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apitalizing on the back of Indonesia’s recent e-commerce boom and the steady increase of internet literacy, local entrepreneurs have begun to explore opportunities in which the internet can assist with Indonesia’s financial inclusion.

Despite only 25 percent of the population, 60 million Indonesians, having bank accounts, financial technology “fintech” startups have found a robust niche market to serve in the country.

An online portal called Cermati, for example, which finds and compares financial products in Indonesia, “aggregators”, has recently closed a seed funding round led by local venture capital firm East Ventures and Japan-based Beenos Plaza. Aside from Cermati, another aggregator called Cekaja is also making headway. Payment gateways are gaining traction in the fintech space as well, with Doku and Veritrans leading the way.

Granted, fintech has certainly had a positive impact for consumers, providing alternative payments and ways to bank the unbanked through unfettered access to remote areas. However, as the great Ben Parker (the uncle of Peter Parker, aka Spider-Man) once said, “With great power comes great responsibility.”

As with most innovations that are considered “disruptive”, fintech is fluid and dynamic in nature, providing much debate on how to regulate the industry in Indonesia. Even with e-commerce — which is a relatively established industry in developed markets — regulators have to constantly play catch-up.

In the case of fintech, the Financial Services Authority (OJK) has been somewhat proactive in attempting to gain an understanding of the industry through discussions with various fintech players under the Indonesian Fintech Association umbrella.

The deputy commissioner responsible for non-bank financial institutions, Dumoly Pardede, has made repeated statements that the OJK plans to issue fintech regulations before year-end. Although its intentions are well placed, categorizing all fintech business models under one big “box” would be counterintuitive to fintech’s nature of being cross-industry.

Peer-to-peer (P2P) lending, P2P payments, payment gateways, crowdfunding and aggregators are just some of the very few different business models that are in the fintech industry and then there are the ones most similar to traditional business models, such as mutual funds marketplaces, digital insurance brokers, micro lending and multi-financing.

All these business models are principally different in their conception and execution and cannot necessarily be categorized under one department in the OJK, such as the supervision of non-bank financial institutions, for example, but one common obligation that all fintech companies should adhere to is the protection of consumers.

In the midst of the regulators’ and public’s continuous learning process about the fintech industry, the conversation about having to apply a principled approach to fintech has somehow been diluted. Of course, technology does play a pivotal role in a fintech company, but at the core fintech companies should be viewed as a financial services provider that utilizes technology as a distribution channel.

Although fintech does put forth technology as its core value proposition, the biggest value proposition a fintech company actually offers is the stewardship of customers’ money.

Despite some fintech companies portraying themselves only as intermediaries, inherent trust needs to be established between consumer and fintech company.

Although the same can be said to some extent for e-commerce retailers such as Amazon, Alibaba and others, the level of responsibility for fintech companies is greater than that of e-commerce as they manage the money of the people and directly relate to the welfare of many.

For example, a possible gross abuse of consumer trust was exhibited by the Chinese P2P lending company Ezubao recently when it allegedly conned 900,000 investors out of US$7.6 billion.

Operating based on the tried and tested “Ponzi scheme” model, Ezubao paid fake returns from money given by other new investors.

This case alone should serve as a cautionary tale and wake-up call to fintech regulators worldwide and to ensure scrupulous practices are conducted across the board the regulator must implement stringent requirements that have been implemented in traditional financial services.

As the key regulator for protection of financial services consumers, the OJK has taken numerous deliberate measures like setting minimum paid-up capital, conducting fit and proper tests for board members and running regular and ad-hoc audits on financial service providers.

Thus far, the OJK has been proactive in protecting consumers through strict enforcement in the insurance industry, for example, with the revocation of a number of insurance companies’ licenses because of their inability to comply with the risk-based capital (RBC) requirement. With the success of implementing these measures on traditional financial service providers, why not apply them to fintech companies?

Because at the core, fintech uses technology as an enabler to deliver their value proposition — financial services — to the customer, thus implying that without the actual financial service the technology or app would have no value. Since all these value propositions are rooted in traditional financial services models, fintech should be regulated as such.

In actuality, almost all fintech business models can be traced back to financial services, which are manufacturing, distribution, infrastructure or advice. In the traditional sense, all have been heavily regulated with the exception of advice and to say that P2P lending is a new business model actually lends its origins to multi-finance or venture capital.

Therefore, as with traditional financial services, the reason fintech should be as heavily regulated is because it bears as much responsibility as its traditional counterpart. For now, it’s not about the nominal amount of funds being managed or the size of the market, but the level of trust consumers put into these companies and that should be reason enough.
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The writer is a research analyst with the Bower Group Asia’s financial sector portfolio.