Identity Verification, KYC and AML Compliance in Indonesia

Key takeaways 
 

Indonesia is positioning itself as a digital economic powerhouse in Southeast Asia with a dynamic business ecosystem, 196 million internet users, and projections to reach a market value of $124 billion by 2025.

Compliance with KYC and AML regulations is essential to protect Indonesia's digital economy, supported by a robust legal framework that includes Laws No. 8 of 2010, No. 5 of 2018, and No. 3 of 2011, aligned with FATF standards.

Identity verification faces unique challenges in Indonesia due to its geographical and demographic diversity, with documents like the KTP and KITAS/KITAP standardized nationally, but driver's licenses exhibiting significant regional variations.

Didit offers innovative solutions for identity verification in Indonesia, combining artificial intelligence, facial recognition, and AML Screening to ensure regulatory compliance, adaptability, and operational efficiency in a complex market.

Indonesia has established itself as a digital economic powerhouse in Southeast Asia thanks to a dynamic and clearly expanding business ecosystem. The country has experienced significant financial growth, and it is projected that by 2025, its valuation will reach approximately $124 billion. This is all thanks to over 2,000 startups driving technological innovation in the country.

A revealing fact is that between 2018 and 2022, the adoption of e-KYC services for new bank accounts surged from 20% to 60%, reflecting an accelerated digital transformation. Currently, Indonesia has 196 million internet users, representing 73.7% of its population.

In this context, complying with regulations regarding customer knowledge and money laundering is key to ensuring the integrity of the local and international financial system. The rigorous standards of KYC and AML in Indonesia help protect the country's digital economy.

Indonesia has taken significant steps in its international commitment to financial transparency. The country officially became a full member of the Financial Action Task Force (FATF) on October 27, 2023, consolidating its position as a responsible actor in the fight against money laundering and terrorist financing.

Nevertheless, KYC and AML providers in Indonesia face challenges: the country's geographical and demographic complexity (an archipelago of over 17,000 islands with a diverse population) adds additional layers of difficulty to identity verification processes. While the Kartu Tanda Penduduk (KTP), Indonesia's national identity document, is uniform nationwide, other documents like driver's licenses can vary significantly by region. This highlights the need for advanced, adaptable, and above all, affordable technological solutions.

The Legal Framework for KYC and AML in Indonesia: Regulatory Requirements

Indonesia has developed a solid legal framework to combat money laundering and terrorism financing. This regulatory system has been meticulously built to align with the Financial Action Task Force (FATF) standards, establishing a robust yet dynamic compliance ecosystem.

The regulatory architecture for KYC and AML in Indonesia is based on a set of fundamental laws that lay out the principles and mechanisms to prevent illegal financial activities. The aim of these regulations is not only to sanction but also to prevent and educate the population about money laundering risks.

Law Number 8 of 2010: Prevention and Eradication of Money Laundering

Law Number 8 of 2010 is the cornerstone of Indonesia's AML regulations. This law accurately defines money laundering offenses, establishes the institutions required to comply with KYC procedures, and determines the penalties for non-compliance.

Among its key aspects, the law mandates 21 types of institutions to implement verification procedures, ranging from banks to auction houses, including insurance companies and electronic payment service providers.

Law Number 5 of 2018: Strengthening the Regulatory Framework

Law Number 5 of 2018 marked a turning point in Indonesia's compliance system. This regulation expanded control mechanisms, introducing stricter requirements for customer identification and the detection of suspicious transactions.

The law established more rigorous procedures for customer due diligence, requiring financial institutions to conduct deeper and ongoing risk assessments.

Law Number 3 of 2011: Interinstitutional Coordination

Law Number 3 of 2011 defined the coordination mechanisms between different government agencies responsible for preventing money laundering. This regulation particularly strengthened the role of PPATK (Financial Transaction Reports and Analysis Center) as the central financial intelligence agency.

The law established clear protocols for information exchange between institutions, significantly enhancing the ability to detect and prevent irregular financial activities.

Complementary Regulations

In addition to these fundamental laws, Indonesia has specific regulations issued by Bank Indonesia and the Financial Services Authority (OJK) that detail the concrete procedures for implementing KYC and AML across different sectors.

