SYNCHRONIZE FINTECH AND THE BANKING INDUSTRY
Fia Dialysa1
1 Doctoral Student in Economics of Parahyangan Catholic University, Bandung, Indonesia
*Corresponding Author: [email protected]
Accepted: 1 August 2019 | Published: 1 September 2019
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Abstract: The purpose of Indonesia banking industry is to help carry out national development to achieve equity, economic growth, and improvement of people's welfare. On the other hand, fintech offers products and services that are easier and faster than through the administrative process at the bank. Fintech can reach people who do not have access to the banking industry.
New innovations incorporated in the world of technology and the internet make the world grow faster, including currently in Indonesia is the start of a popular business related to fintech (financial technology) as a provider of financial technology that includes payment systems, market support, investment management and management risk, loans, financing and capital providers, and other financial services. The purpose of this study is to determine the relationship between fintech and the banking industry. The method used is descriptive qualitative. The data used are primary data. The result is that banks must work together with fintech as partners to grow together. Basically, there are advantages and disadvantages to the bank and fintech itself. Banks should work with fintech as partners to grow together. Distortion cannot be avoided, but can only be minimized. Although there are rules of cooperation between banks and fintech actors in POJK / 12/2018 regarding the implementation of digital banking services by commercial banks, they have not been specifically regulated. There must be regulations from the government that support innovation and collaboration between banks and fintech, so that both can play a role in national development.
Keywords: Fintech, Banking.
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1. Introduction
Fintech began to appear in the 21st century. Fintech, which is a combined word from financial technology, is an online platform that makes it easy for us to transact for any purpose. In general, fintech is an innovation in financial services that no longer needs to use paper money.
In other words, the existence of fintech turns the currency into digital to be more efficient.
(Kompas.com).There are new arrivals in the financial services industry, namely fintech (financial technology). With this newcomer, the existing banking industry must be willing to acknowledge the fact that the needs of public financial services can be better fulfilled.
The Financial Services Authority (OJK) reports that there are currently 33 financial technology (fintech) companies peer to peer lending (P2P) and crowdfunding that are registered and licensed at the Financial Services Authority (OJK). According to the OJK, around 40% of the people in Indonesia still have no contact with the banks. In other words, this number has never opened any account at a national bank. However, on the other hand, almost all residents in the country already have smartphones. The following are data on the development of internet users in Indonesia from The World Bank for the period 2014 - 2019:
Figure 1: Internet Users in Indonesia
Indonesia has great potential to develop a digital economy, seen from internet users in Indonesia in 2019, it was quite high reaching 4388 million people. Compared to internet users in 2014 amounting only to 2435 million people, it grew by 55,49 percent from the previous year. This indicates that with the increasing number of internet users, Indonesians tend to do a lot of activities online. The following is data on credit growth and economic growth from 2005 to 2017:
Figure 2: Credit Growth and Economic Growth
The credit and economic growth are continue to decline from 2005 until 2017. The existence of fintech can indeed be a threat to conventional banks that have not followed the times, namely using technology into their financial systems. Banks as conventional financial institutions have a habit of operating, which may actually have expired and the presence of fintech presents a challenge for each financial institution to be able to improve their respective roles. Fintech will have a strategic role if it is able to collaborate with banks.
2. Literature Review
Financial Technology (Fintech) in Bank Indonesia regulation number 19/12/PBI/2017 is the use of financial system technology that produces new products, services, technology and
business models and can impacted monetary stability, financial system stability, efficiency, smoothness, security and payment system reliability. Financial technology provider are includes payment systems, market support, investment management and risk management, loans, financing and capital providers, and other financial services.
According to (Bank Indonesia, 2017) the rapid development of financial technology (fintech) in Indonesia can bring many benefits as follows: (1) for the community, encourage financial inclusion, providing alternative financial services, and reduce loan interest rates. (2) for the economy, accelerate the transmission of monetary policy, increase the speed of money supply and increase economic growth. Based on the Financial Services Authority policy (2016) the benefits of the existence of financial technology (fintech) are as follows: (1) encouraging the distribution of national financing is still not evenly distributed on 17,000 islands (2) encouraging the export capability of Micro, Small and Medium Enterprises (MSMEs) which are currently still low (3) increasing national financial inclusion (4) encouraging equal distribution of the welfare level of the population (5) helping to fulfill domestic financing needs that are still very large.
