Bina Nusantara University

Accounting Information System in Financial Technology

Industry

Submitted by
Dhea Kartika S.
2301937646
28/04/2020

Submitted to
Olivia The
 Table of Contents

Table of Contents ............................................................................................................. 1

Chapter 1 Introduction ................................................................................................... 2
Chapter 2 Literature Review .......................................................................................... 4
2.1 Impact of Financial Technology and Accounting Information System in
SMEs in Indonesia ........................................................................................ 4
2.2 Implementation of Accounting Information System in the Ideas of Financial
Technology in Banking Sector ..................................................................... 5
2.3 Accounting Information System to Overcome Weaknesses in Financial
Technology ................................................................................................... 8
2.4 Application of Accounting Information Systems in the Peer to Peer Lending
Industry in Indonesia .................................................................................... 10
2.5 Effects of Financial Technology and Accounting Information Systems on the
Economic Sector .......................................................................................... 12
Chaper 3 Conclusion ....................................................................................................... 15
3.1 Conclusion ..................................................................................................... 15
3.2 Recommendation ........................................................................................... 15
References ......................................................................................................................... 15

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 Chapter 1 Introduction

Along with the times, technology has also experienced very rapid development. Volti
(2009: 6) defined technology as a system created by humans that uses knowledge and
organization to produce objects and techniques for the attainment of specific goals. Through
the description presented by Volti, it can be concluded that technological development is very
important to support life in the present, because well-designed technology will be able to guide
everyone to produce an object and make specific decisions more easily. The rapid development
of technology in this period has also penetrated into various aspects of life, ranging from health,
education, to the economy.
In the economic field, technological developments are marked by the emergence of
various types of financial technology industries in the community. At present, almost all banks
in the world have adopted financial technology to support their business activities. The
financial technology is defined as a new financial service model developed through information
technology innovation (Hsueh, 2017). In addition, Hsueh (2017) also classifies financial
technology into three types, namely third-party payment system, Peer-to-Peer (P2P) lending,
and crowdfunding. Through the presence of financial technology, economic activities can take
place more easily and can reach more people who need sources of funding in conducting
business or to meet their daily needs. In short, the existence of financial technology can be one
of the factors to boost the economy in a country.
In its development, financial technology also faces various threats related to its business
activities. One of the hardest threats faced by the financial technology sector is the threat related
to the security of customer data stored in the system used by financial techonology. This threat
is certainly very dangerous for all actors involved in the financial technology sector, especially
for customers whose funds are stored and managed using the financial technology sector.
Therefore, it is also needed the role of a well-designed accounting information system to be
able to develop a strong financial technology sector in a country.
Accounting information systems (Romney and Steinbart, 2018: 36) is a system that
collects, records, stores, and processes data to produce information for decision makers. In
addition, accounting information systems can also be used to improve the structure of internal
controls. Therefore, a well-designed accounting information system in the financial technology
sector can help overcome various problems related to data security stored in it. In addition, a
well-designed accounting information system can also help to make the right decisions in the

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development of the financial technology sector related to the development of the economic
sector in a country.
Therefore, this paper aims to explain the relationship between financial technology and
accounting information systems. This paper also tries to explain the importance of accounting
information systems in the financial technology sector. Furthermore, this paper also aims to
explain the role of accounting information system to improve internal control in the financial
technology sector.

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 Chapter 2 Literature Review

2.1 Impact of Financial Technology and Accounting Information System in SMEs in

Indonesia

The establishment of innovative financial technology is important in the role of the

organization in supporting financial technology success. Therefore, it can be concluded that
organizational competence has a significant influence on the adoption of financial technology.
Therefore, knowledge about information and communication technology and understanding of
the use of technological innovation in organizations need to be increased so that the
development of the financial technology industry is increasing. To be able to develop fintech
in SMEs (small and medium enterprises), strategic planning is needed to be related to the vision
and mission of the organization, adjusting SMEs governance with developments in IT and
financial technology, as well as collaboration of government, employers, and banks so that the
system can run well.

