The rise of digital financial innovation in Indonesia

Following the boom in internet usage and more advanced smartphone technology as well as the development of information and technology over the past decade, Indonesia has witnessed the rise of so-called digital financial innovation (DFI) companies. These companies offer innovative technology-based financial services, which are often not specifically covered by existing regulated models.

DFI companies are overseen by the Indonesian Financial Services Authority (OJK), which has publicly recognized the role of DFI companies in accelerating financial inclusion in Indonesia. These companies are helping to facilitate financial access for individuals and businesses, and they are becoming a catalyst for the rapid growth of the digital economy by offering a wide range of innovative and interconnected financial services.

To operate a DFI business in Indonesia, foreign investors must set up a limited liability company (Perseroan Terbatas) and register with the OJK. The exemption from registration only applies to companies that are already registered with the OJK or have obtained a license from the OJK and have supplied the registered business model to the OJK, their products remaining unchanged. Failure by an IFD company to comply with the registration requirement could lead to certain sanctions.

If an IFD company has a distinctive business model, the OJK may require the company to be placed in the so-called “regulatory sandbox” for further assessment. There are 15 DFI models in the regulatory sandbox, including:

  • A financial aggregator, web-based platform or application-based platform developed to assist customers by providing information on financial products and enabling customers to compare similar products from different financial companies. Examples include housing finance, credit cards, bank savings and insurance products.
  • An alternative credit scoring, web-based platform, or app-based platform focuses on analyzing and processing a borrower’s non-credit related data to generate the borrower’s credit score for financial companies.

As of January 2022, the OJK registered 83 DFI companies. The aggregator, credit rating, and funding agent models were the most popular models on the list.

Protection of personal data

DFI companies must ensure the protection of personal data. Pending the promulgation of the first single general law on the protection of personal data, DFI companies are subject to the obligations of protection of personal data as regulated by the regulations of the Ministry of Communication and Information Technology (MCI ) and the OJK regulations.

Here are the highlights of the above regulations:

  • Personal data means information about an individual that can be identified, directly or indirectly;
  • Any act of collecting, analyzing, distributing, transferring, deleting and displaying personal data must be based on the written consent of the data subject, either manually or electronically, in the Indonesian language;
  • The transfer of personal data to offshore countries must be reported to MCI, before and after the action.

Illegal practices

Although the OJK may appear to support all developments that occur in the financial services sector, it remains deeply concerned about the business conduct of those involved in the sector, particularly with regard to consumer protection.

These concerns of the OJK are not without reason. Local Indonesian media reported that some online platforms, such as Binomo, Fahrenheit and Quotex, were under police investigation for allegations of fraud. Indonesia has seen the rise of digital platforms pretending to be trading platforms or investment platforms, but actually offering gambling or other illegal or fraudulent practices.

Given recent cases and the growing number of police reports filed by retail investors victimized by these illicit platforms, we expect the regulator to continue to monitor players’ business conduct with the utmost caution and scrutiny. strict, in order to ensure maximum consumer protection and the proper use of personal data.

Jeanne Elisabeth Donauw

Partner, Walalangi & Partners


Andhika Indrapraja

Partner, Walalangi & Partners

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