Regulation Urgency of Financial Technology to Encourage Financial
Literation in Indonesia
Dwi Fidhayanti
1
, Muhammad Hatta Satria
2
, Suwandi
1
, Erfaniah Zuhriah
1
, Faridatus Syuhadak
1
1
Faculty of Sharia, UIN Maulana Malik Ibrahim Malang, Jl. Gajayana No. 50 Malang, Indonesia
2
Faculty of Islamic Studies, University of Malaysia
Keywords: Financial Literacy; Financial Technology; Regulation
Abstract: The latest technology innovation, namely innovation in the financial field called financial technology or
abbreviated as Fintech. People can access financial services easily using only the internet and electronic
devices. However, the development of financial technology services has not been matched by sufficient
regulation. The use of technology is vulnerable to crime by breaking into security systems that exist in
systems in financial technology or even prone to intrusions related to money laundering and terrorism
financing. For this reason, regulators need to be encouraged to formulate strategic policies that ensure the
financial risks of technology can be mitigated and provide protection. Bank Indonesia and the Financial
Services Authority as regulators prepare regulations that can protect customers and service providers. The
regulations prepared are not only from two institutions that have the authority to supervise and regulate the
financial technology sector, but are regulated by the Ministry of Communication and the Ministry of Trade.
Financial technology start-up companies before starting a business must meet the requirements and permits
as regulated by Bank Indonesia and the Financial Services Authority.
1 INTRODUCTION
Technology has been known to humans since
millions of years ago because of the urge to live a
more comfortable, more prosperous and more
prosperous life. Technology has been used as an
indicator of the progress of a country. The state is
said to be advanced if it has a high technology level,
while countries that cannot adapt to technological
progress are often referred to as failed countries
(Ngafifi, 2014). Some countries included in the
category of developed countries, among others: 1)
USA 2) Japan 3) India 4) China 5) Germany 6)
Russia 7) Israel 8) North Korea 9) Canada 10)
Singapore 11) Sweden 12) Finland 13 ) England 14)
France 15) Philippines.
Technology changes the way humans live their
lives. The existence of technology in life
Technological advances have been included in
various fields such as medicine, military, bioscience
and digital technology. The latest technology
innovation, namely innovation in the financial field
called financial technology or abbreviated as
Fintech. Fintech has become a new innovation in the
financial business world, making it easier and more
efficient. The community is no longer traditionally
served by coming to the bank office directly. People
can access financial services easily using only the
internet and electronic devices.
Fintech companies in Indonesia consist of
various sectors such as payment (digital wallets,
peer to peer payments), financing (crowdfunding,
micro-loans, credit facilities), investment (equity
crowdfunding, Peer to peer lending), insurance (risk
management), cross -process (big data analysis,
predictive modeling), and infrastructure (security).
Based on data from the Indonesian Technology
Financing Association (Aftech Indonesia) as of
September 2017 there are 187 financial technology
services that have been present in Indonesia. This
amount does not include startups or business start-
ups who are still preparing to be fully operational.
Of the 187 financial technology services, 39% offer
payment services (digital wallets, peer to peer
payments), 26% provide financing services (micro-
loans, credit facilities), the rest provide
crowdfunding services, personal financial planning
and others. The Financial Services Authority (OJK)
noted that there are 54 financial technology
companies listed in the regulator consisting of 53
Fidhayanti, D., Hatta Satria, M., Suwandi, ., Zuhriah, E. and Syuhadak, F.
Regulation Urgency of Financial Technology to Encourage Financial Literation in Indonesia.
DOI: 10.5220/0009925102290234
In Proceedings of the 1st International Conference on Recent Innovations (ICRI 2018), pages 229-234
ISBN: 978-989-758-458-9
Copyright
c
 2020 by SCITEPRESS – Science and Technology Publications, Lda. All rights reserved
229

conventional fintech companies and one Islamic
financial technology company. The Financial
Services Authority will record as many as 164
fintech companies that have been registered and
there are already 34 companies that are in the
registration process.
Service ease and time efficiency are considered
by many users of financial technology services.