In addition, it would be better if SMEs in Indonesia could adopt and develop accounting
information systems to conduct their business. Starting with the text book, Romney and
Steinbart (2018:37) said that a well-designed accounting information system can add value to
an organization by:
1. Improving the quality and reducing the costs of products or services.
2. Improving efficiency.
3. Sharing knowledge.
4. Improving the efficiency and effectiveness of its supply chain.
5. Improving the internal control structure.
6. Improving decision making.

Because accounting information system that is well designed can provide enormous
value to an organization, it is only right that MSMEs in Indonesia also implement accounting
information system in conducting their business. However, the development of accounting
information in SMEs still needs to consider the three factors that influence the design of
accounting information system: developments in IT, business strategy, and organizational
structure (Romney and Steinbart, 2018:39). For example, the development of accounting
information system in SMEs can adapt to the information technology (IT) used by SMEs. Or
conversely, these SMEs can adjust the IT they use with the accounting information system that

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they will develop. Whatever choice is chosen by the SME, the application of accounting
information system in SME IT can affect the SME business strategy. For example, along with
the increase in internet usage that occurred in this era, then SMEs can change their business
strategies through online sales. On the other hand, the application of AIS in SMEs will also
change the organizational culture. Accounting information system can help SMEs to control
the flow of documents, data and information needed to run their businesses.

The implementing of accounting information system in SMEs also can strengthen the
internal control in these SMEs. Internal control of accounting information systems refers to the
relevant rules and regulations of enterprises and institutions in order to ensure the integrity of
the normal business activities of accounting, accounting data, and the accuracy of corporate
assets, in accordance with the accounting principles and accounting system, developed, control,
business processes, etc. related management measures (Yan Xiaoqin, 2012). The stronger
internal control in an SME, the opportunity for SME to develop its business will also be even
greater. Effective internal control reduces the risk of asset loss, and helps ensure that plan
information is complete and accurate, financial statements are reliable, and the plan’s
operations are conducted in accordance with the provisions of applicable laws and regulations
(AICPA, 2014). The more effective internal control in SMEs, the SME will have stronger
guarantees in running their business. Conversely, when internal control in SMEs is weak, then
SMEs have very little or no guarantees to be able to succeed in running their business.

2.2 Implementation of Accounting Information System in the Ideas of Financial

Technology in Banking Sector

Financial technology has developed in many banks located in Europe and the United
States. The application of financial technology in banking institutions can be seen through
various digital banking concepts that are implemented into:
a. The use of biometric authentication in the form of a fingerprint to use ATM.
The use of biometric authentication in the form of fingerprints is also a form of control
authentication in the accounting information system. Actually, there are three types of
credentials can be used to verify a person’s identity (Romney and Steinbart, 2018):
1. Something the person knows, such as password or personal identification numbers
(PINs);
2. Something the person has, such as smart cards or ID badges; and

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 3. Some physical or behavioral characteristics (referred to as a biometric identifier)
of the person, such as fingerprints or typing patterns.

Biometric security technology is a control needed in computerized

information systems, in the context of determining authentication. The concept of
“something you are” developed into biometric technology is the most accurate
authentication model compared to the two existing authentication models. (Chandra
and Calderon, 2003: 54).

Biometric technology which is something you are approach is the most

accurate authentication approach, this is due to the superiority of biometrics among
other authentication models (Chandra and Calderon 2003: 54, Ax-S Biometric
2005). These advantages are: (1) It is difficult to be manipulated because it uses the
concept of something you are (2) It allows an audit trial to be carried out on every
event, where through biometric security it can be known: who is accessing the assets
of the organization (who), where (where ) and when (when) the individual does (3)
Prevents individuals who do not have authorization to access the assets of the
organization. Conditions are very likely to occur leakage, if you use a password
(something you know) or a card (something you have), where cards owned by
individuals can be loaned to other individuals or lost and found by individuals who
do not have authorization (4) As a solution to weaknesses the concept of something
you know, namely the possibility of individuals not being able to recall passwords
or PINs to access.

