Dino Setiawan has worked in a number of large banks covering, treasury risk management, commercial lending, investment banking, and more recently headed a Silicon Valley-based fintech lender providing access to finance for the US underbanked. He blogs to democratize institutional lending issues for mainstream discussion. After all, if you knew what went into your bakso, you’d improve your eating habits. The same goes for loans, you become a healthier borrower.
So what is fintech? Financial Technology, with an emphasis on the technology. How riding a bicycle is to walking, fintech can have the same multiplier effect to traditional banking. Roads enabled bicycles to be 10 times more efficient than walking, the smartphone and its cellular network allows fintech lending to be 10 times more efficient than current loan offerings.
Banks spend a lot of money finding people who want loans, making sure those people are who they say they are, and of the character to pay back those loans. They send people to check your home, your workplace, your shop… they send people to remind you to pay if you forget… it’s a lot of effort to make one loan. So they tend to want to make big loans to fewer people.
What fintech can do is reduce the cost of making a loan. Our phones have cameras to photo identification, take selfies to verify the identity or let the lender know where our phones are late at night to verify the home addresses. As it becomes faster and easier to make a loan using technology, the costs go down, and it becomes possible to make smaller loans (which make less money, but that’s offset by lower costs).
More information also means less risk. The more a lender knows about you, the easier it is they can judge whether you’ll pay back the loan. As a person of good character, allowing lenders to know more about you should mean lower interest rates and access to more financing. Such financing opens up more opportunities, be it fertilizer to produce good crops or getting some capital to start a small business.
OJK passed Indonesia’s first fintech lending regulation last December. The doors are now open for fintech lenders to bring the Indonesian population loan offerings 10 times more efficient than current loans.