NextBillion - An Initiative of the William Davidson Institute at the University of Michigan

Tuesday, June 16, 2015

Indonesia’s tech-savvy youth have already given rise to pioneering start-ups with social and religious missions and the so-called FinTech industry is set to disrupt traditional banks by offering everything from Bitcoin remittances to mobile pawn shops and retail lending platforms.

With a large swath of the population still unbanked – in part due to the country’s challenging geography – new technologies in banking, transactions and payments offer significant growth potential, with banks under increasing pressure to respond to the trend.

Banks and regulators in Asia are at difficult levels of understanding of the sector, explained Mohit Mehrotra, an executive director at Deloitte Consulting. “Asia has a huge potential for FinTechs. Countries like India and Indonesia, with their low financial services penetration and large unbanked and underserved populations, are perfect breeding grounds with several white spaces for FinTechs to play an important role,” he told local media in May.

But collaboration with the FinTech sector is also an option and represents a potential source of growth, particularly for larger banks. “Big banks, by nature of their legacy set-ups, find it increasingly difficult for forging new digital-enabled business models that FinTechs specialise in,” said Mehrota.

This is starting to be acknowledged by the big banks. Jamie Dimon, chairman of JPMorgan Chase & Co, in a letter to shareholders in May warned there were “hundreds of start-ups with a lot of brains and money” working on various alternatives to traditional banking services.