However, there are also security concerns about storage of the biometrics
information itself. Biometric templates, such as the digital representation of an
individual’s fingerprints or voice, must be stored somewhere (Romney and
Steinbart, 2018:269).

b. The implement of open banking and big data as the two of dominant financial
technologies in digital banking.

Open banking is one of dominant financial technology ideas in digital banking

which aims at developing customer service. Open banking system can give benefits for
banks, customers, and corporate clients. Meanwhile, big data can be used by banks to
save the marketing budget, solve the problems of business process automation and

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 optimizaztion, and make it possible to organize the system of “social listening.” But, if
these are not managed well, the possibility of data theft would be very high. So, it can
say that the banks which use big data and implement the open banking system are also
need to develop the accounting information system to maintain the internal control.

c. The use of cloud to store and analyze customer data.

Using cloud computing also gives several impacts on the accounting

infomration system when it is applied. These impacts are (Abdullah Mohammad Al-
zoubi, 2017):
1. Reducing the size of the enterprise in terms of the building and the offices because
they allow property anywhere without management commitment to a specific
location.
2. Improving operational performance in terms of:
a) Facilitating the completion of operations in terms of processing and reporting.
b) Timeliness and accurate accounting operations accuracy in accounting process.
3. The cloud has become a place for the completion of operations and dialogue
between employees or customers with enterprise system.
4. Dispensing the documents to ensure they are selfservice to customers.
5. It is similar to the electronic systems to dispense accounting books and the reason
is the availability of applications on the cloud by Software as Services (SAAS).
6. The cloud computing users can get all the financial reports provided by the
established system at any time according to the powers granted by the company to
its users.
7. Making it easier for all users to access the data they want.
8. It allows individuals and firms to use software and physical equipment without the
need to buy the software and install it on their computers.
9. It adds new software that is simple and easy to use.

However, one of the main problems in using financial technology in digital banking is
to ensure the safety and security of banking activities. This is where accounting information
system plays a very important role. The role of accounting information system in implementing
financial technology into digital banking is to strengthen the internal control for this system.
Internal control of accounting information systems refers to the relevant rules and regulations
of enterprises and institutions in order to ensure the integrity of the normal business activities

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of accounting, accounting data, and the accuracy of corporate assets, in accordance with the
accounting principles and accounting system, developed, control, business processes, etc.
related management measures (Yan Xiaoqin, 2012). The stronger internal control in digital
banking system, the opportunities for digital banking to improve customer service and optimize
of the internal system of the bank will also be even greater. In other words, the role of
accounting information systems in financial technology is also important to get more attention
for the banking sector who wants to implement financial technology.

2.3 Accounting Information System to Overcome Weaknesses in Financial Technology

In general, the application of financial technology in banking sectors has strengths,

weaknesses, opportunities, and threats (SWOT) in its development. According to the journal
about SWOT Analysis of the Implementation of Financial Technology on the Quality of
Banking Services in Indonesia (Chrismastianto, 2017), the strengths analysis of the implement
of financial technology are:
1. The ease of utilizing access to banking services data in large sizes and the ease of
conducting transactions anytime and anywhere.
2. The ability to reach community groups that are not served by branch offices of banking
institutions.
3. More efficient in operational costs and marketing costs.
4. Introducing variants of banking institution products to the public.
Christian Herdinata, T. W. (2019, December). Effect of Organizational Competence, Organizational
Support, and Organizational Productivity Towards Adoption of Financial Technology.
Journal of Applied Management (JAM), 17, 608-614.
Darman. (2019, May). Financial Technology (FinTech): Karakteristik dan Kualitas Pinjaman pada
Peer to Peer Lending di Indonesia. Jurnal Manajemen Teknologi, 18(2), 130.
(Svitlana Melnychenko, 2020) (Christian Herdinata, 2019) (Christian Herdinata, 2019)

The weaknesses analysis of the implement of financial technology in banking sectors

are:
1. Requires an adequate internet connection so that financial transactions can take place
without experiencing disruption.
2. The emergence of cyber crimes that can endanger data and transaction processes.
3. Not all financial technology service providers have licenses to collaborate with banking
institutions or carry out systematic and legal financial transactions.
4. Public knowledge about financial technology is relatively low.

