The emergence of companies that take advantage of technological developments marks Indonesia’s digital financial innovation.
These new companies are startups, which has just been established or still in the pioneering stage and usually engaged in technology and information.
Startups have two types, which e-commerce and financial technology (fintech).
Let’s see the explanation down below to understand how they synergize.
Synergy of E-Commerce and Fintech in Digital Financial Innovation
Basically, E-commerce is a company that facilitates online buying and selling platforms.
Meanwhile, the term fintech is more centered on companies that innovate digital finance by utilizing modern technology.
In general, e-commerce and fintech are mutually sustainable with each other.
E-commerce is a buying and selling platform, while fintech is a place to help the buying and selling process so that it can be reached by the wider community.
Now the payment process can be made easier because of this breakthroughs.
So, fintech is an alternative in presenting choices for the public in accessing financial services in a more practical, efficient, and comfortable way.
It turns out that the existence of fintech itself greatly influences lifestyle and economic community in nowadays.
The combination of effective and practical from advanced technology has had a positive impact on society.
Benefits of Fintech in Digital Financial Innovation
After knowing the difference between startups and fintech, we are going to talk about fintech benefits which often came up with digital financial service innovations.
There are several benefits of having fintech in our society.
Starting from being able to help new developments in the field of technology until being able to help expand employment opportunities and increase national economic growth.
This economic growth also brings other benefits, namely improving the quality of life of the community.
Moreover, fintech services can reach all people who are not reached by conventional banking but also contributes to macroeconomic improvement.
The advantages of fintech can also indirectly increase electronic sales.
In fact, the most benefit that can be enjoyed by the community is a decrease in loan interest.
From year to year, the development of fintech users also continues to increase.
Sourced from the World Bank, fintech users were only around 7% in 2007, then increased to 36% in 2014.
Then, in 2017 it reached 78% with a total transaction value estimated to reach IDR 202.77 trillion!
Of course, the increase in the number of users can occur because of digital financial innovations. After all, society also desperately needs digital innovation in financial services.
According to a report compiled by Statista, almost all forms of financial services in Southeast Asia have an increasing transaction value from year to year.
Especially for digital services that have been used by customers through applications and websites.
This series of digital financial service innovations is also predicted to continue to grow in the future, both in terms of products and in terms of access.
According to Jahani & Associate’s records, investors have provided funding of up to $17.28 billion for fintech innovators in Southeast Asia through 411 funding transactions.
Then, based on a report from DSInnovate, for the past 3 years, Indonesian fintech startups have received the most funds from investors.
The Role of Technology in Digital Financial Innovation
The technology that carries financial business has been well received by many sides, including public and regulators.
People who use various fintech applications that currently exist also feel helped by the presence of e-wallet services, fintech lending, paylater, wealthtech apps, to insurance tech.
These applications have now become an important part for the community in carrying out daily activities, including in supporting their productivity activities.
From the regulator’s point of view, they are also trying to be relevant and accommodate the development of digital financial innovations in the market today.
In addition to providing regulations for existing services, the authorities now also have a regulatory sandbox.
From the sandbox, a decision will be made regarding to the urgency of a certain business model so that an official regulation will be created immediately.
In Indonesia, the Financial Services Authority (OJK) is an extension of the government to monitor various fintech innovations. Through POJK No13/POJK.02/2018, they initiated digital financial innovation as a regulatory sandbox.
Until the end of 2021, there are several new business models related to financial services, which include funding agents, insurtechs, aggregators, credit scoring, to wealthtech.
One of the financial services digital innovation business models that has a significant use is credit scoring.
This type of financial service is an institution that manages data other than credit data by utilizing certain algorithms.
This will result in a value indicating a person’s eligibility to receive services in the financial sector.
Credit scoring services are very useful for financial industry players who have facilities such as loan products, financing, to credit.
Including banks, multifinance, fintech lending, paylater, and others.
Getting to Know the Concept of “Open Finance” in Digital Finance Innovation
There is one concept that is predicted to be able to improve the quality of various digital financial services which is called Open Finance.
Open Finance is a process of separating data and financial services to enable companies and consumers to use their data securely.
In addition, it can also make it possible to get a clearer picture of an individual’s financial footprint.
Through open exchange of information, fintech companies can measure consumers’ financial situation better by analyzing their credit and income data.
This allowed a financial company to offer highly personalized solutions to suit the financial needs of consumers.
This can give consumers access to financial products.
With increased transparency between financial products, such as insurance premiums and credit loans, consumers can compare prices and features of similar products more easily.
As a result, the concept of Open Finance becomes a fair option to the consumers.
How Open Finance Benefits Fintech?
So, how does Open Finance benefits fintech industry?
Through Open Finance, companies can offer online and digital registration processes to each prospective customer.
This of course can reduce disputes and improve customer experience for the better.
In addition, open finance can help fintech companies to minimize operational costs and risks.
Companies can also understand users financial better to generate appropriate credit scores by accessing users financial data, such as income levels and credit history.
Open finance also allows for an eKYC (electronic know your customer) process.
Through eKYC, these fintech companies can identify their customers digitally to facilitate the verification process and minimize fraud.
In addition, eKYC can also improve access to user data to develop services and offer solutions for consumers.
So, have you understand today’s digital financial innovations?
That all the explanation of digital financial innovation in Indonesia.
Hopefully, this will enrich your insight.
Find various information about financial and technology only on Finfini.