The evolution of this legal framework reflects Indonesia's commitment to international financial transparency, a crucial aspect for attracting foreign investment and consolidating its position as an emerging digital economy.

Challenges in Document Verification in Indonesia

Document verification in Indonesia poses a complex challenge for KYC solutions operating in the country. Despite having key documents that are uniform nationwide, such as the Kartu Tanda Penduduk (KTP) and the residence permit (KITAS/KITAP), the geographical diversity of the archipelago (over 17,000 islands) and cultural richness (over 300 ethnic groups) add unique challenges, especially in validating other supplementary documents like driver’s licenses.

Some administrative specifics do vary by region, particularly in documents like driver’s licenses, which can show significant differences in design and technology between Java, Sumatra, or Bali. This fragmented context challenges identity verification solution providers.

Key Documents: Identification in the Indonesian Ecosystem

Identification in Indonesia relies on four main documents: Kartu Tanda Penduduk (KTP), passport, driver’s license, and residence permit. Each represents a different level of verification and security.

Kartu Tanda Penduduk (KTP): The National Document

The KTP is Indonesia’s national identity document, mandatory for all citizens over 17 years old or married. This document is the core of the country's identification system, with security features that have significantly evolved in recent years.

The latest versions of the KTP incorporate advanced technologies such as:

• Electronic chip with biometric information
• Security holograms
• QR codes with online verification
• Design that hinders counterfeiting

Indonesian Passport: International Standard

The Indonesian passport complies with ICAO (International Civil Aviation Organization) standards, ensuring its global recognition. The latest generations include:

• Electronic chip with biometric data
• Electronic reading technology
• Multiple security layers against counterfeiting

Driver’s License: Regional Variability

Driver’s licenses in Indonesia are regulated nationally, with uniform categories and regulations across all regions. However, some provinces have advanced more in implementing technologies like RFID chips or digitized systems, while others maintain traditional formats. These differences do not affect the validity or requirements of the licenses.

Residence Permit: Special Documentation

For foreigners, the Indonesian residence permit (KITAS/KITAP) represents a document with specific security features, designed for migration control and identity verification.

The technological evolution of these documents reflects Indonesia's commitment to modernizing its identification systems, adapting to international standards of verification and security.

Didit: Transforming Identity Verification and KYC and AML Compliance in Indonesia

Didit arrives in Indonesia to revolutionize regulatory compliance in KYC and AML. We are the first and only market provider capable of offering a free, unlimited, and tailored identity verification solution adapted to the Indonesian reality. Thanks to this, we can redefine compliance concepts in the country.

Our system combines the most advanced technology in document verification, facial recognition, and checks against international databases (AML Screening) without compromising user experience or forcing institutions to face high costs.

For document verification, Didit uses artificial intelligence algorithms adapted to the Indonesian market. Our technology detects inconsistencies, extracts key information, and ensures the authenticity of identity documents in Indonesia's complex context. Learn more about document verification.

The next phase is facial recognition. We offer various models powered by customized algorithms to adapt to Indonesia's ethnic and geographic diversity. Thanks to our liveness test, we ensure that the verifier is genuinely who they claim to be. Learn more about our live detection solution.

To ensure regulatory compliance in anti-money laundering in Indonesia, Didit offers an AML Screening service with real-time verifications. We conduct checks against over 250 international datasets. Discover our AML Screening tool.

What Official Documentation Does Didit Verify in Indonesia?

In this way, Didit can verify the following documentation in Indonesia:

• Kartu Tanda Penduduk (KTP)
• Driver’s license
• Residence permit (KITAS/KITAP)
• Indonesian passport

Each document is processed considering its unique characteristics, from security measures to regional variations.

In summary, Didit transforms the challenges of identity verification in Indonesia by offering:

• Full compliance with KYC and AML regulations
• Reduction of operational costs
• Verification processes in under 30 seconds
• Adaptation to Indonesia's documentary diversity

Are you ready to transform the challenges of regulatory compliance in Indonesia? With Didit, the future of compliance is here.