Various startups in Indonesia continue to grow rapidly in line with the development of technology and the needs of society. By combining financial technology and technology development, there is now a startup category specifically aimed at helping people manage their finances, known as Financial Technology (fintech).
As quoted from the Bank of Indonesia’s website, fintech is defined as “…the use of technology in the financial system that produces new products, services, technologies, and/or business models and can impact monetary stability, financial system stability, and/or the efficiency, smoothness, security, and reliability of the payment system.”
Today, there are various types of fintech available in Indonesia that adjust to the different needs of different segments of Indonesian society. From microfinancing, P2P Lending, Crowdfunding, and Digital Payment Systems, to Market Comparison, they all provide financial access for more people in Indonesia.
In 2017, the Fintech Report by the Indonesian Fintech Association (AFTECH) showed that fintech growth in Indonesia reached 78% with the largest segment being Online Lending (including P2P Lending) at 26.2%. The growth and digital transformation in the financial industry is also accompanied by the high number of transactions generated by fintech. The AFTECH 2017 research shows that the total value of fintech transactions in 2016 reached USD 15.022 billion, where 99% of the total came from digital financing activities.
Obstacles to Further Development
However, this positive phenomenon does not make fintech startups free from problems. One of the problems that are often encountered is regulatory barriers in the customer verification process, known as Know Your Customer (KYC).
The KYC process in Indonesia is mandatory by Bank Indonesia, as stated in BI Regulation No.3/10/PBI/2001 regarding the Application of Know Your Customer Principles. According to Article 1 Paragraph 2, this principle is “…a principle applied by a bank to identify the identity of customers, monitor customer transaction activities, including reporting suspicious transactions.”
The Customer Due Diligence process, commonly known as Know Your Customer (KYC), must be carried out to prevent fraud or money laundering. Furthermore, the KYC process has also been regulated through Law No. 8 of 2010 concerning Prevention and Eradication of Money Laundering, Article 18 Paragraph 5. This article states that the Know Your Customer principle must include user identification, user verification, and user monitoring.
These two laws have been implemented to prevent the possibility of fraud in the form of money laundering through fictitious accounts.
Issues with Manual KYC
To become a customer of a bank or fintech service, it is necessary to undergo a verification process through complete and valid identification. Currently, the KYC process is conducted through face-to-face meetings where the customer must fill out an identity form, match the identity card, take a photo, scan the identity card, and store the data in digital format. This lengthy process results in complex problems that hinder fintech companies’ ability to reach more potential customers.
Some of the problems are:
- Difficulty in Reaching People in Various Regions of Indonesia
As a country with thousands of islands covering an area of 5,193,250 km², it will be difficult to reach all communities in every region.
In addition, the population of Indonesia itself reached 255 million people in 2015, with 49.79% living in urban areas and the rest in rural areas. It would take a very long time to approach tens or hundreds of millions of potential customers and ask them to complete their identity.
- A Large Amount of Data Generated
The KYC process produces a large amount of data that must be processed and stored securely. This data includes personal identification documents such as national ID cards, passports, driver’s licenses, and other sensitive information. The challenge for companies is not only to collect and store this data securely but also to ensure that it is protected from unauthorized access and potential breaches.
To address this issue, companies must implement strong security measures, such as encryption and multi-factor authentication, to protect customer data. They must also have policies in place to ensure that the data is only accessed by authorized personnel who require it to perform their job functions.
- Fraudulent Activity
Another challenge in the KYC process is detecting and preventing fraudulent activity. Criminals may try to use false identities or stolen personal information to open accounts or access financial services illegally. This poses a significant risk to companies that may unknowingly facilitate illegal activities.
Companies must implement effective fraud detection and prevention measures to address this issue. This can include using automated tools to flag suspicious activity and requiring additional verification steps for high-risk transactions or customers.
- Compliance with Regulatory Requirements
The KYC process is heavily regulated to ensure that financial institutions are not used for illegal activities such as money laundering or terrorism financing. Companies must comply with various regulations such as Know Your Customer (KYC) and Anti-Money Laundering (AML) laws to ensure that they are not facilitating illegal activities.
Compliance with these regulations can be time-consuming and costly, requiring companies to allocate significant resources to ensure they meet all requirements. Failure to comply with these regulations can result in substantial fines and reputational damage, making compliance a critical component of the KYC process.
ASLI RI’s Solution: E-KYC with Biometric VerificationIn conclusion, the implementation of a reliable KYC process is crucial in ensuring the security and compliance of financial transactions in Indonesia. ASLI RI’s E-KYC with Biometric Verification provides a more advanced, accurate, and faster solution to meet these requirements. With the help of our Artificial Intelligence technology, businesses can now securely verify their customers’ identities and combat fraudulent activities. Don’t miss out on the opportunity to drive more value to your business and experience the benefits of our E-KYC with Biometric Verification. Visit our website at www.asliri.id to learn more and get started today.
Last modified: March 28, 2023