FinTech Control Tower by BCG
Our global fintech platform draws on proprietary data tools, the latest market intelligence, and BCG’s fintech consulting services to help clients.
Indonesia’s fintech landscape is booming, driven by increasing digital penetration and positive investor engagement across this high-growth nation of nearly 300 million citizens. This is a market with huge fintech potential, with large underserved and underbanked populations, low access to finance in MSMEs, and an open and encouraging government dialogue about leveraging fintech capabilities to bridge the financing gap.
In order to understand this landscape, Boston Consulting Group (BCG) has gathered the voices of key stakeholders, including in-depth interviews with 20 industry leaders, backed by comprehensive surveys of customers and small- and medium-sized enterprises (SMEs) to build a clear picture of the current ecosystem, and its expected evolution.
The number of fintech players in Indonesia increased six-fold over the last decade, rising from just 51 active players in 2011 to 334 in 2022. While the first wave of growth was dominated by the payment segment, the vibrant modern ecosystem is a diverse landscape driven by lending, payments, and wealth. Wealthtechs, fintech-focused software as a service, and insurance activities now represent a new, emerging driving force, with a number of fresh entrants operating in these segments, showing Indonesia’s fintech ecosystem is maturing beyond payments to include increasingly sophisticated products and services.
Customer engagement with fintech offerings continues to surge In particular, the payment segment boasts over 60 million active users and is expected to grow at a rate of 26% annually between 2020 and 2025. Meanwhile, in the lending space, there are more than 30 million active peer-to-peer (P2P) borrower accounts. Additionally, the wealth segment is thriving with over 9 million retail investors. Fintech SaaS is also experiencing a surge in adoption, with six million SMEs now using SaaS platforms. This marks a remarkable 26-fold expansion over the previous three years.
Transaction values also continue to grow, with more than US$20 billion of e-wallet transactions in the period 2017–2021, a remarkable 123% CAGR. Over US$17 billion in loans were disbursed between 2017–2022, while a net asset value of over US$20 billion in wealthtech and digital trading took place in 2021.
Investor sentiment remains encouragingly bullish for Indonesia’s fintech journey. Equity funding into fintech soared to US$1.5 billion in 2021. While a significant portion of funding went towards payments and lending players, 2021 also represented a breakout year for wealthtech players, who received over US$500 million in funding. While the year 2022 saw a slight decline in the overall funding value—with global macro-economic concerns affecting investor sentiment—Indonesia still attracted funding of almost US$1.4 billion, demonstrating the resilience of the ecosystem.
Investment into fintech in Indonesia in the period from 2020–2022 reached US$3.2 billion, 4.6X the funding seen in the period from 2017–2019, demonstrating strong investor commitment. While a large share of the funding has flowed to more mature companies, 60% of the deal volume has flowed to early-stage companies indicating a strong desire to invest in emerging innovation.
Investment trends also echo the diversification of Indonesia’s fintech market, with lending and payments no longer being the primary areas of interest. While lending and payments remain important, there is increasing investment into wealthtech, insurtech, and fintech SaaS. Fintech in Indonesia is a rapidly expanding space, with emerging players existing alongside more established products and operators.
We engaged in discussions with over 20 fintech executives occupying C-suite positions or higher, in order to gain insight into the current sentiment surrounding industry priorities, as well as potential developments in the future. Through our research, we have uncovered compelling narratives that offer valuable insights into emerging business priorities, perspectives on partnerships, and the regulatory landscape in Indonesia.
With tightened market liquidity, there is increasing focus on profitability and sustainable unit economics. In this context, startups are rethinking how they do business, moving from growth at all costs to value-based growth. This will have important implications for future expansion. Business strategies will need to adapt to optimize distribution models and ensure more cost-effective customer acquisition.
There is also increasing competition in the market, not only from other fintechs, but also established tech firms expanding into the fintech realm, as well as traditional banks looking to provide fintech solutions. Larger tech firms such as Grab, Shopee, and GoTo have the benefit of an established ecosystem, captive user bases and stronger financial means to rapidly scale their presence in the fintech space. Traditional banks have deep coffers and the benefit of lower cost of capital (and higher margins), and offline presence. In the face of increasing competition, fintechs will need to double down on strengthening their unique value proposition. Partnerships in the broader ecosystem are especially valuable to strengthen distribution and allow for stronger defensibility.
The other important priority going forward will be to plan for talent. In Indonesia, hiring and retaining specialized tech talent has historically been a challenge. As the fintech landscape matures, hiring specialized talent especially in areas such as risk, artificial intelligence and machine learning will be especially important. Similarly, internal governance and senior management roles continue to be difficult to fill. Fintechs must carefully plan their hiring roadmap and integrate sage talent management practices to win in this landscape.
Across this evolving paradigm, fintech regulation has a very important role to play. Regulation in Indonesia continues to be progressive, nurturing growth through the introduction of initiatives such as the national SNAP standards, as well as fresh regulation to offer guardrails to evolving digital asset adoption. As the industry matures, a progressive setup is expected to support continuing fintech innovation.
Increasing Emphasis on Profitability in the New Paradigm
Evolving Regulatory Setup Encouraging Innovation
Collaboration in a Changing Landscape
Gaining a comprehensive understanding of Indonesia's fintech retail customer landscape is crucial for assessing the broader ecosystem. To this end, BCG conducted an in-depth consumer survey of over 1,000 representative respondents from Indonesia.
Overall, we see digital payments as the leading vector for customer penetration in Indonesia, with almost three-quarters of respondents utilizing a fintech product. However, the broader retail market for financial services remains largely untapped for both fintechs and traditional financial institutions, with over 60% of respondents not using any lending, wealth, deposits, or insurance products. Despite significant growth in the usage of fintech products, especially in the post-COVID landscape, there is still a significant opportunity to increase overall consumer awareness and adoption.
