Can Indonesia’s new capital Nusantara rival the fintech hubs of SG and HK?

From electric vehicles to green infrastructure, Indonesia has set its sights high for Nusantara, the new capital city in the region of Kalimantan, which could become Asia’s next fintech hub.

Meant to relieve congestion and overcrowding in the sinking capital city of Jakarta, the development of Nusantara is estimated to cost US$32 billion. By 2045, the country hopes to move up to 1.9 million people to the new city, which will host over 4.8 million jobs in industries across tech, renewable energy, and petrochemicals.

Should it succeed, the endeavor could reshape Indonesia’s financial landscape.

According to the Nusantara Capital City Authority, the agency tasked with managing and governing the new capital, Nusantara will encompass a financial center that will accommodate a wide array of banking, insurance, and other activities.

An inscription map of Indonesia at the zero point of Nusantara / Photo credit: hendra yuwana / Shutterstock

However, rather than directly trying to match established international fintech hubs like those in Singapore and Hong Kong, Indonesia’s approach will likely prioritize its local capital market as well as financial inclusion and domestic innovation.

Nevertheless, as a new development, Nusantara is in a position to break free from the constraints of outdated payment systems and traditional financial infrastructure, which could facilitate innovation.

“It takes three ingredients to build a successful fintech hub: opportunity, availability of talent, and availability of funding,” Joel Shen, head of tech at multinational law firm Withers, tells Tech in Asia.

Despite its potential, Shen says that Nusantara faces two crucial challenges: attracting and retaining tech talent as well as making it easier for investors to fund fintech firms.

Incentives to drive relocation

Government incentives could be key in compelling fintech firms to relocate their offices to Nusantara, industry players say.

These may include tax and non-tax benefits, according to Dino Martin, a supervisory board member of the Indonesia Fintech Lending Association (AFPI). Martin is also the CEO of local lending platform Pendanaan.

Currently, a majority of fintech companies in Indonesia are based in Java. Out of the 102 licensed members of AFPI, only 20% have chosen to establish their operations outside of the island so far, says Martin.

This concentration not only limits fintech access for consumers outside of Java but also highlights the underserved nature of certain regions in the country.

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Push for regulatory reforms, enhanced infrastructure

Private investment a crucial factor