About the author:

Ronald Molenaar is the Country Manager of ADVANCE.AI in Indonesia. With over 20 years of experience in tech, finance, and fintech in Indonesia and across the world, Ronald understands the needs of fast-growth businesses, whether it's scaling, expanding across borders, or adapting to new ways of working as digital transformation accelerates. Pak Ronald, as he is often known among ADVANCE.AI's customers, is always exploring ideas with internal teams as well as with prospects and customers on how we can elevate businesses and people together in a better, safer and more financially inclusive world.

Financial inclusion has become a top priority for the Indonesian government in recent years. For example, as part of Indonesia’s digital transformation agenda, the Government introduced the digital roadmap 2021-2024. Within the roadmap is a focus on the digital onboarding of more than 64 million micro, small and medium enterprises (MSME) across the country. The goal is to onboard 30 million MSMEs by 2024, which will afford more Indonesians access to critical banking and financial services.

Regulators, such as the Financial Services Authority of Indonesia (OKJ), are facilitating Indonesia’s digital onboarding transition as well. A host of regulations have been introduced for various eKYC processes to prevent and identify money laundering, terrorism financing, and other illegal corruption schemes.

Without viable financial records among the unbanked, it is challenging for banks and financial service providers to verify their identities during onboarding processes. This also allows fraud-related activities to slip through the cracks if the safeguards are not in place.

Aside from eKYC, work is also being done on the ‘re-KYC’ front, specifically in the world of cryptocurrency. Previously, due to a lack of regulations, crypto companies had few – if any – formal rules around their KYC processes, and a significant number of fraudulent cases were uncovered. As part of the digital onboarding transition, a separate body Bappebti has been set up within OKJ to ‘re-KYC’ the millions of people who have already been onboarded by existing crypto companies. Such regulations will impact Indonesia’s 25 licensed crypto companies and help separate legitimate traders from those using it for malicious purposes.

When it comes to digital onboarding, technology companies like ADVANCE.AI can help banks and financial services providers address the needs of the unbanked market. Alternative data sources, such as email detection, tele-status checks, social media detection, telco-scores, and e-commerce scores, can help minimise – or even mitigate – many of the challenges associated with traditional KYC processes. Here are some examples of how alternative data solutions can help:

1. For identity verification: Fraud detection is a critical part of the KYC and onboarding process. Alternative data allows banks and financial services providers to verify identities and separate legitimate consumers from the fraudulent ones. For example, based on our experience at ADVANCED.AI, we know that fraud rate is much higher among consumers without a registered mobile number on WhatsApp. Using this information, we can help banks and financial services providers better sieve out risky profiles.

2. For bank loans: Alternative data allows banks and financial services providers to put together a fuller picture of an individual’s profile and repayment habits. At ADVANCE.AI, we generate alternative credit scores using information such as email, social media, and tele-status detection. Based on further analyses, unbanked individuals can then access to banking and financial services, including bank loans.

3. For income prediction or repayment behaviours: Income is one of the key factors in determining one’s credit score. For unbanked consumers, banks and financial services companies can make predictions of their income via their digital activities and e-commerce transactions. ADVANCE.AI's strategic partnerships with various organisations including credit bureaus and Indonesia's e-commerce giant Tokopedia, which has resulted in our Toko Score solution, helps us better understand income patterns and repayment behaviours. For example, Toko Score provides credit scores by analysing the risk profile of prospective borrowers based on their activities and transaction behaviour on Tokopedia. ADVANCE.AI then integrates this score with our own alternative credit scoring system to verify identities and create a fuller, more comprehensive picture of individual consumers.