Customers utilize traditional banks as their primary provider for deposits and insurance products, with 9% and 1% adoption of products in fintechs for these respective segments, compared to 27% and 38% for traditional banks. This presents a generational opportunity for fintechs to capture share away from banks—particularly given evidence that young consumers are more receptive to adopting fintech solutions—with both sectors offering significant disruption potential.
Consumers aged 18–30 years comprise the most fintech-literate segment today. This does present an opportunity for fintechs to capture higher shares of older age groups, particularly in verticals beyond payments.
This demographic reality suggests older consumers remain relatively underserved by fintechs, whose target segment—and by extension value proposition—is mainly angled towards the millennial and Generation Z groups. Fintechs should consider building tailored offerings to capture a share of older consumer segments from traditional financial institutions. Analysis of the income group distribution of fintech penetration also demonstrates a clear white space for fintechs to capture outside the payment segment, with penetration across these verticals standing at less than 25% for all income groups.
Given the relative penetration of fintech and banking products across demographics, it’s important to consider how key product and customer experiences differ across key dimensions of ease of use, onboarding, security, promotions, and access to additional financial services.
Fintech players have a slight edge over traditional banks in terms of overall usage. They also surpass banks in providing financial incentives, such as promotions and discounts, as well as access to additional financial products through cross-selling and value-added services. While an edge in cross-selling is a source of competitive advantage that fintechs should aim to maintain, overreliance on incentives could undermine the long-term view of the industry, and non-incentivized usage may be much lower for fintechs.
Our research also indicates that the user interface and user experience gap between fintechs and banks is narrowing. Banks are catching up in customer experience metrics where fintechs had previously outperformed them, such as seamless onboarding journeys. To preserve their lead over banks, fintechs need to adopt a more innovative approach to user-friendly delivery while reducing their reliance on incentives and product promotions.
Encouraging new user adoption is a critical factor in fintech growth. Our research identifies three key barriers that must be addressed among retail customers:
In addition, to drive greater adoption, fintech companies must take into consideration the desires of their customers. According to our survey, consumers have three key aspirations :
These findings illuminate some important imperatives for the future growth of Indonesia’s fintech industry. Firstly, investing in platform safety and security should be a top priority to instill confidence in consumers and alleviate any apprehensions they may have regarding the trustworthiness of financial service providers. Secondly, fintech companies must adopt a multi-product strategy and work towards offering a comprehensive range of financial services to cater to diverse customer needs. Lastly, consumers continue to expect attractive financial incentives from fintechs, and therefore there continues to be a play wherein finechs can grow their user bases through aggressive pricing.
However, eventually fintechs will have to strike a balance between being attractive through incentives and maintaining sustainable unit economics. While low prices may make fintechs attractive to consumers, it is unlikely that such pricing strategies can be sustained in the long term.
Payments Powering Adoption
Low Lending Penetration Offers Compelling Opportunity
Shifting Dynamics in Deposits and Wealth
Fintech adoption among SME consumers is still in its early stages, especially beyond payments, creating significant opportunities for lending, wealth, and deposit players to target untapped markets.
Compared to the consumer market, fintech players have yet to fully penetrate the SME market, adoption rates in categories other than payments being below 10%. Even in payments, fintech penetration is only about a third of the overall base.
Lending and fintech SaaS products have yet to significantly penetrate across key consumer-facing SME sectors. The lending sector offers the most consistent picture of low adoption, with a high of 23% in wholesale sectors, to lows of 3% in groceries. There are some more encouraging signs in the software space, although adoption is concentrated around sectors with specialized software needs such as pharmacies, while sectors with B2B2C linkages such as wholesale, and groceries, continue to demonstrate large gaps with value to capture for SaaS players.
In order to successfully expand in the SME space, fintech players need to rethink their value propositions and deploy tailored products and fundamentally different distribution strategies than those used in B2C verticals. The path to wider adoption is likely to be through wider adoption of digital payments and away from cash. Interventions should focus on digitizing consumers and SMEs in parallel, as both sides of this dynamic will need to be enabled to support and guide a transition from cash to digital payments. In lending, providers must innovate to overcome inherent risks with regard to lending to SMEs, particularly in less economically mature regions. In the fintech SaaS space, providers will need to educate SMEs on the potential benefits of fintech solution and actively encourage early engagement with products, particularly in online sales and marketing, and accounting solutions.
Powering a Payment Transition for SMEs
Opportunities in the Lending Landscape
Fintech SaaS for SMEs Continues to Be Nascent
Indonesia’s vibrant fintech ecosystem is a sleeping giant with barely tapped potential. Realizing that opportunity could unlock significant value for ecosystem players, economies, and the customer base, boost financial resilience and enhance financial inclusion.
Informing and steering a future path to sustainable growth will require deep ecosystem understanding, and careful consideration of the strategic route forward to maximize value and maintain competitiveness in this rapidly evolving space. That could, and should, be guided by key learnings from successful implementations around the globe.
Through our comprehensive research of financial ecosystems and interventions in markets around the world, we have identified critical imperatives for fintech players, incumbent operators, and regulators.
These strategic recommendations provide a roadmap for achieving success in the financial services market, as industry players, government bodies, and regulators work towards strengthening the financial ecosystem in Indonesia, Southeast Asia's largest economy.
Ongoing innovation and dynamic customer habits will continue to transform the fintech ecosystem, meaning that an ability to adapt—for both operators individually and the ecosystem as a whole—will be critical to sustainable success. As Indonesia’s sleeping fintech giant continues to stir, the value that can be captured within this ecosystem is bound to increase. The key question is which of the incumbent operators and emerging fintechs will position themselves at the forefront of this financial evolution and emerge as leaders.