However, the development of financial technology
services has not been matched by sufficient
regulation. The use of technology is vulnerable to
crime by breaking into security systems that exist in
systems in financial technology or even prone to
intrusions related to money laundering and terrorism
financing. For this reason, regulators need to be
encouraged to develop strategic policies that ensure
the financial risk of technology can be mitigated and
provide protection to the public. This is because, the
financial technology has a good level of
effectiveness to improve the quality of banking
services in Indonesia, so that the banking
management can implement it to reach all levels of
Indonesian society, especially for people living in
the 3T area (Frontier, Outermost, and Isolated)
(Chrismastianto, 2017).
2 METHOD
This research is a normative research by examining
juridical construction that can minimize the financial
risk of technology and provide a positive impact to
improve financial literacy for the community. The
approach used is the legislative approach and the
conceptual approach. Primary legal materials,
secondary legal materials and tertiary legal materials
are obtained through literature studies and then
analyzed using legal construction methods.
3 DISCUSSION
3.1 Financial Technology
Financial Technology (FinTech) is a form of
application of information technology in the
financial sector. Financial technology is a
development of financial technology that emerged in
the 21st century. The National Digital Research
Center in Dublin, Ireland defines financial
technology or fintech as: "innovation in financial
services" or "innovation in financial services".
Financial Technology is a new industry that uses
technology to improve activities in finance
(Sanikula, 2017) Basically Financial Technology is
applied to back-end technology to consumers for
financial transactions.
The definition of financial technology according
to T. Lee and H. Kim FinTech as a new type of
financial service based on the broad type of
corporate users, combined with IT technology and
other financial services such as money transfers,
payments, asset management and so on. Fintech
covers all technical processes from increasing
financial software to programming new types of
financial software that can affect the entire financial
service process (Lee, 2015).
Meanwhile B. Nicoletti understood FinTech with
an approach from two complementary areas:
financial services and solutions based on advanced
technology. Economic literature does not agree with
one definition of FinTech because of the overall
diversity of businesses. The word "FinTech" has
entered the Oxford Dictionary as: "Computer
programs and other technologies used to support or
activate banking and financial services" (Nicolleti,
2017). The state of California (especially cities in
Silicon Valley) is where technology finance is
developed. California became the second largest
country after Britain, which developed financial
technology to a large extent on a global scale. In
Asia, there is Zhong An who has successfully
developed financial technology. Zhong An is a joint
venture between Alibaba Group Holding, Tencent
Holdings and Ping An Insurance that provides large
data to provide online property insurance,
wealthfront (a company that provides affordable yet
sophisticated investment management services), and
Kreditech (companies that provide financial services
with focus access to credit) (Buckley, 2017).
In today's digital age, and with significant
demographic shifts in the population, people are
seeking easy access, convenience, efficiency, and
speed. Financial activities are increasing along with
the use of technology in life because people are
easier to access financial products, easy to do
transactions and also improve financial literacy. The
use of smartphones for mobile banking, to access
online investment services and currency exchange is
an example of the use of technology that aims to
provide financial services to be more accessible to
the public. For companies, the use of technology for
financial products also provides efficiency in
production costs for each product that is issued and
increases the effectiveness of time both in collection
and funding.
Financial technology uses applications,
processes, products and new business models in
financial services that consist of complementary
financial services and is provided as an end-to-end
process through the internet. Fintech companies can
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target both corporate and retail segments. Today
FinTech comprises five major areas, including: (a)
Finance and investment: Currently investors and
regulators focus on alternative financing
mechanisms, especially crowdfunding and P2P
loans. However, FinTech has gone through this
scope with the aim of including financing its own
technology, for example through crowdfunding,
public offerings, venture capital, private equity,
listing, etc; (B) financial operations and risk
management: This is the first driver of IT spending
carried out by financial institutions, starting in 2008
as financial institutions have been trying to build
better compliance systems to handle the large
volume of changes in post-crisis regulation. From an
evolutionary perspective, the development of
financial theory and quantitative financial techniques
and their translation into financial institution
operations and risk management are the main
features of the 1990s and 2000s, because the
financial industry established a system based on
VaR and other systems used to manage risk and
maximize profits. Henceforth, this is a possible area;
that will continue to grow driven by costs and fines;
(c) Payments and infrastructure: Payment of internet
and cellular communications is a driving force in
several developing countries and is the main focus
of FinTech, this problem is more clearly in Part 5 as
the foundation of FinTech 3.5. Since the 1970s, the
payment process has become a very attractive area
that can lead to the development of domestic and
cross-border electronic payment systems. Currently
it has supported the global foreign exchange market
of US $ 5.4 trillion per day. Likewise the
infrastructure for securities trading and settlement
and also for trading OTC derivatives continues to be
a major aspect of the FinTech landscape, where IT
and telecommunications companies are looking for
opportunities to eradicate traditional financial
institutions; (d) Data security and monetization:
These are key themes in FinTech today especially as
both FinTech 2.0 and FinTech 3.0 start to exploit the
monetary value of data. Following the GFC, it has
become clear that the stability of the financial
system is a national security issue. The digitized
nature of the financial industry means it is
particularly vulnerable to cybercrime and espionage,
with the latter increasingly important in geopolitics.
