Reaching Out the Indonesian Non-Inclusive Market A Qualitative Research Report Conducted by CXGO Consulting - 2018 Financial Inclusion: Is it truly about access?
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ReachingOuttheIndonesianNon-InclusiveMarket
AQualitativeResearchReportConductedbyCXGOConsulting- 2018
FinancialInclusion:Isittrulyaboutaccess?
EXECUTIVESUMMARY
Accordingtotheregulators,therearetwomainbarrierstofinancialinclusion.Thefirstoneisaboutaccess,wherecurrentIndonesia’sfinancialliteracyrateat29%isnotsufficienttoinitiatepeopletoaccessthefinancialproductsandservices.Thesecondoneisabouttheproduct itself,wheretheavailableproductsandmethodsofferedbybanksdonotfitthelifestyleandneedsofthepeople.Tofurtherincreasefinancialliteracyandreinforcefinancialinclusion,regulatorsarepushingstrategiesthrough3mainfocus:refreshertrainingandsystemonLaku Pandai agents,digitizingKYCprocess,andtailoringtheproducts.
Fromthisstudy,wefoundcommonfinancialbehaviorsamongthefinanciallyexcluded.Onpaymentandtransaction,cashispreferred.astheystillhavetrustissuewheretheyneedtoseethemoney.Savingisnotaprevalentbehaviorastheytendtospendwhattheyearn,withlimitedincome.Familyandrelativesarecurrentlythemainsourceingettingloan.Forinvestmentandinsurance,theyareawareofKIS,BPJS,andotherformofinvestmentsuchaspropertyandin-kindassetsuchasgold,however,investingisirrelevantduetolackofearningsandsavings.
Amongthefinanciallyexcludedindividuals,thereareseveralperceptionthatservesasbarriertowardsbanksavingaccount:trustissues,fees,andtheneedforabehaviorchange.Consumeralsofeltlowrelevanceastheirneedshasnotyetaddressedbybanks.Simplicityandpracticalityofdigitalbankingareexpectedtoovercomethesebarriers.
Specificallyonloan,consumershaveseveralnegativeperceptionsonitsrelevance,tenure,payment,anddebtcollectingsystem.Wefoundthatthemainexpectationistohaveamoreflexibleandadjustableloan(customizableamount,tenureandpaymentssystem,simpleandquickprocess,flexiblecollateral),whilelessconcernoninterest.Loansbasedonoccupationarehighlyexpected.
Tofurtherimprovefinancialinclusion,theutilizationofmobilephoneforaccessingfinancialproductsisverycrucial.Itmayofferthesimplicity,practicality,andtransparencytheylookfor.Banksneedmoreintensivecommunicationtoreducetheperceptionofbeingcomplicated,lessrelevantandexpensive.Whilefintech playersneedtointegrateandpartnerupwithbankstowidentheinclusioncoverageandshouldincludemoreeducationalaspectsinmarketingactivities.
BACKGROUND,OBJECTIVE,METHODOLOGY
BasedontheFinancialLiteracyandInclusionNationalSurveyconductedbyOJKin2016,financialliteracyinIndonesiareached29.6%,whichisanincreasefrom21.8%in2013.Meanwhile,financialinclusionindexreached67.8%whichisanincreasefrom59.7%in2013.Thegovernmentistargetingby2019,financialinclusioncanreach79%.
OJK,asanauthorityboardforIndonesia’sfinancialindustry,hasgoaltoincreasefinancialliteracyandinclusionandalsoprotectiontoconsumersoffinancialproducts.Todothat,OJKhas2focustobepursued:toincreasefinancialliteracythrougheducationandliteracyprograms(whichgoalistoengagesocietyinconductingfinancialplanningandsavingshabit),andtoengagesocietytomatchtherighttypeoffinancialproductand/orcompanythatmatchtheirprofile,behavior,andcharacteristic.
Theobjectiveofthisresearchistogainin-depthinsight,mainlyfromconsumers’pointofviewontheirfinancialbehavior.Thisresearchwillvalidatethefindingsfromregulatorypointofviewwiththeconsumers,thusclosingthegapandseekwaysforfurtherimprovements.