Each type of financial technology (fintech) has potential risks in accordance with its business processes (Financial Services Authority, 2016). Generally, the risks may arise from financial technology (fintech) companies in Indonesia are: (a) risk of fraud (fraud) (b) cybersecurity risk (c) market uncertainty risk (market risk). The following, describes several types of financial technology (fintech) with the risks of each type as follows: (1) payment, settlement and clearing (online payment). Financial technology (fintech) company which is engaged in digital payment activities that provide services in the form of payment of online transactions. In general, it is a virtual wallet equipped with various features to facilitate online transactions between consumers and business owners or between Business to Business (B2B) business actors. The existence of a company engaged in this digital payment has several risks in its activities, (Abyan, 2018) namely transaction failure occurred, but the funds have been debited; data theft when consumers make transactions through telecommunications networks when consumers use wifi facilities in public places and are used by cyber criminals and possible misuse of data by parties who have consumer financial data (2) peer to peer lending (P2P) and crowdfunding (financing). Financing and investment includes financial technology (fintech) companies that provide crowdfunding and peer to peer lending (P2P) services. The existence of a company engaged in financing and investment has several risks in its activities, namely in the payment process, consumer data (banking and personal) will be entered into the database of service providers and there is the opportunity for lost data by irresponsible parties; and foreign nationals can register themselves as investors, so if a dispute resolution effort occurs, it must pay attention to the provisions between countries and service providers properly (3) market aggregator (intermediary). This type of financial technology (fintech) can accommodate all transactions that require transaction services from various banking accounts through a single platform. The existence of a company engaged in this account aggregator has several risks in its activities, namely: (a) the platform encountered an error when the user used it (unable to log in) (b) if the company's software management is not managed properly, it can result in transactions not being updated properly (3) loss of consumer database after information is registered on the company platform (d) there are certain banks that cannot be accessed because the security system is constantly being updated and financial technology (fintech) companies must make adjustments (4) risk and investment management (financial consultant). Personal finance companies can help consumers from making good financial reports to the wise selection of funds. The existence of a company engaged in personal finance has several risks in its activities, namely: (a) opportunities for system hacking by someone who is irresponsible
and causes confidential corporate financial reports to be spread to the public (b) the platform potential has errors and removes data that has been entered by consumers.
Types of Financial Technology (Fintech) According to (Bank Indonesia, 2017) financial technology (fintech) can be classified into four types, namely: (1) crowdfunding and peer to peer lending (P2P), this type is in the form of channeling funds to the community and can provide loans to communities that have not been reached by banks (2) market aggregator, this type of activity to collect financial data and presented to users (3) risk and investment management, this type has a financial planner concept but is digital (4) payment, settlement and clearing, this type of payment such as e-wallet and payment gateway. The Financial Services Authority (OJK) classifies fintech in Indonesia into two categories (1) fintech 2.0 for digital financial services that operate financial institutions such as Mandiri Online from Bank Mandiri (2) fintech 3.0 for technology startups that have financial innovation products and services.The distribution of fintech business in Indonesia, are :
Figure 3: Fintech Business in Indonesia
In Law Article 1 Number 7 of 1992 concerning Banking, it is entirely amended in the Law of the Republic of Indonesia Article 1 Number 10 of 1998 concerning Banking, banks are business entities that collect funds from the public in the form of deposits and distribute them to the public in the form of loans and or other forms in order to improve the lives of the people at large. In articles 2 and 4 of Act Number 7 of 1992 as amended by Act Number 10 of 1998 stated the principles and objectives of banking in Indonesia, namely: (1) the principle of Indonesian banking in carrying out its business is based on economic democracy using the principle of prudence (2) Indonesian banking aims to support the implementation of national development in order to improve equity, economic growth, and national stability towards increasing the welfare of many people. According to (Ismail, 2016:4) banks are financial institutions whose main function is to collect funds from the public, channel funds to the public, and also provide services in the form of banking services. The main function, namely (Francis, 2014): (1) collect funds from the community (2) distributing funds to the community (3) banking services include money transfer services (transfer), transfer, collection of securities, clearing, Letter of Credit, collections, bank guarantees, and other services. Based on its function in the 1992 Banking Act Article 5 In terms of its working principle, the Indonesian banking system can be distinguished from: (1) conventional banks, namely public banks and rural credit banks that use "interest money" as a basis for their activities (2) sharia banks, namely commercial banks and people's credit banks whose activities are based on sharia, including the principle of "buying and selling", the principle of "profit sharing".
fintech business in Indonesia
3. Methodology
This part will explain about methodology research. The research method is basically a scientific way to obtain data with specific purposes and uses (Sugiyono, 2014). The method used is descriptive qualitative. Descriptive method is a method used to look for elements, characteristics, characteristics of a phenomenon. This method starts with collecting data, analyzing data and interpreting it. Descriptive methods in its implementation are carried out through: survey techniques, case studies, comparative studies, studies of time and motion, behavior analysis, and documentary analysis. Thus, qualitative descriptive research is only describing responses to situations or events, so as not to explain causal relationships or test hypotheses. Qualitative methods are called new methods because of their recent popularity.