This digitization and consequent vulnerability is the
result of decades of development, highlighted in
previous sections, and, going forward, will remain a
major concern for governments, policymakers,
regulators and industry participants, as well as
customers. At the same time, FinTech innovation is
clearly present in the uses to which “big data” can be
applied to enhance the efficiency and availability of
financial services; (e) Consumer interface:
particularly online and mobile financial services.
This will continue to be a major focus of traditional
financial services and non-traditional FinTech
developments. This is another area in which
established and new IT and telecommunications
firms are seeking to contest directly with traditional
financial services firms; and, interestingly, it may
well be in developing countries where factors
increasingly combine to support the next era of
FinTech development. This vertical holds the
highest potential of competition with the traditional
financial sector, as this tech companies can leverage
of their pre-existing large customer bases to roll out
new financial produts and services (Arner, 2017).
3.2 Development of Regulations on
Financial Technology in Indonesia
According to data from the Central Statistics Agency
(BPS) from survey data of population aged 15 years
and over, there are 190.5 million people. Of this
amount, 82.2 percent, aka 156.6 million people do
not have an account. Only 17.8 percent, around 33.9
million people have at least one account. This is due
to low financial access and low financial literacy for
the community. Understanding of Indonesian society
towards banking products is still low. The Financial
Services Authority states that only 28.9% of the
adult population understands Indonesian banking
products.
The Financial Services Authority was established
based on Law Number 21 of 2011 concerning the
Financial Services Authority which functions to
organize an integrated regulation and supervision
system for all activities within the financial services
sector. In the past, prior to the regulation, the
authority to regulate and supervise integrated
activities in the financial services sector was under
the auspices of Bank Indonesia, but after the Law
No. 21 of 2011 concerning the Financial Services
Authority, the duties and authorities of Bank
Indonesia were regulated and supervised. transferred
to the Financial Services Authority. Both institutions
have a role in encouraging financial access and
financial literacy for the community. Like, Bank
Indonesia has always encouraged the growth of
financial technology-based payment system services
business. While the Financial Services Authority has
a role to supervise.
In response to the high use of the internet in
Indonesia, the Indonesian Internet Service Providers
Association (APJII) conducted data collection and
the result was that in 2017 out of 262 million people
in the Indonesian population, 50 percent or around
143 million people were connected to the internet.
Regulation Urgency of Financial Technology to Encourage Financial Literation in Indonesia
231

This amount is very lame with the low number of
bank account owners in Indonesia. Indonesia is far
behind compared to countries in Southeast Asia.
Reference:
www.kominfo.go.id
Its use comes from millennial generations who
like to use the internet to do activities that are not
only for shopping, but also for buying goods online,
ordering online transportation, doing business and
even working. However, this result is not
comparable to the low usage of internet services for
banking, which is 7.39 percent (the results of a
survey by the Indonesian Internet Service Provider
Association (APJII). This high internet usage then
encourages the presence of financial technology-
based payment system applications that are
considered more easy and more practical than the
payment system using money, checks, demand
deposits or bank transfers, the Government is
supportive of the development of financial
technology and has issued Presidential Regulation
No.74 of 2017 concerning e-commerce Roadmap in
Indonesia which regulates documents that give
direction and steps for the preparation and
implementation of trades whose transactions are
based on a series of electronic devices and
procedures.
