How to Start a Fintech Company in Indonesia

The fintech industry in Indonesia has started a revolution. The Financial Technology (fintech) Association in Indonesia was established only two years ago.

In just two short years, mobile technology services such as mobile wallets Go-Pay and Ovo have opened a new era of cashless payments in Indonesia, and the tremendous rise in the adoption of e-wallets was initiated.

In addition, online lending will make it easier for small businesses and individuals to raise money. According to The Tech in Asia Database, the amount of funding that fintech companies have received from 2013 to 2017 was recorded at US$56 million.

With the continuous launch of new fintech startups, the average Indonesian became familiar with a new financial entity, and with huge sums being invested in the segment, fintech has already become the frontrunner of the Indonesian startup ecosystem.

What is Fintech?

Fintech is a compound word, an abbreviation of financial technology. The term “financial technology” is still relatively abstract, and its concept has not yet been completely unified.

As defined by Wikipedia is “a group of companies that make financial services more efficient through technology.” In the economy, fintech is often a startup that tries to go beyond the existing traditional financial system and reach out to users. They often challenge traditional institutions that rely less on software and technology.

Fintech is not just ‘financial on the Internet’, but it is also based on technologies such as mobile Internet, cloud computing, and big data, to achieve innovation and improved efficiency in financial services and products.

From the perspective of business, the current fintech fields that have a greater impact on the financial market mainly include four categories:

1. Payment and liquidation, electronic money, and blockchain technology
2. Direct or indirect financing, P2P, and crowd-funding
3. Market infrastructure including big data, cloud computing, electronic identity authentication, e-aggregators, smart contracts, etc.
4. Investment management including robotic investment consultants, automated electronic trading in the fixed income market.

Authority for Fintech in Indonesia

The Financial Technology Association in Indonesia is a critical mediator between fintech industry regulators and investors.

Fintech regulators include the Financial Services Authority OJK (Otoritas Jasa Keuangan) and the Indonesian Central Bank BI.

Up until now, there are 159 registered fintech companies, and most of the companies are members of the Fintech Association. OJK claimed that their disbursement of credit from the beginning of 2018 to July 2018 reached US$534 million (IDR 7.8 trillion).

At the same time, the association is also a self-regulatory body responsible for developing industry guidelines.

Incorporation Process of Fintech Company in Indonesia

A new regulation was released on September 1, 2018, by OJK for the formation of fintech companies in Indonesia.

This new regulation called Digital Financial Innovation Regulation for Fintech Companies which OJK uses to monitor and supervise the growth and development of the fintech industry.

In this new regulation, forming a fintech company or digital service platform, whether it is a financial services institution or startup, must go through the following process:

1. Register their company to OJK. Then they will have to go through a Regulatory Sandbox. The Regulatory Sandbox is what OJK uses to test, observe and determine how the fintech companies work. For institutions, they can submit their Regulatory Sandbox’s request with one of these fields: capital markets, banking, or non-banking financial industries.
2. The entire Regulatory Sandbox process takes 12 months. It can be extended for another 6 months when it is determined to be necessary.
3. Apply for a fintech permit at OJK.

Company Incorporation – Limited Liability Company (PT)

If you would like to set up a fintech startup, the best option will be the establishment of the legal entity – Limited Liability Company (PT). To be involved in fintech businesses, your company must be the one seeking profits, and thus it is not possible for a fintech company to establish a CV (Commander Association) or a foundation with non-profit orientation.

When you set up a PT for your fintech business, you are able to separate your company assets from personal assets. If unfortunately, your business suffers a loss, your company assets will be liable but not your personal assets.

Shareholders and Ownership

Ownership is one of the critical things to consider when setting up a fintech company as well. In this case, foreigners can become owners of fintech companies. However, the maximum foreign ownership is set at 85%.

Other than that, foreigners can only transfer shares after getting approval from the FSA (Indonesia Financial Services Authority).

Investment Capital

According to the latest changes laid out in  Job Creation Law, the classification of Local PT in Indonesia based on paid-up capital as follows:

• A micro-enterprise: less than IDR 1 billion
• A small enterprise: IDR 1 – 5 billion
• A medium enterprise: IDR 5-10 billion
• A large enterprise: more than IDR 10 billion

Proof of a capital deposit is required during the permit application to OJK. When the licensing is not completed, companies are not allowed to take out the capital for any company’s operations purposes.

Licensing and Permit Application

Once your company is registered, the next process is the permit application. OJK allows a maximum deadline of 12 months to apply for the permit once the registration process is done. If companies fail to do so, their registration certificate will become invalid, and they will have to do the registration all over again.

Every business has potential frauds, fintech business is no exception. Therefore, in order to prevent these illegal activities, you will need to acquire a PSE license (Electronic System Operators) from Depkominfo (Department of Communication and Information and Technology).

OJK also has been working on synergizing with Depkominfo so that the frauds can be decreased to the minimum.

Extra Licences for P2P Businesses

One thing to take note of is that depending on the type of your fintech business, and an additional license may be required to comply with the new law. For instance, a P2P (Peer to Peer) lending business must obtain an extra license from OJK.

It is to prevent the same P2P business collapse as in China where non-registered and illegally operated businesses caused loss of life savings of many P2P users.

During the licensing stage, companies must submit their first-year business plan containing the description of the planned business activities, goals, and ways to fulfill the targets, as well as the financial projections.

Delay in Registration and Permit Application

Unfortunately, since most fintech companies are startups that begin small, they have a bigger possibility of delay in registering their company and applying for their license with OJK late. They may operate with the investors’ help or private funding which may lead to illegal exploitation of their workers and possible tax embezzlement.

As of September 2018, OJK has found 182 illegal fintech companies, and they are no longer able to run and keep their businesses. Therefore, Cekindo urges investors who would like to start a fintech company to go through the process required by law.

If your company is found to be unregistered with OJK or without a specific license and permit, there will be severe consequences to the entire fintech ecosystem.

Start Your Fintech Business in Indonesia with Cekindo

Getting into the fintech scene in Indonesia demands expertise and proper market research. Contact us for more insights regarding the registration of a fintech company. We will come back to you within two working days with a free tailor-made quotation.