13 Sep Financial Technology, Are We Ready?
The article was written by DEKA Business Director, Varance Pascal and published in Marketing Magazine July 2016 edition.
Financial Technology, or commonly shortened to FinTech, a new jargon faced by Banking, Insurance and other Financial Services Industry. What is the actual meaning of this jargon? Let’s find out.
Financial Technology is a form of evolution in financial world, as a result of the information technology and digitalization development. The main purpose of FinTech is efficiency – in terms of time, process and cost. However, is it true that we can maximize the efficiency process with FinTech? What are the risks that might happen if FinTech is applied on the Financial Services Industry?
Government Regulations in Financial Technology Sector
Bank of Indonesia has made several regulations related to FinTech, including:
- Peraturan Bank Indonesia No. 9/15/PBI/2007 mengenai Penerapan Manajemen Risiko dalam Penggunaan Teknologi Informasi oleh Bank Umum
- Peraturan Bank Indonesia No. 16/8/PBI/2014 tanggal 8 April 2014 tentang Perubahan Atas Peraturan Bank Indonesia No. 11/12/PBI/2009 tentang Uang Elektronik (Electronic Money)
From the regulations issued, Bank of Indonesia firmly sets the rules on Financial Technology and calls upon the FinTech organizers to be anticipative towards every risk that might happen as a result of FinTech usage.
Growth of Information Technology and Digitalization
It is undeniable that the growing FinTech is coming from the rapid development of Information Technology. Indonesian Internet Users Association’s data show that internet penetration in Indonesia for the year 2015 is 35% – meaning roughly 88.2 million Indonesian citizens can access the internet. True that the penetration level is lower compared to our neighboring countries such as Singapore (81%), Malaysia (66%), even lower than Philippines and Vietnam that has reached 44%. The uneven penetration is also happening in Indonesia, where the penetration level in big cities such as Jakarta, Bandung and Surabaya is quite high and significantly different from other cities.
Apart from penetration, other things that we have to bear in mind is the growing numbers of startups in Indonesia that creates digital apps and also creates new business opportunities in our country.
How about the Indonesian market itself? How big is the market demand for FinTech? Which segment that we can focus on and how big is that segment?
“Transaction value using Electronic Money in 2009 is IDR 520 bill and increase to IDR 2.3 trillion in 2015.”
Financial Technology Segment in Indonesia
Crucial information that has to be observed by Banking, Insurance and other Financial Services in developing Financial Technology is to determine the right segment. Some hypothesis said that the segments that will quickly adopt FinTech are Gen Y, Millennial, Traders and Entrepreneurs, Middle up Social Economic Class, and others – speculative based on the FinTech characteristics.
Qualitative research done by Financial Research Consultant stated that the FinTech segment is not based on age level, but more on the level of effectiveness and efficiency of the apps that can be used by all age and occupation level.
Another interesting finding from the research is that user friendly has become a trend for FinTech apps. The apps has to be simple and easy to use but high functionality, contains good information in the right time.
Types and Functions of Financial Technology in Indonesia
Up until today, Bank of Indonesia has given operating permits to 18 types of e-money. Format wise, there are e-money card and application. For example, BCA issued BCA Flazz Card and BCA Sakuku Apps (e-wallet), while Bank Mandiri issued Mandiri E-Money, E-Toll and Indomaret Card and also have Mandiri E-Cash Apps. Other than banks, there are also e-money issued by non-bank institutions such as T-Cash from Telkomsel which is used more as a discount card with cooperated merchants.
Seen by its function, generally there are three FinTech functions. The basic one is for information, which is commonly owned by an application or web-based platform where consumers can find out financial and nonfinancial information. The second one is simulation, which often used by banks or financial services institutions for lending cases. Platform used by this function is also web or apps. Here, consumers can perform simulations of loans, advances and great big monthly installment. The third is transactional function, which covers financial and non-financial transaction. For this function, the platform used can be card, web or apps. It is categorized as financial transaction if the transfer of funds in payments or purchases made using e-money, while non-financial transactions are usually in the form of registration, upload documents, or data verification.
Consumer Needs Verification and FinTech Implementation Process
It is important for companies that want to apply the Financial Technology for verifying the needs of consumers.
- Do Market Research
Market research is very important for knowing the suitable segment and target market as well as their sizes, and to check the compatibility between the target and the product features. In doing market research, some curiosities can be answered, for example:
- Is it appropriate to develop FinTech for micro segment?
- Is it proper to make FinTech for consumer savings?
- How is the strategy to increase consumer transactions by leveraging FinTech?
- How to develop FinTech for SME segment?
Those questions arise based on the potentiality to develop financial technology that is currently an undeveloped market.
- Communicate to and Educate the Market towards Financial Technology
The best product will not run properly without right communication and education. In FinTech context, effective communication and education should be done with IT and digital media that is suitable for its segment and target market. In this case, conventional media seem quite unsuitable.
- Risk Mitigation and Anticipative Action Plan
Financial technology is not risk-free. Efficient process, time savings and relatively lower costs may have an impact on greater risk. Risk mitigation is needed in every function applied through FinTech. Do the preventive process towards every risk, and do anticipative action plan if the risk occurs.