Stablecoins might be the answer to Indonesia’s financial inclusion problem

Indonesia’s financial services sector has made huge strides over the past decade, thanks in no small part to fintech. A recent study conducted by Google, Bain & Company, and Temasek found that the country’s digital payments sector is expected to surge to US$351 billion.

Yet many opportunities remain. A significant proportion of Indonesia remains underserved: 51% of the population is unbanked while 26% is underbanked, according to the World Bank.

More than three-quarters of microbusinesses and small and medium-sized enterprises lack access to credit. As the macro environment remains challenging with high interest rates and a fintech funding slowdown, how can Indonesia push financial inclusion?

I believe the answer may lie in the rupiah stablecoins – leveraging the power of blockchain and tokenization, without the volatility of crypto markets.

Image credit: Timmy Loen

The case for rupiah stablecoins

The number of startups registered with Asosiasi Fintech Indonesia (AFTECH), an umbrella organization recognized by regulator Otoritas Jasa Keuangan (OJK), has rapidly increased from 24 in 2019 to more than 300 now. Yet most of these players still rely on traditional money movement rails.

Cross-border transfers are still reliant on the legacy infrastructure of intermediary banks, while payment flows are still dominated by the likes of Visa and Mastercard. As a result, the application layer of financial services has exploded but the underlying support remains archaic, inefficient, and costly.

Rupiah stablecoins built on distributed ledger technologies offer an opportunity for a paradigm shift. The financial infrastructure of the future could be built entirely differently, independent of the challenges of traditional finance.

In particular, stablecoins in Indonesia can offer benefits that the existing financial infrastructure and fiat currency can’t provide: speed, accessibility, and programmability.

For starters, stablecoin transactions can be settled within seconds by using the blockchain’s distributed ledger properties. In comparison, it can take several days for fiat to flow between the hands of intermediaries.

Bank Indonesia, the country’s central bank, has announced plans for a real-time payment infrastructure that can give the same advantages as stablecoins. However, implementation remains a challenge among banks, payment providers, and merchants.

Beyond speed, stablecoins also increase accessibility. Unlike traditional finance, which generally have limited operating hours, stablecoins are available for transactions 24/7.

Processing fees for stablecoin transactions are often significantly lower than traditional finance, making a big difference for Indonesians who opt out of financial services due to costs. According to findings by decentralized protocol Uniswap, transactions enabled by the blockchain can cut remittance expenses by up to 80%.

Perhaps the most promising benefit of rupiah stablecoins is programmability, which means funds must be used for their intended purposes only. Tracking is automated via smart contracts when certain conditions are met, and transactions are stored on-chain for transparency.

Roadblocks and hurdles

Co-existing currencies?