Mass Default in Fintech: Why Platforms Collapse Due to Imprudent Internal Processes

In recent years, Indonesia's fintech lending industry has faced various pressures, ranging from a surge in defaults to the collapse of several service providers. Initially hailed as a new breakthrough in the nation's economic landscape, it ended up becoming grim headlines for both investors and borrowers.

Many tend to attribute this failure to borrower behavior or macroeconomic conditions. However, looking at the patterns emerging from investigative reports, OJK (Financial Services Authority) regulations, and global academic studies, the root cause is often found within the platforms themselves — specifically in imprudent internal processes.

1. What Constitutes an Imprudent Process?

According to POJK 10/2022 and POJK 40/2024, the principle of prudence (prudential process) includes obligations such as:

Several articles in POJK explicitly state that providers are responsible for negligence in implementing risk management and poor funding quality.

In other words, an imprudent process is a condition where a platform:

Several investigative reports indicate that the collapse of numerous providers stemmed from internal control gaps, not solely from problematic borrowers.

a. Weak Document Verification → Funding for Unviable Projects

An investigation by major journalism outlets like Tempo revealed a pattern where funding was provided to entities or projects that ultimately lacked a strong operational foundation. Insufficient in-depth examination of documents and background of fund recipients contributed to increased default risk.

b. Ineffective Internal Oversight

In several cases, governance structures proved unable to prevent internal authority abuse or fund misuse deviations. When oversight functions are ineffective, operational and fraud risks increase drastically.

c. Fund Disbursement Without Consistent Feasibility Analysis

A market report showed that banks were asked to stop channeling credit to certain platforms due to a significant increase in defaults, which was later seen as an indication that the funding selection process and risk mitigation were no longer operating according to prudent standards.

d. Neglect of Deteriorating Credit Quality

Another investigation revealed negligence towards worsening portfolio performance without adequate corrective action. Infrequent monitoring caused platforms to only realize the scale of failure when it had already reached a state of mass default.

These patterns demonstrate that when internal governance weakens, systemic failure is only a matter of time.

3. Lessons from the Collapse of Thousands of Platforms in China

Academic research on the collapse of the P2P industry in China — where thousands of platforms ceased operations within a few years — reinforces the same pattern: collapse was triggered by a combination of aggressive growth and imprudent processes.

In a research journal by Qing He & Xiaoyang Li, published via Science Direct, they identified several key patterns:

Meanwhile, the research "Too Much Technology and Too Little Regulation?" published via ResearchGate shows that advanced technology could not cover up fundamental weaknesses in opportunistic risk management and verification. When human processes and governance collapse, algorithms alone cannot prevent systemic failure.

Both studies provide a global picture: mass default is not a local phenomenon, but a universal pattern of platforms failing to implement prudent processes.

4. Why Do Imprudent Processes Harm the Ecosystem?

When a platform fails to maintain its internal processes, the effects are not limited to a single entity:

a. Contagion Risk

The failure of one platform erodes market confidence, impacting liquidity and lender psychology on other platforms.

b. Rapid Portfolio Quality Deterioration

Since funding is conducted without consistent analysis, default risk increases exponentially.

c. Increased Regulatory Burden

OJK is forced to tighten standards, making it harder for other, actually healthy platforms.

d. Industry Reputation Decline

One scandal tarnishes the image of the entire fintech lending sector. In other words, an imprudent process doesn't just bring down one company; it can bring down an industry's reputation.

5. How Technology Helps Improve Prudential Processes

POJK 40/2024 emphasizes that providers must have electronic systems capable of accurately processing, storing, and analyzing documents as part of risk management. This is where process modernization becomes crucial.

Platforms can no longer rely on:

Companies need systems capable of:

Simplifa.ai will never replace an auditor. However, with the ability to:

Simplifa.ai helps platforms execute the most critical stage of the prudence principle: data verification and validation.

This capability helps providers reduce human error in checks, ensure borrower information consistency, speed up underwriting processes, and build a stronger governance foundation.

In other words, Simplifa.ai strengthens the first line of risk defense — data hygiene and verification — so platforms can focus on strategic risk assessment, not manual work prone to human error.

Mass default phenomena do not happen suddenly. The consistent patterns seen in Indonesia and globally show that the main root cause often lies in imprudent internal processes: weak verification, dysfunctional governance, inconsistent monitoring, and unenforced risk management.

Regulators have provided a clear framework. Global studies have warned of the pattern. Local investigations have shown the consequences.

Now, it's time for the industry to ensure that every funding process starts from correct data. Because ultimately, in a trust-based industry, process accuracy is the foundation of sustainability, which cannot be achieved without a solid data foundation.