial services. Bank of Indonesia (2020), on the other hand, defined Fintech as technology adoption within the financial system that results in new products, services, technology and/or business models and can impact monetary and financial system stability, and/or efficiency, seamlessness, security, and reliability of the payment system. In this article, the author will use the terminology to refer to these infrastructural aspects made possible by technology within the financial system.

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Financial industries adopting cutting-edge technological systems at the core of their business models have been thriving rapidly in recent years. Fintech News Singapore (2020) revealed that in Indonesia, there were 322 companies adopting Fintech, in addition to 125 registered but unlicensed online lenders. Half of these businesses were online lending service providers (Fintech News Singapore, 2020). Other companies in the industry landscape offer services and products related to payments, blockchain/crypto, personal finance, insurance, crowdfunding, comparison, and point-of-scale. According to the US Department of Commerce (2021), digital money and P2P online lending are two fintech subdomains that have grown the fastest. Furthermore, the internet banking service was nationally the largest fintech payment channel, reaching IDR 2,009 trillion in March 2020, despite falling to 1,773 trillion in June (Sugandi, 2021). Some of Indonesia's fintech startups, such as Tokopedia, Bukalapak, Traveloka, Jd.id, and OVO, have become unicorns, while one corporation, Gojek, has attained a decacorn status (Sugandi, 2021). 

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The rapid growth in the fintech industry has significantly influenced the whole business environment, especially when it comes to speed and efficiency. The availability of advanced technology has dramatically impacted business models in different domains, especially in terms of payment systems. Electronic money is now accepted as a form of payment by over 500,000 merchants nationwide. Furthermore, it also has rendered influence on the ways companies provide their customer services. In addition, fintech companies have also provided a stimulus for the growth of other businesses. The industry drives growth by offering a variety of accessible lending channel alternatives, especially for small enterprises that traditionally find it more arduous to get financial capital. In 2019, at least 54% of 12.8 million P2P borrowers were SMEs, accounting for 55% of IDR 54 trillion of loans (Wardhani & Bohmann, 2020). The decreasing costs of investment made feasible by investing applications also tend to ease corporations, especially the grander ones, in their endeavor to acquire funds.

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Furthermore, the preponderance of Indonesia's fintech companies also influences consumer behavior. For instance, the ever-increasingly-pervasive "pay later" option available on e-commerces makes it easier for prospective buyers to get various expensive products that otherwise they could not. This feature has filled the void that previously existed due to a hesitation among consumers to have credit cards. More accessible information also tends to heighten consumers' expectations about the products and services they will buy, regardless of the size and scale of the respective producers. This, in return, will affect the competitiveness of the fintech industry itself, just to afterward influence the business environment more generally.

As a corollary, Fintech continuously impacts the macro-level economy of Indonesia. The lucrativeness of the fintech industry made possible by immense population size has given a significant opportunity for Indonesia to gain economic growth. The MEDICI report showed that from 2018 to 2020, Indonesia witnessed over USD 849 million in investments in the fintech sector, with the highest number ever in 2020, amounting to 329 million (Kumar, 2021). The report also revealed 84% of the funds were invested in companies in their growth stage. In addition, the government also allows fintech companies to become agents to fight financial exclusion commonplace in Indonesia. Research conducted by Google, Temasek, and Bain in 2020 found that 75% of Indonesian citizens still cannot access financial services (Ariesta, 2021). The government is targeting to exploit the presence of digital banks to reduce the number of underbanked Indonesians. Indeed, both equal access to infrastructure and clear sets of regulations are crucial to realizing the objective. In contrast, Fintech related to blockchains and cryptocurrencies, often perceived as an effort toward financial democratization, can become a challenge for the national economy as it is mostly agreed that it will lessen the government's control over the monetary domain.