TheJakartaPost
Please Update your browser
Your browser is out of date, and may not be compatible with our website. A list of the most popular web browsers can be found below.
Just click on the icons to get to the download page.
Embracing the marathon: Fintechs to play the long game for sustainable success
Indonesian policymakers and fintech companies, as well as investors, can realize the country's huge potential for fintech adoption and value creationre by taking a proactive and holistic approach to fintech evolution.
Change Size
Illustration of financial technology (Shutterstock/-)
T
he global financial technology (fintech) industry has transformed financial access worldwide over the last two decades. While frosty financial headwinds saw fintechs losing, on average, more than half their market value in 2022, the sector is on track to reach US$1.5 trillion in annual revenue by 2030.
Short-term corrections may have posed important questions, but they frame an industry with positive long-term prospects. The fundamental growth drivers remain as innovation and digital technology continue to improve financial access. More than half the world’s population remains unbanked or underbanked, and evolving technology continues to unlock valuable new use cases.
The Asia-Pacific (APAC) remains a major driver of growth, with the region projected to generate 42 percent of all incremental revenues. Emerging Asia – China, India and Southeast Asia – represents lucrative markets for this value generation.
Boston Consulting Group’s (BCG’s) recent report, Global Fintech 2023: Reimagining the Future of Finance, explores the path ahead for this innovative global industry.
Evolving innovation fires up fintech opportunity
As an industry, fintech has done a remarkable job moving the market toward mobile services and increasing technology adoption. As new technologies like the internet of things (IoT) and generative artificial intelligence (GenAI) emerge, fintechs need to strategically maintain that vision to define their distinct value proposition in the face of substantial tech disruption.
GenAI is delivering transformative natural-language functionality, while API-based open connectivity is delivering banking 2.0 capabilities with an open, interconnected architecture. Distributed ledger technologies are providing global transaction and settlement solutions based on shared trust, promising a future of fast, inexpensive and transparent digital financial architecture.
Quantum and edge computing are set to deliver unprecedented computational speed and capabilities, allowing computers to solve extremely complex problems in the blink of an eye. Finally, IoT embedded hardware and biometrics promise a future of hyper-personalized products and secure log-in functionalities. Together, these technologies offer a new horizon of fintech possibilities.
Payments was the driving force behind early fintech evolution, responsible for 40 percent of all fintech revenue in 2021. Since 2000, fintechs in the payment segment have accounted for roughly 25 percent of cumulative equity funding, totaling $120 billion.
Growth in the payment segment is expected to continue, expanding from $100 billion today to $520 billion by 2030. Other segments will also see rapid growth, with lending reaching $400 billion by 2030, while insurance ($200 billion), deposits ($155 billion), investments ($145 billion) and financial infrastructure ($80 billion) show promising signs of future value as well.
Indonesia’s opportunity
As Southeast Asia’s powerhouse economy, Indonesia boasts huge potential for fintech adoption and value creation. This nation of nearly 300 million citizens boasts a large underserved population, low access to finance for micro, small and medium enterprises (MSMEs) and an encouraging government sentiment.
The number of fintech players increased sixfold over the last decade as part of a maturing and increasingly diversified space, highlighted in BCG’s report Indonesia’s Fintech Industry is Ready to Rise.
Payments is particularly critical to this opportunity, leveraging a national ecosystem of over 63 million e-wallet users. E-wallet transactions grew at a remarkable 123 percent compound annual growth rate (CAGR) between 2017 and 2021, and are projected to grow by 26 percent between 2020 and 2025.
Lending is also a major source of opportunity, with over $17 billion in loans disbursed in 2022, over 30 million peer-to-peer borrower accounts as of 2021, and 50 percent CAGR in new borrower accounts 2018-2022. Growing affluence is also driving expansion of the wealth segment, with 9 million retail investors in Indonesia as of 2022, growing 56 percent CAGR between 2018 and 2022.
Fintech equity funding in Indonesia rocketed to $1.5 billion in 2021. Lending and payments were both destinations for large shares of that funding, but an encouraging wealthtech space also received over $500 million.
BCG’s recent report, The Second Wave: Resilient, Inclusive Exponential Fintechs, provides fascinating analysis of India’s journey to becoming a fintech nation, with valuable lessons for Indonesia. India’s Digital Public Infrastructure (DPI 1.0) initiative has provided powerful foundations for inclusive, innovative growth. Indonesia should leverage its own digital infrastructure transformation to accelerate its journey to becoming a fintech nation.
Addressing global challenges is key
The fintech ecosystem will need to address some key challenges to maintain a positive growth trajectory.
Regulators will need to encourage future growth with a proactive and holistic approach to fintech evolution. That means delivering policies that protect consumers without stifling innovation. This includes encouraging faster payments, accelerated settlement processes and guardrails for breakthrough sectors such as digital assets. Investing in digital public infrastructure is also essential.
Fintechs will need to strategize to succeed in a volatile but fast-moving landscape. Investors and markets are moving from focus on growth to “path-to-profitability” as justification for valuations. Fintechs need to play the long game to succeed in this environment.
There is also opportunity to be captured by those fintechs who dare for more. Aggressive focus on talent acquisition, capturing market share in new markets and smart merger and acquisition strategies can also present opportunities in a disrupted landscape. Actively engaging with regulators to shape future evolution is also important at this time.
Incumbents will need to accelerate their own digital journeys, overcoming traditional barriers to succeed in a digitally competitive market. Leveraging fintech capabilities through value-adding partnerships is an effective way to drive digital maturity. Clear commercial arrangements can provide the backbone for win-win partnerships. While acquisition may also be considered, mismatched capabilities and cultures can sometimes make this a challenging path for incumbents.
Investors also have some complex decisions to make as we look to move beyond a fintech winter. This a time to maintain support for existing investments with clear product-market fits. Venture capitalists also have an opportunity to enhance portfolio companies to encourage and embed the right strategic approach.
The fintech industry has delivered a remarkable transformation to financial access, providing benefits to stakeholders across the ecosystem. We are now at the start of a multi-decade journey, with some clear barriers to overcome, but one which promises significant rewards for those who cross the finishing line.
***
Tushar Agarwal and Sumit Kumar are managing directors and partners at Boston Consulting Group (BCG).
