Fintech platforms are projected to aid the surge in the number of Indonesia’s retail investors in the future, particularly as the younger generation is tapping into investment amid the COVID-19 crisis, the Indonesian Central Securities Depository (KSEI) has said. KSEI data show that the number of investors in equities, mutual funds and bonds increased 36.6 percent year-to-date (ytd) from December last year to 3.4 million as of October this year, of which the majority are individual investors. Almost half of the investors joined through fintech platforms and 48 percent were below the age of 30, according to the data. “This is an incredible prospect. We can expect the number to go up over the next 15 years as Indonesia is forecast to have a demographic bonus,” KSEI director Uriep Budi said in a webinar hosted by the Indonesian Fintech Association (Aftech) on Nov. 20.
Uriep was referring to a touted period when the country’s productive population, from age 15 to 64, outnumbers its nonproductive population, below 16 and over 64. Indonesia’s working age population is expected to reach 70 percent of the total population by 2030. He went on to say that fintech platforms were also useful in handling more frequent but smaller investments, which he projected as the trend for the foreseeable future. The number of retail investors has increased during the pandemic, which has driven millions into unemployment and made many nervous about their future income. Experts have also cited the large-scale social restrictions (PSBB) that force people to stay at home as part of the push factor of the retail investor boom. Previous KSEI data show that young people are the fastest growing investor group. The number of investors aged 18 to 25 grew 338.61 percent from 2016 to May 2020, while the number of investors aged 26 to 30 grew 204.97 percent.
However, based on the data, most investors are still located on Java island, particularly in Jakarta. Uriep said he hoped fintech firms could help increase investors' inclusivity in the country. “If internet connectivity becomes more equal and affordable, I believe more people are going to use fintech and that will increase the number of new investors,” he added. A recent Aftech survey showed that despite more than half of fintech platforms in the country having set their sights on the unbanked and rural population as a target market, only 23 percent had a reach beyond the island of Java. Meanwhile, Indonesia Stock Exchange (IDX) technology and risk management director Fithri Hadi said fintech platforms could be a tool to disseminate investment know-how because they are easily accessible to the consumer. “People need certain knowledge to be able to invest successfully. I think fintech platforms are a good way to reach more people and teach them about financial literacy,” he said. Read also: The rise of the retail investor: A new force in Indonesia’s pandemic-hit stock market Digital investment platform Bareksa cofounder and CEO Karaniya Dharmasaputra said more retail investors meant that there would be a bigger cushion for the country’s capital market and economic stability. The rising participation of domestic retail investors has provided the local bourse, the IDX, with a liquidity buffer, as Rp 40.88 trillion (US$2.88 billion) of foreign capital fled the country as of Nov. 20 amid the health crisis. IDX data on Nov. 20 also show that domestic investors have made up 66 percent of the total trading value in the bourse this year, while foreign investors have made up only 34 percent. “Retail investors in fintech will surpass investors joining through banks in the future, and this will lead to complimentary relationships between the two,” he said.
Bareksa saw its users and assets under management (AUM) grow despite the pandemic, Karaniya added. In the last five years, the number of mutual fund investors in Bareksa has grown from 2,456 to 1.1 million. It also reported 81 percent year-on-year (yoy) AUM growth in September, while the industry’s total AUM dropped 6.5 percent yoy over the same period. Despite the growing potential in digital investment, he said the capital market still needed to work on automating investment processes, including custodian bank clearance, as well as bettering capacity to handle more small-ticket transactions. Digital consumers are used to instant and seamless transactions, he added. “The new profile of many small ticket investors in fintech platforms is growing and I cannot imagine any of the investment process being done manually. We definitely do not want investment demand to outweigh our capacity and that is a problem we need to address,” Karaniya said. Read also: Investing over spending: Banks, e-commerce firms cater to shifting consumer preference Tech companies have increasingly tapped into providing investment platforms for their users. E-wallet OVO and e-commerce platform Tokopedia both worked with Bareksa to provide mutual fund investment products. Tokopedia also owns digital gold investment platforms. It reported that its mutual fund investors had multiplied 57 times and gold investors 20 times in the last two years.