Based on Article 1 of Bank Indonesia Regulation
Number 19/12 / PBI / 2017 concerning the
Implementation of Financial Technology, Financial
Technology is the use of technology in financial
systems that produce new products, services,
technology, and / or business models and can have
an impact on monetary stability, system stability
financial, and / or payment system efficiency,
smoothness, security and reliability. Financial
technology in Indonesia has many types, including
startup payments, lending, financial planning
(personal finance), retail investment, crowdfunding,
remittances, financial research.
Financial technology is a technology-based
business that competes and or collaborates with
financial institutions (Serfiyani, 2017). Activities
carried out by financial institutions are shorter and
more efficient using financial technology. The
Financial Services Authority said the effect of the
high use of financial technology in Indonesia proved
to increase e-banking users by 270 percent, from
13.6 million customers in 2012 to 50.4 million
customers in 2016. The frequency of e-banking use
transactions also rose 169 percent, from 150.8
million transactions in 2012 to 406.6 million
transactions in 2016.
Bank Indonesia as a monetary system
supervisory body has an interest in protecting the
interests of customers and maintaining the
smoothness of the financial technology payment
system. Customer protection in the development of
financial technology payment system business
regulated by Bank Indonesia in Bank Indonesia
Regulation Number 16/1 / PBI / 2014 concerning
Consumer Protection for the Implementation of
Payment Systems. The purpose of the issuance of
the regulation is that funds in the financial
technology payment system are not lost when in the
management of the organizer.
As for the payment technology system for
financial technology in Indonesia, Bank Indonesia
issued Bank Indonesia Regulation Number 18/40 /
PBI / 2016 concerning the Implementation of
Payment Transaction Processing which came into
effect on 9 November 2016. The regulation regulates
parties involved in the payment transaction process
divided into two, namely 1) Payment System
Services Provider (PJSP) are parties who carry out
activities and / or are responsible for the
implementation of the authorization, clearing or
settlement (settlement) stage in processing payment
transactions; and 2) Supporting Organizers. A start-
up company that will open a financial technology
payment system business gets permission from Bank
Indonesia to become a Payment System Services
Provider (PJSP) by fulfilling the requirements and
testing the feasibility aspects as a Payment System
Services Provider (PJSP).
In order to protect consumers and minimize risk
management and apply the precautionary principle
to maintain monetary stability, financial system
stability, and an efficient, smooth, safe and reliable
payment system, Bank Indonesia as the payment
system authority has issued Bank Indonesia
Regulations (PBI) and Member Regulations of the
Board of Governors (PADG) regarding Financial
Technology and the Regulatory Sandbox. The
regulation was stated in PBI No.19 / 12 / PBI / 2017
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concerning the Implementation of Financial
Technology. Bank Indonesia requires financial
technology start-up companies to make payment
systems to register at Bank Indonesia. The
registration obligation is excluded for Payment
System Service Providers who have obtained
permission from Bank Indonesia and for Financial
Technology Providers who are under the authority of
other authorities. The listed financial technology
companies will be announced on the official website
of Bank Indonesia. The obligation to register does
not eliminate the obligation of the Financial
Technology Provider to apply for licenses to Bank
Indonesia or the relevant authorities, such as the
Financial Services Authority.
Bank Indonesia as a supervisor and regulator
supports the development and innovation of
Financial Technology. Financial Technology
Organizers can test their products, services,
technology and / or business models at Bank
Indonesia through the Regulatory Sandbox. PADG
No. 19/14 / PADG / 2017 concerning Regulatory
Sandbox Financial Technology clearly regulates the
procedures and process of testing in the Regulatory
Sandbox. The procedures for registering the
Financial Technology Operator are more clearly
regulated in PADG No.19 / 15 / PADG / 2017
concerning Procedures for Registration, Information
Submission and Monitoring of the Implementation
of Financial Technology.
