In an interview with Forkast’s Pradipta Mukherjee, Fasset’s Indonesia country director Hendra Suryakusuma highlighted the opportunities to help drive financial inclusion in the Southeast Asian nation. According to some estimates, half the country’s population of 270 million lack full access to financial services.
Indonesia’s plan to introduce a national crypto exchange has been running behind schedule as the country puts together the right infrastructure, Suryakusuma said, while a central bank digital currency (CBDC) is expected to bring opportunities especially when the adoption level is low.
The following Q&A has been edited for clarity and length.
Pradipta Mukherjee: When do you hope to get your license in Indonesia?
Hendra Suryakusuma: We have submitted all the required documents and our offices and end-to-end systems are being checked for the audit report. So we hope to get the license in two weeks. We have to comply with not only regulation from Bappebti [Indonesia’s Commodity Futures Trading Regulatory Agency] but also from the Ministry of Communication and Informatics. You cannot operate in Indonesia without getting this license first. There are so many requirements that we need to comply with. That’s the reason why the process took quite some time. The government is still granting new licenses through Bappebti, but the process is slow.
Mukherjee: Why did you choose Indonesia for expansion?
Suryakusuma: Fasset is focusing on Muslim-majority countries. Indonesia is one of the most populous countries in the world. And the good thing about Indonesia, from a macroeconomic perspective, is that 75% of the population are below 40 years of age. So, we are quite a young nation. And that’s the reason why the technology adoption in Indonesia is quite high.
Mukherjee: How is Indonesia adopting crypto, considering its huge unbanked population?
Suryakusuma: According to Bappebti data from December, about 17 million people in Indonesia have access to crypto assets through 28 different crypto exchanges. Three crypto exchanges got licenses just two months ago. There is significant potential for growth in the coming years, particularly as the government continues to develop a clear regulatory framework. About 52% of Indonesia’s population lacks access to bank accounts and financial services, so this is going to be a very attractive market for many cryptocurrencies and blockchain technology providers to offer financial services. We’re still in an early stage because so many people in Indonesia still don’t know anything about blockchain, crypto and the fundamentals of it.
Mukherjee: Can you elaborate on how Indonesia hopes to develop and use blockchain technology?
Suryakusuma: Overall, Indonesia sees blockchain technology as a promising tool to promote financial inclusion, improve supply chain management and enhance the security and efficiency of government services.
One of the main use cases for blockchain technology in Indonesia is the country’s payment system. The government is launching several initiatives to promote the use of digital payments. So we have QRIS [Quick Response Code Indonesia Standard, or a QR code standard developed for cashless payments in Indonesia].
Even street vendors accept digital payments. Looking at the latest developments in technology, blockchain-based solutions have the potential to develop more efficient and effective ways to provide these services to society because it is a secure and low-cost payment option for people without access to traditional banking services.
Mukherjee: What is the update on Indonesia’s central bank digital currency?
Suryakusuma: Bank of Indonesia plans to create a digital version of the Indonesian rupiah using blockchain technology. And this digital rupiah will become a CBDC that could be used for online transactions and other digital payments.
In addition to payment, blockchain technology could also improve supply chain management in Indonesia. Indonesia is a vast archipelago country with over 14,000 islands. The country has a large and complex supply chain, and blockchain-based solutions could offer greater transparency and efficiency with real-time tracking of goods and lower the risk of fraud and counterfeiting.
Mukherjee: What is the state of the internet and power infrastructure?
Suryakusuma: In east Indonesia, internet connectivity and power infrastructure are not as good as in west Indonesia. For example, 4G wireless technology covers all the major islands in the western part of Indonesia, such as Borneo, Java and Sumatra. But because there are so many small islands in east Indonesia, it’s hard for the government to implement 4G in those areas, so much of east Indonesia still has poor internet connection.
On power supply, the government installed many solar farms, especially in Flores island and all the way north to Maluku island. But [the solar farms] are not as established as those in west Indonesia, like Sumatra and Java.
Mukherjee: So is that a challenge in terms of CBDC adoption and trading on crypto exchanges?
Suryakusuma: Yes, it’s going to be a challenge because we need to have very good internet connectivity to have a good off-ramp and on-ramp experience. But many government initiatives are in process to tackle these issues in east Indonesia.
Mukherjee: The Financial Services Authority (FSA) in Indonesia will take over regulatory oversight of crypto assets from Bappebti. Has this plan been executed? What was the need for this?
Suryakusuma: The plan will take about 30 months from December 2022. Crypto is not only a commodity [because] it can act like a currency; it can act like a security. The FSA oversees mutual funds, capital markets, and insurance.
Mukherjee: Is the introduction of a CBDC a cause of concern for crypto exchanges like yourself?
Suryakusuma: We see it as a good opportunity because crypto adoption levels remain very low. The transition process from Bappebti to FSA will also create many different opportunities for us, especially regarding integrating crypto blockchain-related technology into the FSA ecosystem. We can have a 24 hour market if we can tokenize the stocks in an Indonesian company, for example, and trade the tokens on a blockchain. That will be quite interesting for us to explore.
Mukherjee: Indonesia’s plan to set up a national cryptocurrency exchange has been delayed but is now set for June 2023. Can you explain the reasons for the holdup?
Suryakusuma: From what I can see, there are so many technological challenges that the government needs to solve. We have the custodian company, settlement company, payment banks, and the stock exchange brokerage in the capital market ecosystem. But there are no underwriters nor stock brokerage for crypto. I think the government is still trying to finalize the best solution technologically and commercially. A lot of effort is needed to build the infrastructure, and I think this is one of the biggest reasons.
Mukherjee: How do you see Indonesia’s national crypto exchange plan fitting into the broader economy, as well as benefiting crypto exchanges like yourself?
Suryakusuma: There are bad actors using ponzi schemes in crypto and they are active in Indonesia, too, so we need government intervention to minimize the bad actors. The government is establishing more clarity around regulations, and it will create a greater sense of investor security if we have an Indonesia national crypto exchange that is governed and protected by the regulators. But as a crypto exchange operating in Indonesia, we also require some flexibility to continue to innovate and develop our business.