Digital Financial Services in Indonesia

For Indonesia, Digital Financial Services (DFS) may well be the next big thing, combining existing mobile phone usage and the country’s increasing appetite for financial services. The prospective entry of millions of unbanked and underbanked consumers into the financial system is the result of the increasing prevalence of mobile devices. DFS not only promises accelerated economic growth in Indonesia, but also will yield significant changes in business practices and replace traditional methods of financing. Most importantly, DFS will likely extend its reach beyond major city centres and into the provincial hinterland, where the bulk of unbanked and underbanked consumers reside.

Globally, approximately 2.5 billion people do not have formal accounts at a financial institution, with 65% and 58% of the population in Latin America and South Asia considered unbanked respectively. While the DFS market is nascent in Indonesia, it is well-developed in other countries with large unbanked populations. A full appreciation of the market opportunity for DFS in Indonesia requires an understanding of successful models in other countries, DFS’ national and local impact across Indonesia, and critical success factors for DFS deployment in the country.

Local Indonesian insights and knowledge of DFS paradigms in other markets help establish a better understanding of the key success factors needed to implement DFS in Indonesia. These factors vary for the private and public sectors. Private sector participants such as financial services institutions and telecommunications companies have a direct role to play in driving DFS adoption and promoting financial literacy for the unbanked. Meanwhile, the public sector can help build the infrastructure to make the DFS eco-system possible. The partnership between the private and public sectors is critical to the success of Indonesia’s digital revolution in financial services.