The digital coming of age for NBFIs signifies a tremendous shift within the remittance industry in Indonesia. The country’s underserved community both overseas and locally, deserve the right to be brought closer to financial inclusion without being hindered by factors outside of their control. It’s an exciting time to witness how technology and NBFIs can move an entire segment of a population to redefine the remittance industry in Indonesia.
Our CEO and founder, Calvin Goh, spoke with Warta Ekonomi on the opportunity for NBFIs to live up to their promise of delivering financial inclusion for migrant workers. Read the original interview published in Bahasa Indonesia or scroll below for a translated version.
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NBFIs as agents of change to empower the unbanked with financial accessibility
Indonesia’s economy has experienced tremendous improvements and growth, partly due to the contributions of its remittance industry. Examples of this growth include achieving[1] double-digit growth last year at around 24.7 percent, with a recorded transaction value of US$8.9 billion of foreign exchange by migrant workers in 2017 and being considered as one of the top ten largest remittance recipients in Asia last year[2]. Although the country has experienced positive developments, there is still an opportunity for it to achieve even further financial inclusion and change the quality of life for Indonesians. The question is who can drive this change, how and why do they need to?
Traditionally, established banking institutions have dictated the financial agenda of a nation. However, with the developments of new technology, there is an interesting shift in responsibility. Today, non-bank financial institutions (NBFIs) such as remittance houses and liquidity providers are in the position to fill a gap in a market – to serve the underserved who rely heavily on them for remittance services, and a population whose potential contributions to the economy have been left untapped.
Unlike traditional banks, NBFIs are not required to replicate existing banking models. Instead, through collaboration with fintech players and new technology, they can build on their strengths – existing customer bases and deep expertise within the industry, to bring financial inclusion to the underserved population and companies. In reality, before collaboration, NBFIs found it challenging to break out of their silos. This means that before the opportunities were presented through fintech, these institutions were confined to operating one-dimensionally. By leveraging technology, they are able to provide digital-first offerings that result in their ability to expand and scale business operations. This realisation of the potential growth that technology can deliver has brought about a steady momentum in the number of NBFIs moving towards such collaborations, signifying the transformation of capabilities in bringing true financial inclusion.
Although Southeast Asia’s status as a financial hub is growing, only 47% of its population has access to banking services[3], or are banked. Despite its financial growth, Indonesia’s financial landscape is still uniquely fragmented with 52%[4] of their population remaining unbanked. But with this fragmentation, comes the opportunity for NBFIs to live up to their promise of delivering financial inclusion. It is reported[5] that for migrant workers, for example, the barrier to setting up a bank account is hindered by numerous factors including complexity around processes and regulations associated with opening a bank account.
By leveraging technology, NBFIs provide a seamless, frictionless and digital-first experience to individuals within the underserved population; the net of financial inclusion can be cast further. For example, the nation is made up of 17,500 islands[6], and Java island alone is home to 60 percent of the population and established financial networks. The other islands across Indonesia have yet to fully benefit from financial services. With technology providing the capability to transcend geographical restrictions, NBFIs can deliver financial offerings to micro, small and medium companies operating in rural and agricultural areas – which translates to extending these services to the unbanked or underserved community. If NBFIs in Indonesia can successfully bring financial closer to the population who would have otherwise been left unattended, they would be providing the blueprint of success for other Southeast Asian markets experiencing the same financial obstacles.
The delivery of financial inclusion is not a responsibility carried by NBFIs alone. The country has established the Financial Services Authority (OJK) as part of the Financial Services Sector Masterplan, which aims to empower 75 percent of the adult population with access to formal finance by 2019. Additionally, Bank Indonesia and the Indonesian government have also taken steps to increase financial inclusion through the National Inclusive Finance Strategy (SNKI) and the optimization of Digital Financial Services (DFS) agents to provide financial services to all parts of Indonesia.
Indonesia is no stranger to new players in the remittance space tethering on the edges of delivering financial inclusion – with the partnership between tech titan Go-Jek and Doku providing the perfect example.
However, perhaps one of the most significant partnerships to drive financial inclusion in Indonesia comes from tech Unicorn, Grab. With their recent expansion, investment and strategic partnership with Indonesia digital payment platform Ovo, Grab’s GrabPay remittance service will allow both the banked and unbanked to transact instantly and securely. With all these examples, it is evident that technology has lowered the cost when it comes to customer acquisitions, an obstacle that previously prevented the unbanked from gaining access to financial services.
It is important for NBFIs to acknowledge that the issue of financial inclusion is not isolated to just them, and that there have been great innovative solutions being developed by legacy remittance players and new players to the space globally and regionally. At a global level, remittance powerhouse Western Union launched its remittance app which allows for cross-border payment directly into bank accounts and mobile wallets. We have also seen great examples of collaboration to grow this category in the region. For example, the establishment of Liquidpay and Kashmi in Singapore, and Omise in Thailand.
In essence, with associated barriers and costs lowered and removed through technology, NBFIs are now in the position to act as agents of change in Indonesia – to empower the unbanked with financial accessibility and bring them closer to financial inclusion. This journey is not instantaneous, but the opportunity for NBFIs to fill that gap in the market will provide financial rights for those unbanked to improve their quality of life. In addition to improving the individual NBFIs’ business model, there is also immense potential for NBFIs to contribute to the positive growth of the economic foundation in Indonesia.
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A version of this interview was originally published in Bahasa Indonesia on Warta Ekonomi.