In-depthinterviewtoOJKrepresentative,astheregulator,tounderstandwhatisthegoal,programs,andtheresultoftheprogramssofar.TheinterviewwasconductedtoEko Ariantoro,astheDirectorofFinancialInclusionDevelopmentOJK,onMay,2018
In-depthinterviewtothe‘financiallyexcluded’,tounderstandtheirpointofviewandhowtheystandincomparedtotheprogramsofar.Interviewswereconductedto3respondentswithvariouscharacteristicsandtypeofoccupation:ahousewife,abluecollaremployee,andabluecollarworkerthathaslapsedfrombankaccountownership.
WHATISFINANCIALINCLUSION?
TheWorldBankdefinesfinancialinclusionasthatindividualsandbusinesseshaveaccesstousefulandaffordablefinancialproductsandservicesthatmeettheirneeds– transactions,payments,savings,credit,andinsurance– deliveredinaresponsibleandsustainableway(TheWorldBank).Financiallyincludedindividualsarethosewhohaveanaccountintheirnamewithafull-servicefinancialinstitution.
MeanwhileOJKhasadditionaldefinitionontopofWorldBank’sdefinition:toachieveincreasedwelfareandsimilarrightsamongallcitizenthroughaproperaccessandaproperconsumerprotection.
Howdowedefineafinanciallyincludedindividual?
ApersonhasuptakeANDuseindividualaccountwithinstitutionsthatofferafullfinancialservices–savings,credit,moneytransfers,
insurance,andinvestment.
FinancialServicesandCompaniesthatdonotcount
• Creditonlyinstitutions.• Individualswhohavenopossessionsand
accesstotheindividualaccount.• Individualswhoonlyuseservices,such
asmoneyguards,savingscollectors,anddigitalrechargecardsthatarenotattachedtoabank/fullservice..
FINANCIALINCLUSIONPROGRAMSHAPPENINGNOW
Gerakan IndonesiaMenabung• Banksarereinforcedtocreate
productsthatsuittheneedofthecurrentlyfinancialexcluded.
Layanan Keuangan Digital• BIteamingupwithtelcocompanies
andlocalagentstoestablishbranchlessbanking.Oncetargetedtobroadenaccesstofinancialinstitutions,nowhasevolvedtoincreasedigitaleconomicactivities.
FinancialIdentityNumber(FIN)• IntegratedwithNIKfromeKTP,the
programenablesfinancialinstitutionstoidentifynewcustomers.
InformationSystemforFarmersandFishermen(SIPN)• Targetingfarmersandfishermen
(35%oftotalIndonesiaworkforce),SIPNutilizesownershipofmobilephonetocreateanupdatedmobileagricultureforthem.
DistributionofGovernmenttoPublicFundusingDigitalFinancialService• G2Pfundbeingdistributedtopublic
throughbankaccounts,alongwitheducationsessionsandassistancefromDigitalFinancialServiceagents.Alsoutilizesownershipofmobilephoneasameanstogiveinformationaboutthebankaccount.
Remittance• TargetingIndonesiaworkforce
abroadwhosendmoneyusinginformalchannels,convertingthemtousingbankaccountanddigitalfinancialservice/telcoagents.
LAKUPANDAI(Branchlessbankingthroughagents)• Distributingagentstoruralareas,as
theycanperformsimplefinancialtransactions,suchasopeningaccount,deposit,withdrawal,checkingbalance,etc.,andalsobecomeagentsofinformationandeducation.
Withalltheaboveprogramshappening,theleveloffinancialinclusioninIndonesiaisstillinneedforaboost.
Whatarethebarriers?
THEBARRIERSACCORDINGTOTHEREGULATOR
ACCESS
• Indonesia’sliteracyrate,in29%,isnotsufficienttoinitiatepeopletoaccessthefinancialproductsandservices.Poorknowledgeonthegain,therisk,theprocess,etc.