Bank Indonesia has done in maintaining orderly
payment traffic related to financial technology: 1) In
terms of providing markets for business people,
Bank Indonesia ensures protection for consumers,
especially regarding the guarantee of consumer data
and information confidentiality through cyber
security networks; 2) In terms of savings, loans and
equity participation, Bank Indonesia requires every
business to comply with macroprudential
regulations, deepening financial markets, payment
systems as supporting cyber operations and security
to safeguard consumer data and information; 3) In
terms of investment and risk management, Bank
Indonesia also requires every business actor to
comply with macroprudential regulations, deepening
financial markets, payment systems as supporting
cyber operations and security to safeguard consumer
data and information; 4) In terms of payments,
settlement / clearing and clearing, Bank Indonesia
ensures protection of consumers, especially
regarding the guarantee of consumer data and
information confidentiality through cyber security
networks.
Bank Indonesia guarantees the security and order
of payment traffic by becoming: a) Facilitator. Bank
Indonesia is a facilitator in terms of providing land
for payment traffic. Intelligent business analyst.
Through collaboration with international authorities
and agents, Bank Indonesia is an analyst for
businesses related to FinTech to provide views and
direction on how to create a secure and orderly
payment system; b) Assessment. Bank Indonesia
monitors and assesses every business activity
involving FinTech and its payment system using
technology; c) Coordination and Communication.
Bank Indonesia maintains relations with relevant
authorities to continue supporting the existence of
FinTech payment systems in Indonesia. Bank
Indonesia is also committed to supporting business
people in Indonesia by providing regular briefings
on FinTech.
Besides Bank Indonesia, the Financial Services
Authority also plays an active role in the
development of financial technology in Indonesia.
The Financial Services Authority has an interest in
maintaining financial system stability and protecting
customers' interests. The Financial Services
Authority issued Regulation of the Financial
Services Authority number 77 / POJK.01 / 2016
concerning Financial Technology-Based Lending
and Borrowing Services. So, a start-up company that
has obtained a license as a Payment System Service
Provider (PJSP) then wants to open financial
technology services in terms of lending and
borrowing, the company must obtain permission
from the Financial Services Authority. Financial
Services Authority Regulation number
77/POJK.01/2016 concerning Financial Technology-
Based Lending and Borrowing Services protects
consumers regarding the security of funds and data,
prevention of money laundering and financing of
terrorism, financial system stability, to fintech
company managers. Other matters stipulated in the
regulation, namely regarding the limitation of share
ownership, minimum capital, maximum loan and
interest limits, the requirement to make an escrow
account, as well as some principles that must be
applied by financial technology providers.
Regulators involved not only in the financial
sector (Financial Services Authority, Bank Indonesia
and Ministry of Finance), but all aspects involved.
For example the Ministry of Communication makes
a rule that the business of financial technology
payment systems must not conflict with law No. 11
of 2008 concerning electronic information and
transactions. Business actors who offer electronic
system products must provide complete and correct
information relating to contract conditions,
producers and products offered. This is useful to
protect consumers in business from and electronic
transactions through financial technology. The
regulation is reinforced by Government Regulation
No. 82 of 2012 concerning the Implementation of
Electronic Systems and Transactions. Financial
Regulation Urgency of Financial Technology to Encourage Financial Literation in Indonesia
233

technology includes the service business regulated in
articles 65 and 66 of Law No. 7 of 2014 concerning
Trade.
FinTech has changed the payment system in the
community. In this case, FinTech is able to replace
the role of formal financial institutions such as
banks. In terms of payment systems, FinTech plays a
role in: a) Providing markets for business people; b)
Become a tool for payment, settlement and clearing;
c) Helping the implementation of more efficient
investments; d) Mitigate risks from conventional
payment systems; e) Helping those who need to
save, borrow funds and capital investments.
4 CONCLUSIONS
Financial Technology (FinTech) is a form of
application of information technology in the
financial sector. The high use of internet services in
payment services makes regulators, namely Bank
Indonesia and the Financial Services Authority have
prepared regulations that can protect customers and
service providers. The regulations prepared are not
only from two institutions that have the authority to
supervise and regulate the financial technology
sector, but are regulated by the Ministry of
Communication and the Ministry of Trade. Financial
technology start-up companies before starting a
business must meet the requirements and permits as
regulated by Bank Indonesia and the Financial
Services Authority.
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