A Sneak Peak to 2025 Fintech Regulatory Climate
An overview of Indonesia Central Bank 2025 blueprint
2024 finally comes to its last quarter – which means businesses are usually starting their budget exercise for 2025.
The same applies for regulators especially regulators in regulated sector. 2025 blueprint issued by regulators would usually sets the tone of the regulator behavior.
Indonesia Central Bank issued its recent 2025 blueprint focusing on digital and integrated payment systems. The overview of the 2025 blueprint is as follows.
Executive summary
As stated in the Central Bank’s Governor session, the Central Bank acknowledges how payments digitalization has increasingly been integrated into our daily life – digitalization becomes the new normal.
The technological innovation in payments industry also enable financial inclusion.
However, it was noted by the Governor that these innovations change the overall risk landscape in Indonesia e.g., cybersecurity attack, misuse/mishandling of personal data, money laundering. Hence, policy innovation is demanded.
It’s the Central Bank’s view that these innovations should be supported by the appropriate policy and risks mitigation.
The issued blueprint sets the Central Bank’s vision for 2025.
Five initiatives covered in 2025 blueprint are (i) open banking, (ii) retail payment systems, (iii) financial market, (iv) infrastructure, data, and (v) regulatory, licensing, supervisory.
Vision 1
Vision 1 reinforces the integration of national digital economy and finance in assuring the proper functioning of central bank mandate in money circulation, monetary policy, and financial system stability as well as financial inclusion.
Vision 1 is directed towards the efforts of building a digital economy-financial configuration that supports the economic empowerment of the community and ensures open access to digital data in a framework of adequate protection and governance.
This leads to the needs for the Central Bank to form a facilitative regulatory climate to support the economic growth and digital finance.
Additionally, the Central Bank also acknowledges that it has the role in making available the necessary infrastructure such as financial system infrastructure, in particular, the payment system, which is capable of answering the needs of the industry.
In the retail payment system area, the Central Bank focuses to build/grow BI-FAST as a fast payment infrastructure that serves all types of payment transactions, including card-based transactions. BI-FAST is an abbreviation of Bank Indonesia Fast Payment which is built by the Central Bank as the national retail payment system that can facilitate retail payments in real-time 24/7.
Vision 2
Vision 2 fosters digital transformation within the banking industry to sustain banks’ role as a primary institution in the digital economy and finance through the implementation of open banking standard as well as the deployment of use of digital technology and data in the financial business.
Indonesia Payment System Blueprint 2025 is directed at equal data and information openness between banks and fintech. In reality, although banks and fintech appear to be competitors, banks and fintech share the same digital environment.
Through the 2025 blueprint, the Central Bank encourages national banks to optimise the use of digital technology innovations e.g., the application programming interface (API), distributed ledger technology (DLT), cloud computing, and AI / machine learning.
Vision 3
Vision 3 assures interlink between fintech and banks to contain the escalation of shadow-banking risk through the regulation of the use of digital technology (e.g., API), business relation, and business ownership.
The Central Bank encourages the collaboration between banks and fintech players as the Central Bank recognizes how fintech players are far more progressive than banks when it comes to implementing technological innovation in financial sectors.
In the Central Bank’s view, for banks, the presence of fintech can be used to sharpen consumer-centric based services or as a third-party service provider to provide various services ranging from market support to supporting bank intermediation activities. Fintech is placed as a bank’s learning partner in adopting technological innovation. On the other hand, fintech needs banks to be part of its environment e.g., fintech players in lending sector would require bank to escrow funds or bifurcate transactions.
Vision 4
Vision 4 strikes the balance the balance among innovation, consumers protection, integrity, and stability as well as fair competition through the implementation of digital know your customer (KYC) and anti-money laundering and combatting the financing of terrorism (AML/CFT), data/information/public business openness, and the deployment of reporting, regulatory and supervisory functions.
As part of crystallizing Vision 4, the Central Bank is looking into establishing the regulatory framework, entry policy mechanism, and supervision to support the growth of technological innovation.
Regulatory regimes and entry policies will be directed towards being simpler and adaptive in anticipation of fast-moving financial technology innovation. The regulatory structure will be arranged to reorganize the payment system ecosystem so that it becomes a solid foundation for licensing, monitoring, reporting,
This will be followed by the implementation of payments system that support the digital age.
Vision 5
Vision 5 safeguards national interest on cross-border use of digital economy and finance through the obligation of domestic processing for all onshore transactions and domestic partnership for all foreign players under the consideration of reciprocity principle.
Vision 5 is designed with the aim that the transparency in the area of payment system could be implemented on the basis of reciprocity which guarantee the equal rights between countries in the context of bilateral relationship. This is particularly considering Indonesia’s strategic position as a country with large consumer base. With reciprocity, Indonesia is not only destined as a market, but also have a similar opportunity to expand beyond Indonesia border.
A real example of this vision is how QRIS payment system in Indonesia can be used in Thailand (mostly capital city) as a form of payment.
Closing note and remarks
The 5 visions lead to the 5 initiatives that are put under spotlight by the Central Bank.
Based on the blueprint, it appears that the Central Bank’s focus in 2025 is to balance the regulatory framework to establish a collaborative approach for the financial technological innovation to strive.
We expect this could be in a form of sandbox that allows risk-based approach by the regulators, banks, or fintech players.
To read the article in PDF version, click here.
————- III ————-
MURZAL & PARTNERS
For more information, please reach us at Murzal & Partners Law Firm to:
e-Mail: info@murzallawfirm.com
Telp: +62 21 29930869
Linkedin: Murzal & Partners Law Firm
A member of World Law Alliance
Disclaimer:
The foregoing material is the property of MNP and may not be used by any other party without prior written consent. The information herein is of general nature and should not be treated as legal advice, nor shall it be relied upon by any party for any circumstance. Specific legal advice should be sought by interested parties to address their particular circumstances.
Any links contained in this document are for informational purposes and are available and relevant at time this publication is made. We provide no liability whatsoever in respect of any information or content in such links.
Read an article about OJK Authority Over Fintech Sector – https://murzallawfirm.com/ojk-reforms-its-authority-over-fintech-sector-overview-of-ojk-regulation-no-3-of-2024-2/