• TheKnowYourCustomers(KYC)processisnotquickenoughtoverifythedata,resultinginlowappealandpoortrustfromthetargetcustomers.
• Theavailableproductsandmethodsofferedbythebankscurrentlydonotfitwiththelifestyleandtheneedsofthetargetcustomers.
ProductsOffered LoanNeeds
Traits
• Secure,lowrisk,perceivedascomplicated
• Relativelylongtenure• Monthlyrepayment terms
• Fastandsimple• Shorttenure• Adjustable paymentterms.
Advantage/Needs Advantages:gainandinterest Needs:capitaltoperformashorttermbusinessprocess
Example
KURClusterloan,with7%interest,targetingsmallbusinesswithinacollectivescheme.Repaymentismonthly,within1or2years.
• Farmersneedaloantobuyseeds,thatwillharvestin70days.Moneycanberepaidafterharvesting.
• Fishermenwillsailfor2weeks,moneyisneedbeforesailing,canpayafterfishing.10%interestisaccepted.
PRODUCTDIDNOTFIT
ThereisagapbetweentheproductsofferedbyFormalFinancialInstitutionwiththeneedsfromthetargetmarket.
Basedonevaluationoftheongoingprograms,BankIndonesiaandOJKaremakingadjustmentstoimprovetheeffectiveness.Theadjustmentswillprioritizeon3mainaspects.
1 AGENTSLaku Pandai Agentsareseenasabreakthroughmethodinincreasingfinancialinclusionstarting2013.However,thesuccessratedeclinedovertime,andevaluationisrequired.
• Refreshertrainingonproductandsystem.• Evaluationonrecruitmentofagents.Canconsidernewagents
withongoingUMKM,orcommunityleaders.
2 DIGITIZINGKYC• Governmentneedstospeedupe-KTPandmakeitseamless
withfinancialdata.• Anewtechnologyisneededtoachieveafast,mobileand
cheapKYCprocess.AshortertimeinKYCincreasestrustamongnewcustomers;mightinducedtransactions.
3 TAILORINGTHEBANKINGPRODUCTS• Banksneedtobeopentodeveloploansthatsuitsthe
businessprocessofeachprofessions.• Asimplifiedriskassessmentandprocessareexpected.
THENEXTSTEPSACCORDINGTOTHEREGULATORIncreasingliteracyandreinforceinclusionwith3mainfocus.
THEROLE&IMPACTOFFINANCIALTECHNOLOGYCOMPANIES
E-MONEY&DIGITALWALLET
P2PLENDING
• Introducedpeopletotheprocessofnon-cashtransaction,mostlydigital,andincreasingcustomertrust.
• PaymentPointOnlineBanking(PPOB)topurchasephonecreditisoneoftheprocessesthatdriveincreasedinformationonnon-cashtransactions.
• Havepositiveeffectduetosimpleprocessandcoveragetothehigherriskprofilesandsmallbusiness.
• Howeverthepracticeisnot supportingtheinclusionintermsof:
• providingeducationandtrainings.• Encouraginginteractionwithformal
financialinstitutions.• P2Plendingisalsostillmaturing,whichidentified
bytheinvestorsfocusonhighreturnandtemptedtofundamorestable&lowriskbusinesstoreducetheirNPL.
WhileinawayP2PLendingcompaniesaresupportingincreasedwelfareandinclusion,itssmallcoverageandlackofactionsineducationisnotin-linewiththegovernment’sprogramininclusiontowardsformalfinancialinstitutions.
• Lookingfromthefinancialinclusion’sperspective,thenonproductiveloansforthehighriskprofilesaregivingadverseimplications,asintheend,itisnottargetingtoincreasewelfareandaccessibilitytowardsfinancialproductsandservices.
• However,theadjustableandflexibleattributesfromthefintech lendingcompaniesareagreatappealforthistargetmarket.
Increasinguseofe-moneyanddigitalwallettriggeredexpectationsthatfinancialservicesshouldbeeasy,transparentandaccessibledigitally.
