Introduction

Sky-high NPLs; imaginary loans; alleged misuse of funds for the founders’ personal purposes. Allegations of VC equity being used to repay lenders on its platform and hide loan defaults. A viral Tiktok video of a financial influencer renouncing her endorsement of P2P platforms. Attention-grabbing arrests of founders and senior management and news of founders fleeing the country.

News of high-profile Indonesian fintech lenders collapsing or teetering on the brink continues to grow. Lending has consistently attracted sizable venture funding in Indonesia, accounting for 84% of fintech funding as of September 2023. With the region’s largest middle-class population, a maturing payments infrastructure, and persistent underbanking, demand for affordable credit remains strong. Yet rapid growth has brought significant challenges. Since 2022, several venture-backed lenders have collapsed, citing weak financial controls and operational missteps. These failures have heightened investor scrutiny, tightened due diligence, and made fundraising more difficult. With this backdrop, we thought it would be a timely opportunity to review how the industry has evolved, the risks that remain, and what we see ahead.

2015 - 2021: The rise of P2P platforms

The first wave of fintech lenders in Indonesia emerged as peer-to-peer (P2P) platforms. Their promise: use a tech-enabled platform to connect borrowers that were rejected by banks to individual or third-party lenders. P2Ps banked on the promise of alternative data - such as utility bills or e-commerce transactions - to identify thin-file individuals that could be high-quality borrowers. Over time, excessive data collection practices and invasive and predatory debt collection practices ultimately led to regulations barring the use of specific mobile-based data such as call logs and app usage history. But while the early excitement around alternative data sources gradually waned, the fundamental model of P2P lending endured and saw rapid growth. By 2020, 149 companies had applied for licenses, and disbursements topped $10 billion in 2021.

The model, however, was flawed. Default rates rose, interest rates ballooned (some exceeding 365% annually), and many platforms used VC capital to repay lenders when loans went bad, trumpeting ostensibly low NPL rates and masking true loan losses. Illegal operators further eroded borrower trust. Regulators intervened, imposing caps on interest rates and disbursements, and eventually froze new licenses.

2021 - 2025: The Indonesian fintech landscape today

Cooling competitive environment

Of the 149 registered platforms in 2020, only 97 remain today. Still, demand has not slowed - monthly loans outstanding reached IDR 80 trillion (~$5B) in by March 2025:

Source: OJK

This persistent demand coupled with the downfall of several major players point to a cooling competitive environment. Survivors face less competition - but must navigate new risks. Regulators are acting to limit banks’ ability to channel loans through P2Ps, cutting off an essential source of low-cost capital for the platforms. And contagion looms: borrowers who face a liquidity crunch on one platform may be forced to default across others. Finally, early-stage startups that relied on P2Ps for debt funding must now seek alternatives, either moving lending on their balance sheets or scaling back growth. Given that many early-stage startups - regardless of sector - see embedding lending to their customer bases as a key lever for monetization and improving unit economics, the disappearance of P2Ps as a partner to jumpstart lending has broad implications for the startup ecosystem in Indonesia.

Regulatory changes

The end of 2024 also saw several regulatory shifts. POJK 40/2024 (effective by Dec 27, 2024) introduced several major changes to the previous mandate:

POJK 10/2022 vs. POJK 40/2024 (non-exhaustive)

Source: HBT Law, Baker McKenzie, OJK

Together, these rules push lending platforms to raise new equity quickly while also navigating an increasingly selective institutional funding environment.

2025 and beyond: Our predictions

BPR licenses as an alternative

As P2P regulations tighten and funding sources dry up, Indonesia’s fintech lenders are increasingly turning to alternative licensing regimes.

Source: HBT Law, OJK, Investor.id

As in other parts of Southeast Asia, a common alternative is the rural bank license - buying a dormant or subscale rural bank (in Indonesia, a Bank Perkreditan Rakyat or “BPR”) for its license, maintaining a token physical branch presence, and scaling across the country via digital means.

