The new Central Bank regulation in creating a national payment gateway (“NPG”) will accelerate the adoption of electronic payments in Indonesia. The regulatory focus is on debit card inter-connectivity first, then internet based services and credit cards. In 2018 it is planned that NPG scope will be widened by covering the electronic bills and invoices, internet-based services, mobile-banking, and e-commerce.

This ecosystem will ensure the transactions being processed are efficient, secure, as well as bring down the transaction costs. It will also aim to facilitate government’s initiatives such as increasing the cashless acceptance, distributing the non-cash social services, receiving the non-cash government’s income, financial inclusion, and national e-commerce.

Once the central payment infrastructure is interoperable and interconnected, then the focus can be shifted to build a bigger cashless society. One of the most effective strategies is by not giving an option to use cash at all, for example starting October 2017 all highway payments in Indonesia must use e-Money at the tollbooth, or later on the payment of gasoline in fuel station.

So, how banks will contribute to this latest development?

There are five needs of customers in opening a relationship with their retail bank: transactional, saving, borrowing, investment, and protection. Payments to support the transactional need is undoubtedly on top of the whole food chain. Currently in Indonesia there are multiple e-wallets and gateways, but no outright leader has emerged because firstly they need to build their own ecosystem to facilitate payments between customers and merchants.

Thus the user experience is not so good right now, for example there is no cross platform wallet or gateway, as online payment requires to redirect away from the merchant site and login to the e-wallet or gateway, and customers must add credit to an account before they can transact. This means increasing the financial literacy and inclusion should still be continued as key priority, banks play major parts as the first touch point to the customers. Thus the onboarding process should be made seamless and easy.

Fintech companies are usually strong at technology and applications, but they are mostly inexperienced in financial sector operations, therefore to completely replace the traditional financial sector is difficult. The most ideal development for fintech companies is to collaborate with banks. While still focusing on their own business, the banks could introduce fintech technologies through acquisitions or paid services.

Conclusion

The opportunities in cashless payments in Indonesia is massive. The underlying demographic and economic drivers point towards a rapid shift from cash based payments to alternative payments through mobile devices, thus developing mobile payment is believed to be the most reasonable strategy as Indonesia appears to be on the verge of a cashless payments era. The regulatory driven consolidation of the various interbank switching networks to deliver on interoperability and reduce transaction costs is supportive to the above strategy, and in order to reach a wider audience especially to the massive number of unbanked population in Indonesia a synergy between banks and fintech companies will be one of the catalysts.

See Also: 

Top Fintech Companies

Top FINTECH Consulting Companies