Qualitative methods are used to obtain deep and meaningful data, namely actual data and definite data. The data source according to (Sugiyono, 2014) is the data source referred to in the research is the subject from which data can be obtained. The data used in this study are primary data. According to (Sugiyono, 2016), primary data is data obtained directly covering company documents in the form of history of company development, organizational structure and others related to research, in the form of interviews, polls from individuals or groups (people) or the results of observations of an object, event or test result (object). In other words, researchers need to collect data by answering research questions (survey methods) or research objects (observation methods). The advantages of primary data are data that better reflect the truth based on what is seen and heard directly by researchers so that the elements of lies from phenomenal sources can be avoided. The disadvantage of primary data is that it requires a relatively long time and the costs incurred are relatively large.
4. Conclusion
Chairperson of the Financial Services Authority (OJK) Board of Commissioners, Wimboh Santoso encouraged the banking industry to develop financing technology (fintech). Because, fintech as part of technological development cannot be denied. Fintech offers products and services that are easier and faster than having an administrative process at the bank. Fintech can reach people who do not have access to the banking industry. This must be considered by the banking world. Banking should have cooperated with fintech as a partner to grow together.
Technological developments that occur in the financial services sector also have a negative impact. However, this does not mean that Indonesia will then close itself to technological developments. Distortion is unavoidable, but can only be minimized, just focus on customer protection. Even if you search further, the target for fintech and the bank is actually different.
Financial technology can accommodate borrowers who have the capability to be funded, but have not been able to penetrate the bank's credit scoring. As well as financing parties who do not have a track record of obtaining credit from the bank. The party here means the community, including MSME owners, students, and so on. This funding clearly serves to increase national financial inclusion so that in the end, they are ready to borrow from the banking sector. So, in the end this proves that the banks and fintech actually have a great possibility to collaborate in building the Indonesian economy. Indonesian banking should think more about what steps are then taken to collaborate with Fintech. Even in 2016, a study of European management consultants Accenture recently discovered that 80% of banks in London see working with fintech startups as business opportunities.
The Financial Services Authority (OJK) officially released a regulation related to the existence of financial technology (fintech) companies in Indonesia. Through rule No. 77/ POJK.01/2016,
OJK issued a regulation regarding the implementation of information technology-based lending or known as P2P lending. P2P lending is an activity that brings together capital owners and those who need capital. Using a digital platform, those who need capital can apply for capital by fulfilling the conditions specified by the P2P lending service provider institutions.
The service provider then determines the level of risk of the applicant who will determine the interest rate applied. On the other hand, the strengthening of recognition of fintech is an alarm for the banking industry. The emergence of P2P lending has the potential to disrupt loan interest income which is one of the bank's core businesses. The challenge is getting bigger considering that startups in Fintech are not just P2P lending. There are fintech that target mutual fund investment services, purchase insurance products, remittances, to wealth management.
Some things that can be done by the bank in order to continue to exist: (1) think like fintech.
One reason why fintech startups look agile and relevant is their courage to innovate. They are not fixated by traditional thinking so that they are responsive to the dynamics that occur in consumers. This courage can actually be done by the bank (2) embrace new technology. Digital technology that continues to develop actually offers opportunities for use in the financial industry. So far, only fintech has been swift in using this new technology. In fact, banks can actually do it too (3) focus on engagement. The customer engagement with the bank proved to be of great benefit. Therefore, it is very important for banks to be able to establish these attachments. The bank actually has good capital for that, namely customer data. By conducting a more comprehensive data analysis, banks can find out the profile of each customer. Armed with this information, banks can offer more personalized banking products (4) safety first.
Other capital owned by banks and not owned by fintech is high trust from consumers. This capital must be utilized by continuing to demonstrate competence in protecting customer data.
Investments in the fraud detection system, for example, are things that banks can do to further increase that trust.
