Challenges in Peer-to-Peer Lending Regulations towards Indonesia's Banking Industry

Abstract

Financial Technology (FinTech) industry in Indonesia has shown its rapid growth by the emergence of numbers of startup companies providing various digital services, particularly peer-to-peer (P2P) lending services since 2014. Its rapid development triggers the regulator to further supervise this industry. Financial Service Authority of Indonesia (OJK) finally established a regulation in the end of 2016 to oversee P2P lending businesses, namely POJK Number 77/POJK.01/2016. As this regulation was established based on the urgency to regulate an industry which has been developing since the past years, thus this article examines several issues occurred within its implementation, among others: the establishment of P2P lending agreement and the implementation of digital signature and e-KYC. OJK is currently discussing several matters that must be further addressed by enacting a more specified regulation in the near future, such as regulation concerning customer protection in P2P Lending activity. With the technology sophistication and practicality offered by P2P lending services, its presence might also disrupt the future development of conventional banks in Indonesia as it can reach more people in all regions across Indonesia, including small investors. Therefore, this article will also present analysis on the future development of Indonesia's banking industry as influenced by the emergence of FinTech through P2P Lending. Several potential scenarios such as: banks without bankers, operational and services without infrastructure might happen in the future of Indonesia are banking industry. OJK as the regulator is currently directing a collaboration between banking and FinTech so that the development of FinTech will not disrupt the other financial service institution.