While the pace of the change varies from country to country, the London-based multinational consulting firm in its “Global FinTech Report” (March 2016), shows that fund-transfer and payment industry respondents believe that they could lose up to 28 percent of their market share to fintech companies.

The change in a sector has an impact primarily on pressure on margins, loss of market share, information security/privacy threats and increasing customer churn. Thus, a general existential question may be raised in response to this issue: will the financial institutions become more vulnerable to the new nascent fintech companies? Will fintech companies ever be ready to compete with the well-established and trustworthy institutions?

Non-bank financing companies (NBFCs), especially multi-finance companies, are also aware of this problem.

On one hand, growth of the financing industry remains solid, including growth in profit margin and receivables. Total financing receivables of the industry at the end of 2016 was around Rp 371.55 trillion (US$27.8 billion), consisting of investment financing of Rp 114 trillion, working capital financing of Rp 18 trillion, and consumer multi-financing of Rp 217 trillion.

Additionally, sharia-based financing was also on the rise in the same period, with around Rp 27 trillion in financing receivables. The Financial Services Authority (OJK) statistical report on finance companies (as of third quarter 2016) showed that the year-on-year growth of financing receivables between 2015 and 2016 was 1.79 percent, whereas the non-performing loan (NPL) ratio was maintained below 3 percent.

This situation demonstrates that the industry is doing well. However, NBFCs should not feel complacent and think that everything will be business as usual. The biggest share of NBFCs’ financing, as the statistics suggest, is in the consumer multi-finance business. This is an area that can be disrupted by challengers such as online financing companies that are now rapidly emerging in the country. They will succeed in penetrating the market if they manage to find relevant value propositions for consumers.

And as experts claim, fintech companies focus on being relevant. They are agile, quick to adapt to change and are able to seize opportunities. Fintech companies also put customer needs first, while traditional financial businesses — according to HSBC in its March 2016 report entitled “FinTech: From Threat to Opportunity” — are heavily regulated and consider risks before anything else.

In this context, traditional NBFCs might perceive fintech companies as competitors or try to set up a partnership with them. PWC in its report divided the traditional NBFCs into two groups in regard to their stance against fintech firms.

In the first group, there are a couple of opportunities for traditional NBFCs to compete with fintech companies — cost reduction, differentiation (in terms of product portfolio, market segment or operational model), improved retention of customers, and additional revenues (finding additional revenue streams to compensate for lower margins from core products).

The second group perceives the fintech companies as potential partners, who can help them to improve business in specific sectors. Specific to NBFCs, there is already evidence of partnerships between NBFCs and fintech companies, both at the front-end and back-end.

Fintech companies can support NBFCs in the provision of innovative credit-scoring models and risk assessment, which will eventually lead to outreach to previously unreachable consumers. They can also complement support for NBFCs in the area of regulatory compliance, including for consumer authentication and verification. Finally, they can provide new online-based financing products that are more innovative.

Given that there are many areas closely intersecting between NBFCs and fintech companies, a lot of fintech start-up companies are looking for an acquisition by NBFCs. In response to this rapidly changing environment, incumbent financial institutions have approached fintech in various ways such as through joint partnerships or start-up programs. Nonetheless, whatever strategy an organization pursues, it cannot afford to ignore fintech.

The rapid growth of multi-finance has been inspired by system and internal process improvements in order to provide the best service to the customer. The growth of financing institutions and various financing facilities encourage the growth of a middle-class society in Indonesia. Per December 2016, financing for electronic goods had shown a rapid increase in the multi-finance industry.

As a trusted and responsible lender, PT Home Credit believes that multi-finance institutions can create financial inclusion particularly for the unbankable. Online businesses will bring the opportunity for multi-finance transformation in the fintech era as consumers become more sophisticated. The usage of innovative technology in financial services will bring a new type of market segment into the consumer-financing business.

The main impact of fintech will be the surge of new financial service business models, which will create challenges for both regulators and market players. Financial-service firms should turn away from trying to control all parts of their value chain and customer experience through traditional business models, and instead move toward the center of the fintech ecosystem by leveraging their trusted relationships with customers and their extensive access to client data.

The writer is a member of the Indonesian Fintech Association and digital online chief at PT Home Credit Indonesia.

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