The Role of Fintech in the Transformation of Digital Financial Services: Regulation and Challenges in Indonesia

Abstract

Financial Technology (Fintech) represents an innovation in financial services that leverages digital technology to enhance efficiency, expand access, and strengthen financial inclusion. The development of Fintech in Indonesia has demonstrated significant growth, driven by the increasing demand for financial services that are fast, affordable, and easily accessible. Bank Indonesia (BI) and Otoritas Jasa Keuangan (OJK) play crucial roles in regulating the Fintech ecosystem to ensure that it operates within the principles of security, transparency, and legal compliance. According to BI, Fintech can be classified into several categories, namely payment systems, market aggregators, risk management and investment, as well as peer-to-peer (P2P) lending services. Although its potential is considerable, Fintech also poses various risks, including personal data protection issues, money laundering, terrorism financing, and regulatory uncertainty. Several relevant regulations, such as the Bank Indonesia Law, the Electronic Information and Transactions (ITE) Law, the Fund Transfer Law, and the Currency Law, have not yet fully kept pace with rapid technological progress. This study employs a literature review approach to analyze Indonesia’s Fintech development, identifying its potential, challenges, and the urgency of regulatory reform.