Author: Kristalia Andiani Puteri with Felicia Cindy Hanubrata
“The rise of Financial Technology (“fintech“) must be accompanied by adequate regulation, supervision and monitoring as stipulated by Bank Indonesia Regulation No. 19/12/PBI/2017. Furthermore, Bank Indonesia introduced the categorisation of payment service providers and cooperation between the fintech and payment service providers through Bank Indonesia Regulation No. 23/6/2021.”
Financial Technology
The technology has significantly influenced the financial sector, leading to innovative intersections of finance and technology, collectively known as financial technology (“fintech”). To foster Fintech innovation while adhering to consumer protection principles and ensuring risk and prudence management, Bank Indonesia (“BI“), as the authority on payment systems, introduced BI Regulation No. 19/12/PBI/2017 on Financial Technology Organizations (“PBI 19/2017“). The regulation serves to regulate, supervise, and monitor the Fintech ecosystem in Indonesia. Recognizing the importance of such regulation, PBI 19/2017 defines financial technology as an innovation within the financial sector capable of impacting monetary stability, financial system stability, as well as the efficiency, fluency, security, and reliability of the payment system.
The PBI 19/2017 categorizes Fintech into four categories:
- Payment System;
- Market Support;
- Investment and Risk Management;
- Lending, financing and capital raising;
- Other financial services
Furthermore, the criteria of a Fintech are as follows:
- Innovative;
- Have an impact on existing products, services, technology, and/or existing financial business model;
- Provides benefits to society;
- Can be widely/publicly used;
- Other criteria stipulated by BI.
Registration of Fintech
As PBI 19/2017 requires, every Fintech provider that fulfil the above criteria must be registered in BI. This registration requirement is exempted to Payment System Provider that has previously obtained a license from BI and other Fintech that is under the control of another authority. However, the provider that has previously obtained a BI license is still obligated to inform BI regarding products, services, technologies, and/or models’ new businesses that meet the criteria of Fintech and the latter that conducts Fintech in the field of payment system is still required to register to the BI.
Pursuant to PBI 19/2017, there is no specific capital requirement, including amount and foreign investment limitation, for a Fintech entity to be registered under BI. However, the eligible provider should be a business entity. For fintech provider in the form of institutions other than banks that fulfil the category as operator’s payment system, fintech provider must be a business entity that holds a Indonesian legal entity. Subsequently, in the registration process, the entity is required to be represented either by the Board of Directors or an organizing committee. PBI 19/2017 does not explicitly outline the competency requirements for Directors or committee members. Nonetheless, in the registration process, the authorized representative of the entity must bring the following documents:
- Copy of the deed of establishment;
- Ownership data;
- List of management composition;
- A general description of the company;
- Brief written explanation regarding products, services, technology provided, and/or existing business models and/or will be developed that meets Financial Technology criteria;
- Other information regarding the Fintech.
Once a Fintech is registered under the BI, it must adhere to the following obligations:
- Implement the principle of consumer protection;
- Maintain the confidentiality of consumer data and information of transaction;
- Implement risk and prudence management;
- Use Rupiah on every transaction in Indonesia territory;
- Implement anti-money laundering and countering of terrorist financing principle; and
- Fulfil other prevailing laws and regulations
In addition to the obligations above, a Fintech is prohibited from conducting Payment System activities using virtual currency. Lastly, a Fintech is required to submit a statement of compliance obligations within three months after the Fintech is registered in BI.
Payment System Provider
As outlined in BI Regulation No. 23/6/PBI/2021 (“PBI 23/2021”), a Payment System is a system that includes set of rules, institutions, mechanisms, infrastructure, source of funds for payment, and access to sources funds for payment, which are used to carry out the transfer of funds to fulfil obligations arising from an economic activity. As for the entity which carry out the services of payment system is called the Payment Service Provider (“PJP”).
A PJP can be both a bank or non-bank institution, and its services are meant to facilitate payment transactions for service users. There are four types of PJP activities:
- Account Information Services;
- Payment Initiation and/or Acquiring Services;
- Account Issuance Services; and
- Remittance Services.
Cooperation of Fintech and Payment Service Provider
In accordance with Article 18 of PBI 19/2017, the cooperation between a Fintech and a PJP is plausible, under the PBI 23/2021, the Fintech is considered as a Supporting Provider, a party that collaborates with the PJP to support the implementation of Payment System Service Activities. However, such cooperation can only be made by a registered Fintech and must obtain prior approval from BI. Should the PSP fail to meet these requirements, it could be subjected to the following administrative sanctions:
- Written warning;
- Fine;
- Partial or complete temporary suspension of PSP activities;
- Revocation of PSP License.
Gaffar & Co., Indonesian Boutique Law Firm which specializing and focus on commercial law areas include capital market and Fintech Services.
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