BCG & AC Ventures Report: Indonesia's Fintech Industry is Ready to Rise

AC Ventures (ACV), Indonesia’s leading early-stage venture capital firm, and Boston Consulting Group (BCG) jointly released one of the most comprehensive reports to date on Indonesia’s fast-growing fintech sector.

The report is titled “Indonesia’s Fintech Industry is Ready to Rise” and charts the progress of financial technology in the country across multiple sub-verticals, starting from the inception of fintech startups and the local digital economy in 2011, up until 2022. It highlights and unpacks payments, lending, and wealthtech as the main driving forces of Indonesia’s observable fintech ecosystem today.

Over the last decade, Indonesia has witnessed a 6-fold increase in the number of fintech players, with
the count rising from 51 in 2011 to 334 in 2022. Initially, the growth was mainly driven by the payments segment. However, the fintech landscape in Indonesia is now diverse and dynamic, with lending, payments, and wealthtech becoming clear industries of the future. Additionally, new players in segments such as software as a service (SaaS) and insurance activities are emerging, indicating that fintech in Indonesia is maturing and moving toward more sophisticated products and services.

Fintech offerings are also experiencing a surge in customer engagement in the nation. The payments
segment, which boasted over 60 million active users in 2020, is expected to have a compound annual
growth rate (CAGR) of 20%+ until 2025. In the lending space, there were more than 30 million active
peer-to-peer borrower accounts in 2021. Meanwhile, the wealth segment had over 9 million retail
investors as of 2022. The adoption of SaaS platforms is also growing, with 6 million SMEs currently
using them, representing a 26-fold expansion over the preceding three years.

Investment trends also echo the diversification of Indonesia’s fintech market, with lending and
payments no longer being the primary areas of interest. While lending and payments remain
important, there is increasing investment into wealthtech, insurtech, and fintech SaaS.
The fintech market is expanding rapidly, with emerging players alongside established ones. Equity is
targeted based on an operator’s or vertical’s maturity. Early-stage funding deals are receiving over
80% of the total invested capital. Funding from 2020 to 2022 reached US$5.4 billion, 2.7 times more
than the period of 2017 to 2019. Growth and monetization are the main focus in series D+ funding
rounds.

In light of the current economic climate, investors are now looking for clear paths to profitability
before a series D. More than 80% of fintech deals done from 2020 to 2022 were for pre-series C
funding rounds, indicating strong support for early innovation. These trends are likely to continue
driving innovation and disrupting the existing financial services landscape.

Adrian Li, Founder and Managing Partner at AC Ventures, said,

“I am pleased to say that we are one
of the most active investors in Indonesia’s thriving fintech industry, which offers immense prospects for growth. The exponential rise in the number of fintech players, burgeoning customer engagement, and escalating equity funding are all indicative of the sector’s vast potential. Our investment strategy aligns with this space’s most impactful and innovative enterprises. With this joint report designed to serve the financial ecosystem at large, AC Ventures is proud to sustain its support and investment in the flourishing local fintech sector.”

Sumit Kumar, Managing Director and Partner at Boston Consulting Group, added:

“As our comprehensive analysis shows, the fintech scene in Indonesia is booming, underscoring the tremendous growth potential of the country’s digital economy. It’s an exciting time for innovation led by customer needs, collaboration between fintech players and traditional financial institutions, regulatory bodies, and regulatory foresight. We hope our insights will equip industry players with a deeper understanding of the fintech ecosystem, putting them in a stronger position to seize new opportunities and gain competitive advantage.”

Highlights of the report:

Customer engagement with fintech is surging in Indonesia, with over 60 million active users in the payment segment as of 2020 and an expected CAGR of 20%+ until 2025.
The nation’s lending space currently has over 30 million active peer-to-peer borrower accounts.
Wealthtech saw a 56% CAGR between 2018 and 2022, leading to over 9 million retail investors in the country as of 2022.
Transaction values continue to surge, with over US$20 billion of e-wallet transactions in the period of 2017 to 2021, and more than US$17 billion in loans disbursed between 2017 and 2022.
Investor sentiment remains bullish, with annual equity funding soaring from US$353 million in 2020 to US$1.51 billion in 2021. More than 80% of deals done in 2020-2022 focused on pre-series C funding rounds, predominantly in wealthtech, payments, and lending.

Ed. AC Ventures (ACV) is a top Southeast Asian venture capital firm that invests in early-stage startups focused on Indonesia and ASEAN, with over US$500 million in assets under management. The firm’s mission is to empower entrepreneurs with more than just capital by combining operational experience, industry knowledge, deep local networks, and resources. ACV’s team has invested in over 120 tech companies in the region since 2012.

Boston Consulting Group, one of the world’s leading consulting firm, partners with leaders in business and society to tackle their most important challenges and capture their greatest opportunities since it was founded in 1963.

Photo courtesy of AC Ventures.