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 5. Inequality of access to banking services due to uneven communication technology
infrastructure.

The opportunities analysis of the implement of financial technology in banking sectors

are:
1. Growing public awareness to save and borrow financial needs through banking
services.
2. The Financial Services Authority (OJK) has established regulations and supervision of
banking financial transactions.

The threats analysis of the implement of financial technology in banking sectors are:
1. The use of increasingly sophisticated technology by financial technology service
providers is not accompanied by improvements in the quality of banking human
resources.
2. The political situation is less conducive and the tendency for inflation to be relatively
high in Indonesia, so that it will have an impact on the complexity of the banking
bureaucracy and the administrative costs charged to the public as collateral.

In the case above, the accounting information system plays an important role to
overcome the weaknesses of the implementation of financial technology in the banking sector,
especially the weaknesses related to the second point. The accounting information system can
be used to improve and strengthen internal control owned by banks in Indonesia. Internal
controls are the processes and procedures implemented to provide reasonable assurance that
control objectives are met (Romney and Steinbart, 2018:224). Based on this understanding, it
can be concluded that internal control can help prevent or minimize the occurrence of cyber
crime in the implementation of financial technology in the Indonesian banking sector. Good
internal control can help banks in Indonesia to identify quickly and correct errors or losses
caused by cyber crime. In addition, the implementation of accounting information systems at
banks in Indonesia can also help to create and develop artificial intelligence. By using artificial
intelligence technology, it becomes possible to carry out credit risk assessments that require
accuracy and
confidentiality. Thus, cyber crime cases, such as hacking, eavesdropping, burglary, carding
data theft through networks, and fraud arising from the application of financial technology in
banks in Indonesia can be further minimized.

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2.4 Application of Accounting Information Systems in the Peer to Peer Lending Industry
in Indonesia

Broadly speaking, the journal entitled “Financial Technology (FinTech):

Characteristics and Quality of Loans in Peer to Peer Lending in Indonesia” (Darman, 2019)
stated that the people's interest in using P2P lending was quite high, especially in Indonesia.
The number of borrower and lender accounts increased 10.8 times and 1.8 times compared to
the previous year. In addition, most loans in P2P lending from January to October 2018 are
current loans whose repayments (repayments) can be fulfilled by borrowers no more than 30
days. The quality of loans in P2P lending is dominated by current loans at an average of 97.09
percent, the remaining loans are non-current (1.90%), and bad loans (1.03%) each month. The
low percentage of non-performing loans shows good quality of financial transactions and
indicates good prospects for investors who want to invest their capital in FinTech-P2P lending
in Indonesia.

The low percentage indicating failure of repayment by borrowers indicates that the
accounting information system in P2P lending companies has been used optimally. If viewed
in terms of P2P lending service provider companies, the lending-borrowing activity enters the
revenue cycle. Revenue cycle is the activities associated with selling goods and services in
exhange for cash or a future promise to receive cash (Romney and Steinbart, 2018:32). If a bad
credit occurs, it is fully borne by the lender (not a P2P lending company), in contrast to the
banking system that will be borne by the bank. Pokorna and Sponer (2016), the greatest risk
that must be borne by lenders is in the event of default (bad credit) by the borrower.

Through the description given by Pokorna and Sponer (2016), it can be concluded that
the cash flow problems are one of the biggest threats for P2P lending company. If a P2P lending
company experiences a lot of bad credit, the company will run out of funds to run its business.
In fact, a company engaged in the field of P2P lending really needs these funds to provide loans
to other customers and also bear operational expenses incurred by the company. The best
control procedure to reduce the risk of unanticipated cash shortfalls is to use a cash flow budget
(Romney and Steinbart, 2018:405). A cash flow budget is a budget that shows projected cash
inflows and outflows for a spesific period (Romney and Steinbart, 2018:405). Still from
Romney and Steinbart (2018: 405-406), a cash flow budget can alert an organization to a

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pending short-term cash shortage, thereby enabling it to plan ahead to secure short-term loans
at the best possible rates. For P2P lending companies, the cash flow budget can be used as a
reference to determine the amount of loans to be given to borrowers, as well as the loan term
that should be given to borrowers to avoid problems in cash flow. The low percentage of bad
loans in the January-December 2018 period shows that P2P lending companies in Indonesia
already have and implement good internal controls related to cash flow problems within their
companies.

