Clustering Business Model on Financial Technology Company

“OJK accommodates business model of Financial Technology Company in Regulatory Sandbox. The cluster business model is financial aggregator, credit scoring, claim service handling, digital dire, financial planner, financing agent, funding agent, online distress solution, online gold depository, project financing, social network and robo advisor, block-chain based, verification non-cdd, tax and accounting, and E-Know Your Customer.”

Financial technology or Fintech is a term applied to many types of technology, as any technology that seeks to improve and automate financial services are arguably a Fintech. Indonesian Financial Service Authority (OJK) has been trying to regulate different kinds of Fintech in Indonesia. As per 2019, OJK has issued specific regulations for P2P Lending and Equity Crowdfunding Fintech. However, for most other currently not yet regulated Fintech, OJK has issued an umbrella regulation, which is OJK Regulation (POJK) No. 13/POJK.02/2018 on Digital Financial Innovations within the Financial Services Sector. This POJK is aimed to put every non-regulated Fintech in a specific supervised boundary for a period of testing while the relevant regulations are being processed. According to this POJK, the scope of Fintech could include the following activities:

1. Settlement of transaction;
2. Equity funding;
3. Investment management;
4. Funding and transfer of fund;
5. Insurance;
6. Market support;
7. Other digital financial support; and/or
8. Other financial activities.

Fintech Criteria
In order to be considered as Fintech, the technology must fulfil the following criteria:

1. Innovative and forward-looking;
2. Uses technology as the main medium to provide financial services;
3. Supports financial inclusion and literacy;
4. Beneficial and is usable by the public;
5. Integrable with the pre-existing financial services;
6. Uses collaborative approach;
7. Complies with consumer protection and data privacy principles.

Regulatory Sandbox and Business Models Clustering
According to POJK No. 13/POJK.02/2018, fintech registration process in OJK will need to go through three simple processes, registration, regulatory sandbox, and re-registration. Simply put, at the first step the applications will be screened to determine whether it fulfils Fintech criteria as mentioned before. In the second step, these new technologies will be put into practice and tested for a while. If the technology passed the second test, it will then be entitled to go to the third step, register itself as Fintech in OJK.

Regulatory sandbox is a testing mechanism used by OJK to assess the business model, issues, financial instrument, and the operator’s management. After a Fintech has registered at OJK, they will be put in regulatory sandbox process (unless during the registration process OJK deemed the technology is considered as P2P Lending or Equity Crowdfunding, which already have their own registration process). However, due to the huge number of applicants, OJK would put each applicant in a cluster according to their business model, and then pick one sample as a reference from each cluster. As per the latest regulatory sandbox process, there have been 15 clusters including:

1) Financial Aggregator;
2) Credit Scoring;
3) Claim Service Handling;
4) Digital DIRE;
5) Financial Planner;
6) Financing Agent;
7) Funding Agent;
8) Online Distress Solution;
9) Online Gold Depository;
10) Project Financing;
11) Social Network and Robo Advisor;
12) Block-Chain Based;
13) Verification Non-CDD;
14) Tax and Accounting; and
15) E-Know Your Customer.

The regulatory sandbox process will run for approximately six months until one year. However, it is extendable for another 6 months if OJK deemed it necessary. During the regulatory sandbox, the registered applicants have the following obligations:

a) Inform OJK on every update of their Fintech;
b) Gives full transparency of information regarding the Fintech;
c) Participate in education and counselling session necessary for the development of business in the financial service sector;
d) Participate in every coordination with OJK;
e) Collaborate with Financial Institutions or other party operating in the financial service sector.

After the regulatory sandbox process has finished, the Fintech will either be recommended for the re-registration process, needs to be fixed, or not recommended as a Fintech. Fintech that still needs to be fixed will be put in an extended regulatory sandbox period (for another 6 months), but, a Fintech that is not recommended will not be able to re-apply their business model in OJK again. In a special occasion, if the regulatory sandbox shows that the Fintech is related to another authority, OJK will cooperate with that authority to supervise the Fintech during the regulatory sandbox process. At the end of this process, OJK aims to be able to issue a specific regulation for each Fintech. However, in the event the specific regulation is still not yet done even after the regulatory sandbox process, the recommended Fintech will still be able to re-register at OJK and operate their business under the scope of POJK No. 13/POJK.02/2018.

Author: Benedictus Giovanni

Gaffar & Co., Indonesian Boutique Law Firm which specializing and focus on commercial law areas e.g. capital market and financial services.

For further queries and information, contact us:
+62 21 5080 6536 | info@gaffarcolaw.com | www.gaffarcolaw.com

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