The phenomenon of pawning in Indonesia is definitely not novel; it is actually one of the more popular financial transactions out there.

Speedy processing, a minimum risk of losses and quick cash disbursement are the selling points of this particular type of transaction.

Pawning experienced significant growth following the crisis in Asia back in 2014.

In Singapore, for example, pawn services used to be overlooked, but now are gaining popularity among the younger generation. The number of pawnshops in Singapore has doubled since 2006.

Meanwhile, the National Digital Research Centre reported that fintech plays a role in the development of pawning activities in Indonesia, which are rising at a rate of 35 percent along with the growing use of other financial products, such as credit cards and insurance.

As technology evolves, pawning is experiencing a transformation that is giving birth to a new breed of online pawnshops.

While traditional pawning requires people to come to a shop and conduct the transaction on site, the process can now be done online through the service provider’s website. This trend is predicted to grow, considering that Indonesia has one of the highest internet penetration rates in the world.

Online pawning offers easier access and more comfortable procedures that suit modern lifestyles.

Online pawnshops also offer added value by providing an appraiser for the customer. Besides ensuring rapid processing, this also provides a sense of security, since the process of appraisal can be directly observed by the customer.

One of the industry’s priorities is to ensure that online pawnshops employ a competent and trustworthy appraiser to provide a fair value estimate. This is important to maintain trust.

Online pawnshops will not only benefit individuals as they can also be a solution for small and medium enterprises (SMEs) to sustain their business.

The need for quick cash, such as for additional capital, often becomes an obstacle for SMEs. Online pawnshops could be an alternative for SMEs to access the right financing swiftly and without complicated requirements.

SMEs can convert unproductive assets into those of higher value. In the spirit of a sharing economy, online pawnshops have established partnerships with SMEs to grow hand in hand.

In accordance with the public’s rising interest in pawning, the number of pawnshops continues to grow.

Unfortunately, this does not translate into improved services.

Pawning service providers that are below par, including in terms of providing fair value estimates of pawned goods as well as operating a system to maintain the goods, still exist.

This obviously poses risks and makes consumers hesitant.

Therefore, in conducting online pawn transactions, consumers demand to learn about the background of the company providing the services, including the legality of their business operations.

Transparency and accountability are key to being part of the financial sector.

The government has a vital role to play in ensuring a healthy ecosystem.

For consumers, legal protection is important to ensure data confidentiality, fair value estimates and proper and safe storage of pawned goods.

For service providers, regulations are necessary to ensure a level playing field.

According to the Financial Services Authority (OJK), there are 462 private pawnshops in Indonesia, only three of which have received operating licenses and six that have received a registration stamp from the OJK.

The OJK has issued OJK Regulation No. 31/POJK.05/2016 on the ownership and minimum capital of pawnshops to support the development of pawning services in Indonesia.

To spur future growth, the service providers need to continuously attract and ensure public trust in online pawning, especially with regard to security.

A more ready infrastructure is equally important to accommodate the needs of online pawning, which is predicted to gain popularity.

At the end of the day, online pawning is an innovation that complements financial service options in Indonesia’s fintech industry.

Online pawnshops — with all of their attractive features, including easy access — are another way to provide financial services for all layers of society and to push for financial inclusion.

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The writer is a member of the Indonesian Fintech Association and cofounder and CEO of Pinjam.co.id.

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