innovation & fintech development in retail payment … · •a means for regulator to...

1

INNOVATION

& FINTECH

DEVELOPMENT

IN RETAIL

PAYMENT SYSTEM

IN INDONESIA

OUTLINE

Rp

FINANCIAL INCLUSION1

2

FINTECH DEVELOPMENT2

CREATING INNOVATION3

FINTECH RISKS MAPPING4

KEY TAKE AWAY5

OUTLINE

Rp


3




KEY TAKE AWAY5

THE ROLE OF BANK INDONESIA

BI Objectives on maintaining payment system efficient, safe, and reliability, and eficiencyunseparated from other BI Objectives at Monetary and Financial System side

Monetary Policy Effective Transmission Intermediation and Financial

System Stability

Price Stability and Financial System Stability Impacting Economic growth

Monetary StabilityFinancial System

Stability

Payment System Stability and Cash Managament

• Increasing in Volume Transaction• Low cost

• Increasing in Velocity of Money (V=PT/m)

• Low Cost of Fund

Transaction Volume

Payment System Efficiency

• Faster money circulation• Lower cost transaction• Longer instrument duration

• Money Supply• The growth of Payment

System Instrument

FINANCIAL INCLUSION

Underbanked

Low equlibrium banked

Middle equlibriumbankedOverbanked 1

Overbanked 2 (Jawa, Bali)

Overbanked 3 (DKI Jakarta)

Limitation of financial accesspoints….

5

Obstacles i.e.(1) the high cost of opening bank branches;(2) takes time and cost for the community

to go to the nearest bank branch

Source: Bank Indonesia, 2013

INDONESIA NOW!• 99,4% Retail Transaction Using Cash (McKinsey

2013)

• The Level of Inequality is High

• Non-cash transaction infrastructure is not

evenly distributed.

Only 36% of Indonesians adult have accounts in formal financial institutions, thus innovation andtechnology will play important role to reach the Unbanked people...

OUTLINE

Rp


6




KEY TAKE AWAY5

FINANCIAL TECHNOLOGY

7

Financial Technology (FinTech) is a fusion between Financial and Technology Services which can also support reaching the unbanked people …

TECHNOLOGY

FINANCIAL SERVICES

FINTECH

Change of Business Model

Less Barrier to Entry

BENEFITS TO FINANCIAL SYSTEM

Decentralisation and diversification can dampen the effects of financial shocks.

Efficiency in operations. Improving transparency (less

asymmetric information). Supporting financial inclusion

BENEFITS TO CONSUMERS

More choices of products Better quality of services Lower prices

Supporting monetary policy transmission

Increasing money velocity Supporting economy growth

BENEFITS TO THE ECONOMY

FINTECH NOWADAYS

8

While FinTech Transaction in Indonesia 2017 +USD18,6 billion, 99% of it is in digital payments area accordance to the number of FinTech players which majority in Payment, Clearing, and Settlement area…

USA

USD1,025.5 bn

USD 31.6 bn

USD2,412.68

UK

USD2,610.01

USD 5.4 bn

USD190 bn

China

USD1,086.5 bn

USD 3.5 bn

USD323.2

Hong Kong

USD1,739.92

USD 0.15 bn

USD14.0 bn

Singapore

USD1,937.94

USD 0.16 bn

USD13.5 bn Indonesia

USD18.6 bn

N.AUSD

56.98

Australia

USD1,107.79

USD 0.30 bn

USD26.7 bn

Estimated transaction value (statista, 2017)

Investment Value (LondonFinTechWeek, 2015)

Source: Statista (2017)

Transaction per capita (worldbank, 2014) India

USD25.48

USD 2.2 bn

USD44.1 bn

14%

(26 players)

Investment and

Risk

Management

33%

(61 players)

Deposit, Lending, and

Capital Raising

42%

(77 players)

Payment Systems,

Clearing &

Settlements

11%

(20 players)

Market Support

Source: Indonesia FinTech Association Data– August 2017 (modified)Source: Indonesia FinTech Association Data– August 2017 (modified)

OUTLINE

Rp


9




KEY TAKE AWAY5

FINTECH ECOSYSTEM

10Source: KPMG (2016)

BI, GOVERNMENTS & AUTHORITIES

ACADEMICIANS, RESEARCH

INSTITUTION

INVESTORSSTART-UPS

INCUBATORS, ACCELERATORS & INNOVATION LABSTECH VENDORS

Engage or compete with FinTech players

Users of new services or experience from corporates to retail customers provided by FinTech

Supporting from technology (Hardware/Software)

Provide tools for big business to engage and assist young companies

Improve efficiency of existing financial services business models

Provide capital and looking at FinTech as viable instrument

Provide supportive regulations to help FinTech grow and to protect consumer.