Bank Rakyat Indonesia (BRI) Finance Director Haru Koesmahargyo said in the face of fintech BRI would do two things. Within BRI will make innovations that will accelerate the operational process. One form of innovation is in the provision of credit, especially microcredit called BriSpot. In micro-credit disbursement it takes days. To exit, BRI focuses on creating a customer experience so that customers can access, make applications. BRI wants to give customer experience starting from opening an account to applying for credit. Everything is application based without having to go to the office. In the other side, PT. Bank Central Asia Tbk states that it does not close itself to collaboration with Fintech. BCA's Strategic Information Technology Executive Vice President, Hermawan Thendean, said that he had carried out various initiatives to collaborate with Fintech. One such initiative is the launch of the Application Program Interface (API). With this service, fintech and e-commerce players can connect with BCA banking services. In terms of financing, BCA has also launched Central Capital Venture (CCV). This venture capital company was formed together with BCA Finance.
through the venture capital company, BCA will invest Rp 200 billion in funds for fintech startups which are expected to help their financial services. The Institute for Development of Economics and Finance (Indef) researcher Bhima Yudhistira explained that the presence of fintech brought two sides (threats and opportunities) to the banking industry, namely the presence of fintech would cause banks to digitize and automate. This step will cut banking costs by around 30 percent. For the revenue side, it is expected to increase due to the presence of new innovative products and innovative business models.
In addition, explained (Hadah, 2017), fintech also carries other threats, namely innovative competitor products and increased operational risk. Reporting from Techinasia, here are the benefits felt by market participants if investing in fintech: (1) customer acquisition.
Collaborating or investing in fintech allows banks to cut the acquisition costs. They can also offer their traditional services and products with higher margins (2) getting market differentiation. Consumers receive new and unusual messages, they tend to record them in memory. They will more easily recognize the advantages and image of innovation in all your products (3) obtain a lower risk. The bank continues to struggle to reduce the risk of loans, which is the main and most profitable service. Fintech startup allows banks to gather information about clients before offering loans to them. This can reduce risk to be lower, and this will help you know the financial status of consumers, how to communicate with them, what service options are right for them, and know the quality of your business as a whole (4) inspiration for best practices can be obtained from anywhere (5) get talented talent. You can get good individuals, but it's not easy to bring a team and entrepreneur. An entrepreneur wants to be independent and work for themselves, while the team inside is not formed because of their boss, but more because they have a common goal, spend time together. and share the same value. They don't need a plan or a series of training to become a team. Buying a startup is also an HR tactic on Google, Facebook and Yahoo (6) get knowledge and access to new industries.
Not only banks, telecommunications companies and web giants are also interested in fintech startups. They have money, a strong customer base, and the desire to offer more products online to their clients. Now, the financial sector is a sweet spot for them. They don't buy banks, but are eager to buy startups (7) internal changes in the company. Traditional conventional banks generally have several thousand or even tens of thousands of employees, most of whom work well and generate profits. There is no reason to fire them, but the HR department and management will have difficulty changing their way of thinking and seeing the new world. In this context, buying a startup seems like a blood transfusion to revive an aging body (8) get additional "bonuses". In acquiring a startup, the most important thing we have to look at is the people in it, their vision, and their products, regarding that value will come naturally. What we buy is the future, not their cash flow. If they are unique, then you have to invest in it. This collaborative model benefits both parties. For fintech, they get access to a variety of important growth levers: customers, distribution, data, capital, experience, licenses, trusted brands, and the ability to scale far faster. For older players, this means getting access to new ideas, solutions, capabilities, knowledge, and investment opportunities that are owned by new players who usually focus on specific problems or opportunities and have a much lower cost structure.
This ultimately allowed the defense to become more agile, provide strategic choices, by embracing helpful fintech innovators. The advantages and disadvantages of banks and fintech such as:
Table 1: The Advantages and Disadvantages of Banks and Fintech
BANK FINTECH
(+) (-) (+) (-)
- Has a license to move funds from one bank to another or from one account to another - Reliable in
mitigating risks - Experienced in security system procedures
- Less able to meet consumer needs where everything is done online and
smartphones that have become part of lifestyle
- Long process of replacing/presenting services
- Offering convenience, attractive features, low cost
- Flexible and innovative in making products - Services in accordance
with the needs,
especially of the younger generation who want an easy, unique and simple journey
- Pressing operational costs
- A computer or smartphone that is connected to the internet is needed to access financial technology services - Prone to fraud - Higher interest costs.
Generally fintech services rely mostly on traditional finance in channeling loans. This can add to the costs incurred by consumers.
The conclusions are, fintech as part of technological development cannot be denied. Fintech offers products and services that are far easier and faster than having to go through an administrative process at the bank. Fintech can reach people who do not have access to the banking industry. This must be considered by the banking world. Banking should have cooperated with fintech as a partner to grow together. Basically, there are advantages and disadvantages of the bank and fintech itself. Although there have been rules of cooperation between banks and fintech actors as stipulated in POJK/12/2018 concerning the implementation of digital banking services by commercial banks, they have not yet been specifically regulated. There must be regulations from the government that support in terms of innovation and collaboration between banks and fintech, so that both can play a role in national development.
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