This paper takes a critical look at the potential for digital platforms to be partners in expanding financial inclusion in Indonesia. While we focus on financial inclusion, many of the strategies and interventions we discuss might also be beneficial seen through the lens of economic empowerment and growth. Our approach in conducting

this research was based largely on desk research and interviews with industry experts and platform managers as well as field visits to Indonesia.

Rather than view all platforms as a homogeneous group, we differentiate across business models (hybrid, marketplace, and niche) which we believe will produce different economic and financial inclusion outcomes and imply different intervention strategies for donors and governments.

There are a variety of different kinds of platform models (e.g. see the Caribou Digital Taxonomy below) including transactional platforms that facilitate transactions

of various forms, innovation platforms that facilitate innovation, and hybrid platforms that do both. In this paper we look at three kinds of marketplace platforms-- transactional platforms that facilitate the exchange of goods and services. We look at the mainstream ecommerce marketplace platforms including Lazada,

Bukalapak, Tokopedia and others; we look at niche platforms that serve priority sectors such as fishers, farmers, and MSMEs; and finally we look at hybrid platforms such as Grab and Gojek, that allow new services and products to launch over their marketplace infrastructure.

We believe these types of platforms specifically have the greatest potential to expand financial inclusion, because they combine financial services with income generating opportunities for the suppliers (gig workers or marketplace sellers), many of whom are low income and unbanked before joining these platforms.

Each of these different models seem likely to have different financial inclusion outcomes. With traditional providers (e.g. banks), many low income people seem to use these accounts for little beyond getting paid then withdrawing wages, G2P, or remittances. Users who adopt bank accounts or wallets to join marketplace and niche marketplace platforms would likely have a similar use profile of getting paid their platform earnings though there seems to be more scope than with traditional players for adding on merchant payments and digital credit driven by platform income data. The hybrid platforms offer an even wider range of financial services that includes investing, insurance, and more credit options, though it’s not clear how many use all these products. Also, many of the platform based services are geared to increase loyalty and effort, thus may not fully align with user welfare (e.g. health insurance which only covers drivers while they drive for the platforms).

In the Indonesian context, there are a number of positive opportunities as well as potential downsides to trying to increase financial inclusion via platforms. Below we look at a few of the most prominent tradeoffs, including:

  • Gig work and platform sellers do represent income opportunities for low-income people but these jobs can be precarious and lack agency
  • O2O and ecommerce agents represent a powerful distribution model but appear to be fundamentally limited in rural areas.
  • Marketplace platforms can see the poor as low-cost suppliers (rather than loss-making consumers) but still appear to bias away from the very poorest and hardest to reach
  • Some sector-specific marketplace platforms show promise in serving low income or rural areas but struggle with scale and financing
  • Achieving meaningful use of a comprehensive set of financial services seems possible, especially for the hybrid platforms, but the full potential has yet to be reached in reality.

Given the above tradeoffs, we investigate a number of hypotheses regarding which kinds of interventions might be the most promising for the different kinds of platform

models. We explore three main areas including:

  • Partnering the National and Provincial Government banks to build robust rural retail and CICO infrastructure while marketplace and niche platforms build financial services products on top
  • Supporting innovation and scale up of successful niche platform models in agriculture, fisheries, and informal MSMEs (e.g. Tanihub, Haratoken, Payfazz, Eden Farm, etc)
  • Policies to expand income opportunities to urban poor and protect gig-workers on the hybrid platforms (e.g. Grab and Gojek)

We find significant and exciting potential in the way these different platforms can drive a complementary package of financial services adoption and income-generating activities. Also exciting are the inherent incentives that allow these platforms to see the poor not as low-value consumers but as low-cost (thus high-value) suppliers.

Lastly, we believe there is a possibility to expand these models to reach a wider segment of Indonesia’s low-income population and to build robust networks in rural areas. This will likely require new partnerships between digital platforms, government and state banks to subsidize the infrastructure. Despite the exciting potential, there are also risks and downsides to these models. While they have a theoretical incentive to reach even low income people — they do not appear to reach the very poorest or most rural due to a variety of practical challenges and barriers. There is also significant risk that platforms may diverge to become exploitative and/or put workers and sellers in precarious economic positions if not given clear guide rails by well designed policy. There has not been enough rigorous research on the experiences of online workers and sellers and further work would be welcome to guide policies in this area through better understanding of workers and small scale sellers situations. While there are clearly limits and some risks to platform models, we believe the potential is there and warrants attention and investment by donors and governments.