Educate people about digital economy literacy, producing talented workforce and FinTech Community

FinTechEcosystem

Condusive FinTech Ecosystem is needed in order to stimulate innovations...

CONCERN OF BI POLICY RESPONSEBank Indonesia responded to FinTech challenges by encouraging innovation while maintainingstability...

1. Maintain monetary stability

2. Maintain financial system stability

3. Maintain a secure, smooth and efficient payment system

4. Mitigate risks and encourage consumer protection

Balancing Innovation & Stability

STABILITY

1. Promote innovation in the financial sector

2. Boost economic growth utilizingdigital technology

INNOVATION

FinTech REGULATION

Required: Controlled

environmentfor innovative

products

Required: Tools to observe

developments in FinTech

DIGITAL REVOLUTIONTechnology Innovations bring impacts to many industries, such as media, film, music, telecommunications, commerce, transportation, etc…

13

INNOVATION : REGULATION

Regulatory Sandbox Basic Scheme

Disruptive Innovation ?

Licensing and Implementation

Requirements

Authorization

❶ ❷

❸

❹

Regulatory Sandbox

• A 'safe space' where businesses can test innovative products, services, business models and delivery mechanisms.

• A means for regulator to facilitate the development of innovation and communicate regulator’s policy.

Balancing the fast growth of innovation that boost the financial technology, regulatory sandbox play significant role on how innovation can be balanced with customer protection ...

14

INNOVATION : Interconnection dan interoperability

Basic Principle of NPG

Domestic transaction process

Transaction process

Held by NPG Institutions (Standard,

Switching, Services bodies)

Operator

Price scheme which settle by

Interconected among provider

Business Arrangement

Local Branding as National Identity

Branding

National Payment Gateway (NPG) brings interconnection and interoperability as a solution to infrastructure inefficiency, high cost transaction, and domestic transaction which is processed overseas....

Before NPG After NPG

Not connectedInterconnected

Card can only be processed by similiar payment channel

Payment channel that can processed from multi card issuer

15

INNOVATION : REACHING THE UNBANKED PEOPLE

Combo Card

FINANCIAL INSTITUTION

• G to P Receipient ID & social aid amount• 1 Basic Saving Account for saving &

Conditional Cash Programme• e-wallet for each G to P Programme

(i.e Non Cash Food Aid, Energy Subsidy (next))

Basic Saving Account

eWallet

• social aid amount

Electronic Government Social Aid

RETAILTRANSACTION

TRANSPORTATION

Leveraging the use of • Agent Banking• Ewarong Agent• Rumah Pangan Kita

Electronic government subsidy has opened up access to financial services for government subsidy recipient through innovation of combo card and the presence of Agent Banking....

16

INNOVATION : CREATING THE MARKETPLACE

16

E-CommerceEcosystems & Parties

Source: William Tanuwijaya (CEO Tokopedia), Muhammad Fajrin (CFO Bukalapak), & GoJekAug 2017

*) illustration

+ 2 Million SMEsBoth Tokopedia & Bukalapakhave + 2 millions SMEs selling their product through the marketplace

+Thousand Individuals (drivers)

300

100 Thousand SMEs (restaurants)

Fintech also supports the fast growing e-commerce in Indonesia, giving SME a broader market place....

OUTLINE

Rp


17




KEY TAKE AWAY5

FINTECH RISKS

18

The rapid development of FinTech can create risks in both micro and macro dimensions...

Maturity Mismatch

Liquidity Mismatch

Leverage Business Risk

MICRO RISKS

Financial Risks

Governance/Process Management

Cyber Attack Third Party Reliance Legal/Regulatory Risk

Operational Risks

MACRO RISKS

Contagion Risk

Procyclicality

Excess Volatility

Too Big Too Fail

Source: FSB, modified

FinTech RISK MAPPING

OUTLINE

Rp


19




KEY TAKE AWAY5

20

CONCLUSION

Bank Indonesia will continue to :

Maintain proportional balance between the role of formal and informal

financial sector,

Risk mitigation through proportional regulation which leaves rooms for

innovation in financial services while balancing with customer protection.

Strengthen coordination amongs regulatoy bodies in the domestic and

international level.

Closely monitor the techfin development and its dynamic

We live in a time of extraordinary technological change… We should be open to the new ideas and innovations … Authorities will insist on safety and security, while also working to assure that our

citizens benefit from payments system innovation …

(Jerome H. Powell, Board of Governors of the Federal Reserve System)

innovation & fintech development in retail payment … · •a means for regulator to...

Documents