The Jakarta Post
Thanks to the rapid growth of e-commerce, ride-hailing and financial technology (fintech) companies, Indonesia can become a powerhouse in the digital economy in Asia in the next five years, or even sooner.
According to the latest survey by Google and Singapore’s Temasek Holdings, Indonesia’s digital economy is projected to triple to US$100 billion by 2025 from $27 billion this year, given the mushrooming of the country’s online marketplaces. The projection is not an exaggeration as indicated by the huge transaction values at a recent online shopping festival, dubbed a warm-up for the National Online Shopping Day in mid-December.
Fintech, too, has grown rapidly here. People have various and easy choices for payment, such as e-money cards, QR codes, chat bots and those using virtual assistants and devices connected to the Internet of Things. Such convenience is available for those looking for loans thanks to the growth of peer-to-peer lending platforms.
Soaring mobile and internet penetration also supports digital economy expansion. A study found that smartphone penetration in Indonesia has steadily increased. It stood at over 20 percent of the population in 2017 and has now exceeded 25 percent, or 67.5 million people. High-speed internet is no longer a luxury in major cities, which in the next few years will jump to 5G technology.
The government of President Joko “Jokowi” Widodo is persistently encouraging the development of the digital economy, as it will not only create many jobs but also help small-scale and micro enterprises expand their marketing networks and spur the growth of banking. Through the 2020 Go Digital Vision campaign initiated last year, the government has mapped out a series of programs to support the digital economy.
Despite the bright prospects, however, Indonesia still lags behind Asian neighbors in providing an effective legal framework to support innovation of the so-called internet economy and protect consumers and players involved, which is mandatory for the sake of a healthy digital economy.
The Communications and Information Ministry has delayed implementing the regulation on e-commerce, while fintech is deemed overregulated as both Bank Indonesia and the Financial Services Authority have their own regulations to oversee the industry. The overlap has confused the market and hampered its growth.
In order to expand and drive the national economy, the digital industry needs clear goals, good coordination among regulators and strong consumer protection. Regulations should incentivize innovation while protecting consumers from cybercrime and fraud.
Special attention should be given to fintech companies, especially online lending platforms that operate like conventional banks. Both investors and borrowers need protection from the risks of higher ratios of non-performing loans or mismanagement that could lead to the closure of their business.
Overall, Indonesia should, therefore, be able to provide an effective legal framework that can ensure that financial risks, transaction security and consumer protection are adequately addressed. Or else the fairytale of the country’s digital economy will not have a happy ending.