Besides the cash flow problem, another problem that should not be ignored by P2P
lending companies is the problem of uncollectible accounts. As stated in the journal, if there is
a problem in collecting receivables from customers, then the problem is entirely dependent on
the lender (the P2P lending company). The problem of uncollectible accounts is also as
dangerous as the problem of cash flow, because P2P lending companies obtain the main source
of income through collection of accounts receivable owned by their customers. To avoid this
kind of problem, P2P lending companies can set a credit limit, which is the maximum allowable
account balance that management wishes to allow for a customer based on that customer’s past
credit history and ability to pay (Romney and Steinbart, 2018:388). By using a credit limit, P2P
lending companies will find it easier to give approval or consideration to credit applications
submitted by customers. In addition, credit limits can also be used as a basis for decision
making for approval of credit applications submitted by customers. Because, by using an
analysis of credit limits, P2P lending companies can also analyze the customer’s payment track
record and ability to pay. However, this can only be done for customers who have already
registered before. If seen from the low percentage of non-current loans and bad loans, it can be
said that P2P lending companies in Indonesia have been effective in using the credit limit.

To ensure the accounts collections from customers, it is also important for P2P lending
companies to be careful in monitoring the accounts receivable. The company can use an
accounts receivable aging report, which lists customer account balances by length of time
outstanding (Romney and Steinbart, 2018:389). Companies can use this report to analyze the
amount of receivables outstanding at each customer. In addition, banks can also use this report
to decide whether to increase the credit limit for specific customers, and for estimating bad
debts (Romney and Steinbart, 2018:389). Therefore, company management needs to evaluate
this report regularly to give quick attention to customers who have difficulty making payments
so as to minimize losses caused to the company. P2P lending companies in Indonesia have
effectively utilized accounts receivable aging reports to run the revenue cycle in the company.

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This can be seen through the high percentage of current loans in these companies during
January-October 2018.

When viewed from the low percentage of non-current and bad credit in P2P lending companies
in Indonesia, it can be concluded that almost all P2P lending companies in Indonesia have
implemented accounting information systems, specifically for internal control, which are
effective and efficient within their companies.

2.5 Effects of Financial Technology and Accounting Information Systems on the

Economic Sector

The journal entitled “The Study of the Impact of Financial Technology in the Banking
Sector in India” (Neha Khurana, 2018) states that financial technology has a great opportunity
to be developed in this country. There are two main segments in which financial technology is
developing rapidly in India, namely payments and loans. The development of financial
technology in India has also boosted the overall economy in India. However, there are still two
main problems related to the development of financial technology in India, namely security
issues and the level of usage among populations that do not have bank accounts.

The development of financial technology can indeed provide a boost for the economy
in a country. However, the development of financial technology also needs to be balanced with
the development of accounting information systems adopted by companies in the country.
Accounting information systems are very useful for the development of financial technology,
because accounting information systems can add value to a company by (Romney and
Steinbart, 2018: 37):
1. Improving the quality and reducing the cost of products or services.
2. Improving efficiency.
3. Sharing knowledge.
4. Improving the efficiency and effectiveness of its supply chain.
5. Improving the internal control structure.
6. Improving decision making.

Added value by implementing and developing accounting information systems can also
increase efficiency and effectiveness to improve the overall economy in India. The following
is an example of each added value provided by the accounting information system.

