The Hazards of Online Fintech Lending (Pinjol) Simplicity
Peter Johnson- Jan 9, 2024
- 3 min read
Fintech stands for "financial" and "technology" and is the application of technological solutions in financial services. In recent years, technological advancement has driven the proliferation of fintech, resulting in a customer-focused and active approach to finance and banking services. Fintech promises to reduce the cost of financial services and eliminate financial contract related difficulties to improve consumer welfare (Thakor, 2020). Furthermore, fintech may provide increased access to financial services, especially banking, to underserved populations.
PricewaterhouseCoopers (PwC) reported that fintech Lending offers solutions to the problems faced by traditional lenders via the incorporation of business models, technology, and new methods. This makes it possible for them to be accessible in more remote locations, as well as to tackle infrastructural and risk management problems that banks come up against when catering to underserved people. Many Indonesian citizens are taking advantage of fintech loans, which are known as fintech lending, to obtain microcredit in an easier, more straightforward, and non-collateralized way (Laut & Hutajulu, 2019).
Online lending 'pinjol', similar to a two-sided sword, has both positive and negative effects. Fintech has been beneficial in encouraging financial inclusion and developing the financial market in Indonesia, specifically for individuals lacking access to conventional financial institutions. Pinjol has also been beneficial in catering to those of low incomes, providing them with immediate funds under simple terms. Although it aids these groups, pinjol is highly susceptible to predatory lending practices, particularly of the unregistered and unlicensed kind. Individuals often receive frequent messages featuring links to unapproved online lending apps. Lenders also employ aggressive tactics, such as attractive propositions, to try and convince borrowers to use online lending services when facing financial difficulties. This preys on the borrowers' lack of financial knowledge to access immediate funds with little documentation within a few hours (Arvanta,2022).
Based on the roadmap for the Development and Strengthening of Information Technology-Based Shared Funding Services (LPBBTI) 2023–2028, the financial literacy in the fintech P2P lending industry rose from 0.34% in 2019 to 10.90% in 2022. A lack of such knowledge may exacerbate consumer losses caused by abuse of authority. According to OJK data, the total number of LPBBTI complaints reported between 2020 and 2022 was 4,548, including 25 in 2020, 1,726 in 2021, and 2,797 in 2022. Most grievances and public complaints relate to the behavior of collection officers, accounting for 35.29% of the total. This is due to their forcible and insulting tactics for collecting loan payments, despite lenders having access to consumers' personal data. This could cause additional issues, such as violation of privacy rights.
Consumers may feel panicked and frightened when they receive threatening phone calls, text messages, or are subjected to verbal sexual harassment or cyberbullying. The use of malicious language and the threat of spreading private data or photographs to people on the consumer's contacts list can cause a great deal of harm. Not only is the individual directly affected, but their relatives, family, friends, or colleagues can also be targeted, resulting in fractured relationships. This can create psychological trauma, stress, depression, and anxiety, and in extreme cases, even be linked to suicide.
To sum up, fintech has undeniably changed the world of finance, offering improved efficiency, access, and inclusivity. Although it has enabled more people to avail of loans without the constraints of traditional financial institutions, some of the unregulated online loan systems have invited predatory approaches that have caused difficulty.
Pinjol has unfortunately become a hub for illegal online lending, with vulnerable borrowers exposed to aggressiveness and predation. Subpar financial literacy amongst consumers exacerbates matters, leading them to be tempted by potentially damaging offers. The repercussions are both financial and emotional, ranging from privacy breaches to bullying and intimidation. We must be sure to maintain equilibrium between advancing fintech and protecting users, as the industry continues to advance.
In order to maximize the benefits of Pinjol and protect consumers, collaborative action is necessary from governments, fintech companies, and society. Enhancing education, monitoring regulation, and pursuing ethical business practices are essential to unlocking the full potential of fintech while ensuring the safety and rights of users. Moreover, more needs to be done to help people comprehend how to pick a reliable online lending service and understand the dangers that come with using such services. Through these efforts, we can at least minimize any unforeseen losses.
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