NONPRODUCTIVELOANSForthecurrentlyfinancialexcludedindividuals,loansthatcanbeadjustedtotheirflowofincomeareveryinteresting.Butitactsastheoppositeoffull-servicefinancialcompanies.
Thecurrentrisingfinancialtechnologycompanieshasbothpositiveandnegativeimpactonfinancialinclusion.
TALKINGTOTHETARGETMARKET:THEUNBANKEDINDIVIDUALS
Lila,24yearsold,housewifewithasmallbusiness,livesinCiledug,Tangerang.ReceivedRp 40,000dailyfromherhusband.• Lilaneverfelttheneedforabankaccount,orotherfinancial
products.• Sheisawareofseveralnearbybankbranches,butnevervisitany.• FromtheRp40,000thatshereceiveddaily,LilasavesaroundRp 2,000
andkeptinherroom,dedicatedforrainydayswhensheneedstospendmorethanwhatshereceived.
Rofiq,28yearsold,single,securityofficer,livesinEastJakarta.Earnings:Rp 2,100,000/month• Asheliveswithhisbrother,Rofiq reliesonhisbrotherforanybank-
relatedactivities.Hedoesnotfeeltheneedtohavehisownbankaccount.
• Rofiq isawareofthebanknames,products,branchlocationsandtheprocess.Hehasexperiencesinmakingtransfer,manuallyinbranch,asinstructedbytheemployer.
• Rofiq receivedmonthlypayincash,hespendalmostallofitfordailyneedsandtosendtoparents.
Daenuri,25yearsold,single,newlyrecruitedasasecurityofficer,livesinCilebut,WestJava.• Hispreviousemployermadehimabankaccounttoreceivehispayfor
acleaningservicejob.Thejoblastsfor4months,aswellasthebankaccount.Hedoesnotfeelcomfortableusingthebankaccountpersonally,ashecannotseethemoney,andworryaboutthefees.
• Daenuri hasrelativelyhighawarenessofbanknamesandproducts.• Hepreferscashforhiscurrentsalary,andalsopreferscashfor
transactions.Heisthoughtbytheparenttosavebeforemakingpurchases,nevertouseinstallments.
“Cashismuchsimpler,youknowexactlywhenyougotpaidwithoutgoingtobank/ATM."
“EverymonthIonlyhave30– 50thousandextra,whatistosave?”
“WithsmallamountofmoneythatIhave,thebankwilldrainitbythe
fees.”
Peoplethatwemetfeltlowrelevancewithformalfinancialproductandservices,astheyhaveastrongperceptionthattheycannotaffordit.
TARGETMARKET:THEIRCOMMONFINANCIALBEHAVIOR
• Preferscashandmaketransactionsoverthecounter.• Aprintedreceiptfromutilityprovidersassurethemthat
ithasbeenproperlypaid.• Mostlyperformedtransactionintraditionalmerchants,
asidefromphonecredits(PPOB),butalsopaidbycash.• Haveadoptedcard-basedemoney fortransportation
(TransJakarta),top-upusingcash.
“Withcash,youholdthemoneyandknowthatthemoneyisyours.Inbanks,Idon’tknowwhetherthe
moneyisstillthereornot.”
• Earnà Spendà Save(ifanythingleft)• Savecashinthecloset,manuallyandspendwhenthe
amounthasreachedthetarget.• JoinArisan (informalsavinggroup).
• Closerelativeswillbethemainsourceofloan,ifneeded.Interestandrepaymentsystemareasagreedmutually.
• Othersourcewouldbefromemployer,orArisangroup.
• SomeofthefinanciallyexcludedarethetargetmarketforKartu IndonesiaSehat (KIS)whichdonotrequireanypremium.
• ThosewithBPJSmembershipdonotpaythepremium.• Formofinvestmentthattheyknowofispropertyandin-
kindassetsuchasgoldjewelry.
“IappliedforBPJSbeforedeliveringmyfirstbaby,andthenIstoppedpaying…”
“Idon’tthinkIwilleverapplyloanfrombanks.Idon’twantanydebtcollectorscoming
intomyhouse.”
