They fear that this industry will be disruptive to the banking system. Their arguments have valid points, but in many cases the concerns are overstated.

Stating the fintech industry will disrupt the market for the banking sector is not a far-fetched argument, but is not something that is going to happen so easily within a short time.

In an event held at Ritz Carlton Jakarta on Nov. 8, Reynold Wijaya, the CEO and co-founder of Modalku, one of the biggest P2P fintech firms in ASEAN, admitted that the fintech business is not intended to compete with the well-established banks because of different business visions and goals.

Indeed, the mushrooming of fintech start-ups in the last couple years will affect the business performance of conventional banks on a small or moderate scale. Nevertheless, it will not lead to anything close to a banking collapse. There are several reasons to justify these arguments

First, fintech aims to reach out to the so-called unbanked people. The term unbanked speaks for itself, i.e. they are not within the reach of the banking industry. A person or a business can be unbanked for several reasons: lack of collateral, lack of financial records and credit profile, lack of clear business proposal (usually because of financial illiteracy), etc.

Since the banking business is heavily regulated (particularly in terms of risk assessment and mitigation) and has to be efficient, acquiring financial information from these unbanked people is usually time-consuming and requires a lot of investment. Given the cost-benefit analysis, banks prefer not to lend to these people and focus on more accessible potential borrowers instead.

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