Indonesia stands at the top of the Asia Pacific region in terms of unbanked population, as three-quarters of its 250 million people are still outside of conventional financial systems and without the technology to access basic financial services. With only 12 per cent of 60 million micro-SMEs able to provide a suitable history of accounts, according to a KPMG study, one of the many pitfalls for any fintech institution, NGO or lending group in Indonesia is how to assess the creditworthiness of customers with little to no formal credit history.
One technology being used to assess repayment capabilities is data aggregation: collecting various non-financial data such as mobile phone usage, social media and utility bills. The data is then used to determine both the ability and willingness to pay back a loan.
Another method to create a credit score in Indonesia is through psychometric evaluation. This method involves questionnaires to measure behavioural and psychological traits associated with the inclination to repay. The test, pioneered by Entrepreneurial Finance Lab (EFL), can be delivered by SMS/text message or through a mobile app.
Bank Tabungan Pensiunan Nasional (BTPN), one of Indonesia’s largest banks, uses this method for their group-lending products targeting unbanked micro entrepreneurs. BTPN partnered directly with EFL to assess the creditworthiness of 100,000 potential borrowers across 600 branches throughout the country.
Almost by definition, serving unbanked populations means dealing with cash. Non-cash methods only account for 10 per cent of transactions in Indonesia (KPMG) and in rural areas, given the lack of financial infrastructure, cash is not only king, it is the whole royal family.
Dealing with cash is a challenge from a logistics and risk perspective, but last-mile payment services such as Kudo or Storeking are being used to collect, record, store and deposit large sums of cash in many locations. Several conventional Indonesian banks including BNI, Mandiri and Danamon also pick up cash, count it on site and deposit it to customer accounts. Insurance is included in the cost of service during transport.
For fintech companies in Indonesia, mobile apps are central for delivering services to customers and supporting daily operations. However, one pitfall of serving the country’s unbanked populations in rural areas is the risk of intermittent 3G or 4G coverage. One way to meet this challenge is to use APIs such as Telerivet or Twilio, which can reach even the most connectivity-remote areas. The Offline-First app is another solution as it is designed to first work offline. After an agent is finished canvassing an area, they can then seamlessly upload the data of potential customers once back online.
The most popular use of this concept is the progressive web application (PWA) that enables websites to be available offline and treated as mobile apps. This concept is supported by Google and is currently gaining traction among web developers.
Despite the many difficulties for micro financers in Indonesia, there is much potential in fintech for banks, entrepreneurs and start-ups. The country is currently experiencing rapid fintech expansion with more than 150 start-ups and record-high investment of USD 57 million in 42 deals according to the latest data from 2017. The time is now to get involved.