The Roles of BI and OJK in the Open Finance Fintech Ecosystem

When talking about fintech in 2022, customers always pay more attention to data security. Since their money is on the table, they want to ensure they choose a fintech service provider that is monitored by a regulator and has acquired a legitimate license.

Most fintech companies always mention the OJK license as a legitimation for their company. However, according to the Indonesian regulation, a license from Otoritas Jasa Keuangan (OJK, Financial Service Authorization) is limited to several areas. Some Indonesia fintech companies may not be able to gain a license from OJK but BI (Bank Indonesia) instead. What is the difference between OJK and BI licenses? What are the roles of both in the open finance ecosystem?

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What Does OJK License Mean?

On June 30th, the Financial Services Authority (OJK) and the Faculty of Economics and Business at University of Udayana (FEB Unud) held a seminar entitled "OJK Goes to Bali", with the aim to improve the understanding of the advantages and disadvantages of fintech peer-to-peer lending services (P2P lending) in Indonesia, also known as online loans (pinjol).

OJK license is a legitimation issued by financial service authorization that allows financial technology players to operate various services, including peer-to-peer online lending, insurance, SMEs stock issue, mutual funds issue agent, and other fintech services from multiple clusters. OJK urges companies to improve their corporate governance in order to speed up Indonisia's economic recovery. This initiative is also designed to educate the public about the fintech industry, specifically P2PL or online lending. It will provide information on both the benefits and risks of fintech lending and promote financial literacy, so that people can make informed decisions and avoid becoming victims of illegal fintech related activity.

Fintech companies that collect customers’ funds are obligated to register for the license. The purpose of this license is in line with the primary role of OJK; implementing a financial system that grows sustainably and stably; realizing the implementation of all activities in the financial services sector in an orderly, transparent, fair, and accountable manner; and protecting the interests of consumers and the public.

Fintech OJK licensing is relatively easy. OJK will look into the permission of fintech and watch the company’s operations for a year. If the company is indicated for an illegal act during the watching period, then OJK will terminate its license. Many Indonesians do not have access to formal banking services, so they resort to illegal online loan services, which are easier and faster. The Investment Alert Task Force has been cracking down on many illegal Fintechs since 2018. There is no agency that effectively resolves disputes in the fintech sector.

What's The Difference With BI License?

OJK is not the only one that issues the license for fintech companies. The Indonesian Government has appointed Bank Indonesia (BI), the main distributor of Rupiah for the people, to issue the license for some particular fintech companies. OJK and BI have a crucial role in the financial sector in maintaining Indonesia's economy. However, both have slightly different authorities regulating and overseeing fintech industry in Indonesia.

While OJK authorizes several financial services, BI supervises and issues the legality of fintech operations in payment gateways, fund transfers, and everything closely related to the payment and management system of the Rupiah. This issue aims to regulate electronic money, which has increased significantly in Indonesia over the last five years.

Open Finance Licensing

Registering for BI licensing is initiated with the pre-audit phase. This phase will take a long time, and usually, the company cannot operate normally until it's done. Fintech companies that need BI licensing usually provide e-money, e-wallets, payment gateway, and agencies that work on fund transfer. Those companies must undergo several licensing phases in Bank Indonesia before being allowed to operate.

Open finance has a crucial role in distributing the customer's funds. It creates a system that constructs interconnectivity between fintech with other service providers using API technology. Open finance doesn't collect the customer's money but only performs the transfer. Looking at the role, BI licensing will be the most suitable than the other one.

Ayoconnect, a payment service provider that is registered with Bank Indonesia

Ayoconnect is the biggest open finance platform in Indonesia. Through PT Ayopop Teknologi Indonesia, Ayoconnect has been approved to operate in Indonesia with BI licensing. According to the BI’s regulation, Ayoconnect falls under the category of Payment Service Providers (PJP), referring to banks or non-bank institutions that provide services to facilitate payment transactions for customers.

BI issues a PJP license with three categories as explained below:

• License Category 1: (a) provision of information on Source of Funds; (b) payment initiation and/or acquiring services; (c) administration of Source of Funds; and (d) remittance services;
• License Category 2: (a) provision of information on Source of Funds; (b) payment initiation and/or acquiring services; and/or
• License Category 3: (a) remittance services; and/or (b) other services specified by BI.

Ayoconnect has acquired License Category 1 from BI, meaning that Ayoconnect is legally permitted to carry out all transaction activities that are included in the category. By complying with BI regulations, Ayoconnect hopes that your customers can be more confident using your fintech payment method, increasing people's trust in the company.

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