Expanding in Indonesia? You need to know where your data is stored
(This article was co-authored with Pearl Lee)
The Indonesian government’s rigid regulations over managing data will impact startups in years to come.
Issued in 2012, Regulation No. 82 states that companies need local data centers. Amongst other regulatory requirements, companies have to provide a disaster recovery center, adding to costs.
A new regulation issued in 2016 sets further requirements for data protection. For instance, authorized government officials need to be informed of data transfers out of Indonesia. A draft law also states that cross-border personal data transfers require consent.
Migraines over data migration
The new regulations have affected some startups in fintech.
“Indonesia’s financial industry is very strict about regulation. Incumbent players in banking have to put their data in local data centers. We are also in the process of migrating our data centers to Indonesia,” says Sofian Hadiwijaya, co-founder of lending platform Pinjam.co.id and Intel software innovator in the Internet of Things.
For internet of things applications, if data transactions occur with users, “it’s supposed to be in local data centers,” Hadiwijaya says.
Indonesian startups using Amazon Web Services (AWS) are effectively transferring data out of the country, which means they may fall afoul of regulations. There are no AWS data centers in Indonesia.
Hadiwijaya confirms that this may be a problem “if the regulators get more serious about inspecting startups, especially for us in the financial industry.”
“Businesses enjoying cloud services like AWS are no exception to the new regulations. Cloud services are good. It’s reasonable, flexible, and good to start small. But I’d like to ask them this: Do you know where your precious data is stored?” says Daisuke Kuroda, director in NTT Com’s global business division.
Indonesia isn’t the only country with legal requirements for local data storage. Others include Brazil, China, and India.
“The US is more flexible. In Europe, the data regulations are clear. We do have a data center in Europe. We’re actually considering using a data center in China because we have operations in China,” says Michael Salam, Southeast Asia regional manager in global fraud solution startup CashShield.
The startup works with local ecommerce players to combat fraud where people abuse registration vouchers by creating multiple accounts. They deal with a lot of personal and transactions data by analyzing user behavior with machine learning.
“Say you’re a payment processor. You have the data of the financial transaction – like how much money is being paid out. Otoritas Jasa Keuangan, the Financial Services Authority of Indonesia, requires data centers within Indonesia to store all these transactions data. That’s why payment processors for banks need Indonesian data centers,” he says.
It’s not just startups who are facing the heat. Big boys are also affected.
Finance institutions aren’t prepared. Banks and insurance firms using outsourced data centers may find themselves failing audits.
Chicken-and-egg questions for Indonesian data centers
“Why do startups in Indonesia not use local data centers? Well, sometimes it is because local data centers are not as advanced. But it’s a chicken-and-egg question. If we don’t support them, how can they grow and learn?” Hadiwijaya asks.
If we don’t support local data centers, how can they grow and learn?
Indonesia’s doing something about this. Makassar, a major city in the country, aims to be Indonesia’s key data center hub in the east.
Hadiwijaya says that Pinjam.co.id will be starting an R&D partnership with a local data center. The startup is trying to develop key features that they need from Amazon Web Services within the local data center.
Why good local data centers matter
“If a startup is targeting higher income users, users already have strong signal and good bandwidth,” says Hadiwijaya. “There may be no need for servers near their users.”
However, “startups with users in the lower-middle income segment, such as those in rural areas, will need last-mile connection,” he adds. “Users have limited bandwidth and budget for packet data.”
For CashShield, their top priority is security. “The best solution isn’t the cheapest solution. We’ll definitely sway toward local data centers that can provide the best reliability and security. We’re doing a fraud prevention solution and security is the highest priority. If the public see us as a security provider and the data is hacked, we’ll go out of business right away,” says Salam.
For ecommerce startups, costs may be a bigger concern than security, he suggests.
An inaugural challenge
The NTTINEX Startup Challenge 2017 will be a boost for startups looking for good local data centers.
Its affiliate, NTT Indonesia Nexcenter (NTTINEX), is looking for startups across Asia — in the areas of ecommerce, fintech, IoT, big data, AI, security, and others — with the aim of helping the winning startup expand in Indonesia. Silicon Valley-based Fenox Venture Capital serves as a partner for the challenge.
On top of a grant of US$10,000 and access to investors, the winner gets to use an NTTINEX data center rack for free for a year. NTT Com will also offer IT support and strategic partnerships to scale the winner’s startup through Indonesia while remaining compliant with regulations.
Japanese corporate participation in venture business is rising
Companies like NTT Com are creating accelerator programs and investment funds for startups to grow their business. It’s a win-win. “Some of the top US-based corporations such as IBM, Apple, Google, and Microsoft have done a great job collaborating with top venture businesses and startups and remain innovative,” says Anis Uzzaman, general partner & CEO of Fenox Venture Capital.
It’s only natural the Japanese are following suit.
“This is a very timely initiative by NTT Com when the Indonesian startup and innovation ecosystem is booming. It will inspire the top young entrepreneurs in Indonesia and will create new opportunities for them. We partnered with NTT Com because it has a noble goal,” Anis says.
The NTTINEX Startup Challenge 2017 is looking for Asia’s newest startups that are aiming to expand their businesses in Indonesia. Do you run a startup that’s set the impact society? If you think you could use a US$10,000 reward, access to investors and one year’s free use of an NTTINEX data center rack — register to submit your best entry. Other prizes include internet connectivity, cloud service, and office space rental, among others.
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