“Mysonwillregistertoschoolnextyear.Topayforthefee,IthinkIwillneedtogetbackto
work(innextyear).”
Beingthecashorientedsegment,transaction,savingandloansaredoneconservatively.
Payment&Transaction
Savings
Loans
Investment&Insurance
Mostfrequentlyused:
Mostfrequentlyused:
Shoppingismadethroughtheapp,andpaymentismadecashinIndomaret counters.
Otherapplicationfrequentlyused:
TARGETMARKET:THEIRCOMMONDIGITALBEHAVIORTheuseofmobilephoneisfocusedmoreoninternet-basedapplicationswhiletheyarefarmoreexposedtodigitalapplicationthanformalfinancialservices.
Thefinanciallyexcludedindividualsarefarmoreexposedtodigitalapplicationthantoformalfinancialservices.Duetothis,theyaremorefamiliarwithactivitiessuchas:• Onlineregistrations.• Signingin,conceptanduseofpassword.• ConceptanduseofOTPanddigitalverificationmethods.
Utilizingthehighownershipofmobile
phoneandapplications
DigitalBankinghasahighchancetoclear
thetrustandtransparencyissues,as
theycanseethemoneyfromtheirmobilephone.
AsimpleandeasytouseUserInterfacein
DigitalBanking.
Perception&UnderstandingonBankSavingAccount
TrustIssues Fees
• Notabletoaccess/see/checkmoneyanytime.
• Concernonnotabletouse/withdrawmoney.
• Bankswillnotacceptsavinginverysmallamount.
• Administrationfeewillsuckupthesaving.
• Thereisminimumamountthatcannotbewithdrawn.
• Alotoftimeandeffortareneededtodotransactions.
• Notusedtodosaving.
Simplifieddigitalbankingmayovercomeseveralbarriersinfinancialinclusion.
NEEDS:
Clearinformationonfeesand
minimumamount
Quickandeasyregistration,inbranch
orbranchless
Affordablefees,evenforsmall
amountofsavings.
Canbecheckedanytime,anywhere
Abletowithdrawevensmallamount
Abletowithdrawanddepositsmallamount,even
belowRp 50k
VALIDATINGTHEPERCEIVEDBARRIER:PRODUCTAccessingabanktocreatesavingaccountisnotthestrongestbarrier.
Changefromconventional
• Loansareperceivedtoberelevantonlyforlarge-scalebusinessoremployeesofabigcompanies;notforbluecollaroragriculturaljobs.
• Requirementsandadministrationarecomplicatedandstressful.
• Notrelevant,asdonothavecollateral.
• Forthosewithirregularearnings,monthlypaymentstermsdonotfit.
• Tenuresoffereddonotfitwiththeneeds.
• Strongperceptionaboutaggressivedebtcollectorbehavior.
Loansadjustingtooccupationishighlyexpected.
• Customizableloans– amount,tenure,paymentsystem.
• Simpleandquickprocess.• Flexiblecollateral(ornocollateral).Warranty
andverificationbasedonsocialacknowledgementandcommunities.
Theexpectationsaresimilartogettingloansfromrelatives/arisan groups.Moreconcernonflexibility,lessconcernoninterest
FinancialServiceprovidersneedtounderstandflowofbusiness/workto
createaloanproductthatfitswell.
Abilitytoadjust
VS.
Interest
Loansperoccupation
UtilizingLaku Pandai agentstohelponverificationandasses
credibility
Perception&UnderstandingonLoans(fromformalfinancialinstitutions)
VALIDATINGTHEPERCEIVEDBARRIER:PRODUCTWiththecurrentlowlevelofliteracy,aproductiveloanwillnotbeseenasrelevantforthem.Inaddition,theproductsofferedarenotsuitablewiththeneeds.
RelevanceIssue TenureandPaymentSystem
DebtCollecting
NEEDS:
Tobeindependentisnotreinforcedbytheculture.• Livingtheirlifecollectivelyisatraditionwhichishardto
break.Eveninageographicallydifferentarea,peopletendtomainintensecommunicationwithrelatives.