On the surface, fintechs acquiring BPRs are a win-win solution. As of October 2024, there are 1,369 registered BPRs in Indonesia - compared to only 97 P2Ps and 146 MFIs - and a significant portion of those BPRs are subscale, inefficient, unmodernized, and therefore underperforming relative to commercial banks (see table below). Fintechs looking to acquire a BPR license will find plenty of potential targets - and they gain access to a cheap source of capital - deposits - that are guaranteed by the government for up to IDR 2 billion per depositor. Regulatory capital and other licensing requirements are significantly less stringent than that for a full-fledged banking license, but still, having more fintech lenders subject to regulation is, on its face, a positive for the ecosystem.

Source: OJK Dec 2024 Banking Sector Report

The question is how long the BPR license arbitrage will last. Margins will compress over time, and allowing an industry that hasn’t - as a whole - demonstrated strong risk management capabilities to manage the savings of a vulnerable depositor base may not be the wisest idea. Much like the P2P cycle, irresponsible growth could undo early promise. Regulators have already revoked 20 BPR licenses in 2024 alone, often due to fraud or capital shortfalls. While know-how around regulations and licensing structures is a key element to drive down cost of funds, it should only serve as a complement to robust risk management practices, not replace them.

Closing thoughts: Where do we find ourselves today, and what makes a good lending company?

Innovation in the fintech lending space has always been about finding and exploiting arbitrages. The use of alternative data sources like mobile phone and social media data: an information arbitrage. The rise of P2P platforms that connect third-party borrowers with third-party lenders: a trust arbitrage. Leveraging rural banking licenses to run the equivalent of a digital bank: a regulatory arbitrage. But as is the case with all types of arbitrage, gains will narrow and risks will increase as more players pile in, with this cycle on repeat. So - to answer the question we are often asked: what makes a good fintech lender? At the end of the day, it’s back to basics:

• Disciplined loan performance tracking: Companies must be able to produce cohort-level data on defaults and repayment at any time to assess credit quality over time. This is crucial as many fintech lenders report overall NPL ratios that appear deceptively low if they are not cohort-adjusted, especially when the total loan portfolio is expanding rapidly through aggressive growth.
• Unit economics: For balance sheet lenders, net interest income (after provisioning for loan losses) should exceed operating expenses. While earlier stage lenders might not achieve this on day 1, there has to be a realistic plan to get there in the short to medium-term future. Healthy lending businesses have good debt-to-equity ratios - and a book equity balance that shrinks from month to month due to negative net income puts extra pressure on the company’s ability to raise further external equity to grow.
• Risk management: Have a proactive, risk-based loan provisioning policy. Fintech lenders are often doing something “different” from incumbents - so blindly following regulatory provisioning rules set out under their respective licensing frameworks is insufficient.
• Capital position and structure: A strong lender should not only meet regulatory capital requirements but also maintain sufficient buffer to support loan book growth and continued investment in technology.
• Technology: This is often the expense that fintech lenders point to in order to justify continued operational burn. While upfront investments in technology are often valuable, that investment should ultimately be reflected in a tech-enabled lender’s lower cost of servicing.
• Regulatory stability: Sometimes unclear regulations are unavoidable in Southeast Asia, but players that operate in a stable policy environment should command a premium.

For Southeast Asia’s startups, embedded lending will continue to be the key driver to improve unit economics and drive monetization. The fundamentals around unmet demand, maturing payments infrastructure, and improving data quality remain true. Startups that know their customer bases intimately will continue to provide differentiated insights. The key to making embedded lending work will be the participation of players that understand that lending is and has always been a financials-first business - while technology will enable more accurate underwriting, lower customer acquisition costs, better operational efficiency, and a higher quality of business analytics, it cannot be a panacea for poor risk management or poor fundamentals. But for startups that can bridge the “fin” and the “tech,” Southeast Asia will be their oyster.