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 1. Improving the quality and reducing the cost of products or services.
For example, the use of an accounting information system can improve the quality of
products in the banking industry through information about available products and
customer feedback about those products. Thus, an accounting information system can
help banks improve their products to suit customers’ desires so as to improve product
quality for customers.
2. Improving efficiency.
For example, a well-designed accounting information system can provide timely
information for customers who want to conduct transactions at the bank. Conversely,
by using a well-designed accounting information system, the bank can access and
obtain customer data on a timely basis. In the end, the accounting information system
not only increases efficiency, but also improves the quality of customer service
provided by the bank.
3. Sharing knowledge.
For example, the use of an accounting information system at a bank can be used to help
the communication process between customer service and managers. Customer service
can share information about customers who open accounts at the bank to the manager,
so that managers can more easily compile reports about customer accounts at the bank.
4. Improving the efficiency and effectiveness of its supply chain.
For example, providing access to customers to carry out their transactions
independently. An example is the existence of a machine that allows customers to print
account mutations in their bank account book without the need to queue up at the teller
first.
5. Improving the internal control structure.
For example, an accounting information system which is designed with good internal
control can protect a company’s system from fraud, errors, system failures, and
disasters.
6. Improving decision making.
For example, a well-designed accounting information system can help credit analysts
to decide on approval of credit applications submitted by customers.

In addition to adding value to banks in India, a well-designed accounting information

system can also address issues related to security in financial technology for the banking sector
in India. Accounting information systems can help develop internal control in banks in India.

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There are three frameworks used to develop internal control systems (Romney and Steinbart,
2018:226).
1. Control Objectives for Information and Related Technology (COBIT)
COBIT is a security and control framework that allows management to set benchmarks
for security practices and control of the IT environment, convince users of IT services
related to the existence of adequate security and control, and strengthen auditor's advice
regarding internal control and various issues related to IT control.
2. Committee of Sponsoring Organizations (COSO)
COSO is a group consisting of the American Accounting Association, the AICPA, the
Institute of Management Accountants, and the Financial Executives Institute. In 1992,
COSO released Internal Control - Integrated Framework (IC) which is a COSO
framework for defining, guiding, evaluating, and improving internal control systems.
3. Enterprise Risk Management (ERM)
ERM is a COSO framework that enhances risk management processes by expanding
COSO - Integrated Internal Control.

Therefore, a bank that implements and develops a well-designed accounting

information system will be able to develop internal control in accordance with the business
processes at the bank. In addition, a well-designed accounting information system will also
strengthen internal control in a bank, because one factor that can affect internal control in an
agency or organization is the development of accounting information systems.

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 Chapter 3 Conclusion

3.1 Conclusion

Most of the threats faced by the financial technology sector are issues related to data
security. To overcome this problem, the role of a well-designed accounting information system
becomes very important for financial technology. A well-designed accounting information
system can help strengthen internal controls in financial technology. In addition, a good
accounting information system can also help the decision making process in developing
financial technology so that it becomes more effective and efficient.
Of the three types of financial technology (ie, third-party payment systems, Peer-to-
Peer (P2P) lending, and crowdfunding), the role of a well-designed accounting information
system has been seen in the Peer-to-Peer (P2P) lending sector, especially P2P lending found in
Indonesia. This can be seen from the small percentage of non-current and bad credit from P2P
lending customers in Indonesia.
If the accounting information system can be developed optimally in financial
technology, then it can also have a significant impact on the country's economy. The existence
of financial technology coupled with the development of accounting information systems in it
can help encourage and develop the economy sector in a country.

3.2 Recommendation

As can be seen through this paper, the role of financial technology is very important to
enhance economic growth in a country. However, the development of financial technology will
be even better if it is balanced with the implementation of a well-designed accounting
information system in it. The existence of an accounting information system in the financial
technology sector will be very helpful for dealing with various threats related to customer data
security. Therefore, it would be nice if the existing financial technology in various countries to
implement accounting information systems to improve their performance in providing financial
services to the public.

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Christian Herdinata, T. W. (2019, December). Effect of Organizational Competence,
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Darman. (2019, May). Financial Technology (FinTech): Karakteristik dan Kualitas Pinjaman
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Khurana, N. (2018, August). A Study of Impact of Financial Technology on Banking Sector in
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