• Family,friends,andrelativesareasourceofmoneyintimesofshortage.
• Thisisagoodopportunityforremittancetobedevelopedasoneofthemainproduct.
Inregardstoreligiousviews,majorityofconsumersbeliefthatGodwillgivethesufficientamountofHisblessingforpeopletoliveaccordingly.• Therefore,livingasitisandnotstrivingformorebecomes
alifestyle.• Beliefssuggestingthateachperson’spath(andblessing)is
written,makespeopleacceptthefinancialconditionthattheyarein,andreluctanttotrytomakeachange.
CULTURALASPECTSAFFECTINGFINANCIALBEHAVIORInreachingthecurrentlyfinancialexclusivetargets,thattherearemultiplefactorsaffectingandleadingtheirbehavior.
Forfinanciallyexcludedindividuals,accessmightbeabarrierasitinvolvescost,distanceandhesitancetointeract.However,thesebarriersarenotthemainthinghamperingthemfrominclusion– theunderstandingandliteracyare.
ThelowrateofliteracyamongIndonesiansisclearlyreflectedbythepoorunderstandingofthepurpose andbenefits ofgettingfinanciallyincluded,followedbythenegativeperceptionontransparencyandsecurity.
ThisfindingsisalsoinlinewithresultfromIntermediaIndonesiaFIItrackersurveyinSep-Nov2016whichstatedthatonly8%ofIndonesianadultswithnobankaccountclaimedthattheydonotknowhowtoopenanaccount,while21%claimedthattheydonotneedbankaccount.
Whatisessentialamongthetargetmarketaretheabilitytochecktheirmoneyinstantly,theassuranceontheabilitytouse/cashouttheirmoney,andaclearexplanationonfeesandinterests.
SavingisnotingrainedinIndonesianbehavior.Culturally,Indonesiansaretakingadvantageoflivingcollectively,andtaughttobegratefulandhavehighacceptancetowardslifeconditions,includingfinancially (Thesamesurveyalsosaidthat33%oftheunbanked’s mainreasonfornothavingabankaccountisnothavingsufficientmoney).
Apushtomakeaplanninginlifeandfinanceisneededtoreinforcesavingbehavior.Thistargetmarketurgentlyneededucationonsavingvs.loans,andhowitdiffersintermsofbenefitsandrisks.
CONCLUSION
MOVINGFORWARD
Basedonfindingsfromthisqualitativeresearch,tofurtherimprovefinancialinclusion,thebelowactionsareencouraged:
Furtherutilizingmobilephoneastheaccesstofinancialproducts.Pointstobeconsidered:• TheproductandserviceinmobilephonemustbeSimple&
Practical,adjustingtothefinancialliteracylevelandtheneedforbasicfeatures.
• Itshouldalsobetransparent,tosolvethetrustissues,wherethecustomersneedtoseetheirmoney,andaccessthetransactionhistory,fees,interestsandotherdetails.
Bothbanksandfintech playersinIndonesianeedtoincorporatethetwoaspectsaboveincommunicatingtheirproductsà Simple&Transparent,andintensifytheeducationaspects.
Particularlyforbanks,amoreintensivecommunicationisneededastheformalfinancialinstitutionsarecarryingastrongperceptionofbeingcomplicated,lessrelevantandexpensive.Whilespecificallyforfintech players,inordertofurthersupportfinancialinclusioninIndonesia:• Integrationandpartnershipwithbanksareneededtowidenthe
inclusioncoverage.• Themarketingactivitiesneedtoincludemoreeducationalaspectsto
increaseliteracyandinclusion.
InlinewiththenextstepsfromOJKonrefreshingthefinancialagentsLaku Pandaià banksandfintech companiesneedtoperformassessmentsontherecruitmentandtrainingsystem,andwaystoincreasetransactions.
Findingsonthisreportisbasedonqualitativeresearchwithminimumrespondent.Alargercoverageandvalidationneedtobeperformedusingdifferentresearchmethodologies.
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