How cashless transactions support fintech growth in Indonesia


The role of cash is declining in Indonesia, due in large part to the significant growth of online payment choices. This comes as the Covid-19 pandemic has encouraged more people around the world to opt for cashless transactions to limit the spread of the virus, a trend that may continue to boost cashless transactions in Indonesia and other countries in the coming years. While the state is not actively pursuing the goal of a completely cashless society, it sees great potential in digital alternatives to meet other policy aims, such as financial inclusion.

Acquiring Customers

According to Bank Indonesia (BI), the central bank, debit cards remain responsible for the majority of cashless transactions in the country, with 55% of these transactions made using debit cards as of mid-2019. For many Indonesians, however, an increasingly attractive alternative is to use e-wallets to transfer funds from their bank accounts directly to merchants. As of 2018 – when the number of e-wallet accounts first exceeded that of debit cards in circulation – there were 38 e-wallet options in the country, hitting a total transaction value of around $3.3bn by the end of the year. Although that comprises a tiny portion of broader commerce, growth looks likely to be rapid, with the number of active e-wallets options increasing to 41 as of February 2020.

In a further indication of the growing appeal of e-wallets, e-money transactions were up 173% yearon-year (y-o-y) as of January 2020. That month the value of e-money transactions reached Rp15.8trn ($1.1bn), notably higher than the Rp5.8trn ($408.9m) recorded in January of the previous year.

These numbers build on the remarkable rate of growth the segment has experienced in recent years, with the value of digital transactions rising by 207.6% in 2019 alone, and up more than 20-fold from Rp7.1trn ($495m) in 2016. However, much of the market has yet to be tapped. According to industry estimates, around three-quarters of the country’s 268m-strong population remain outside conventional financial systems and lack the technology to access basic financial services.

According to research from JPM organ on e-commerce trends in Indonesia, in 2019 internet penetration was at 32.3% and smartphone penetration was around 40%, indicating significant room for growth as the middle class continues to expand.

A study conducted by mobile survey platform JAKPAT and local tech site DailySocial found that around 74.6% of the country’s e-wallet users are between the ages of 20 and 35. The high level of engagement in this bracket bodes well for future digital payment uptake, particularly considering that half of all Indonesians are aged under 30. It is estimated that the annual value of e-wallet transactions could rise to as much as $25bn by 2023, up from the roughly $3.3bn recorded at the end of 2018.

Market Leaders

As of mid-2020 the e-wallet market In Indonesia was dominated by three major players: GoPay, OVO and DANA.

GoPay – the e-wallet linked to ride-hailing app Gojek, the country’s first fintech unicorn – had the largest number of active users as of the second quarter of 2019. Gojek users are able to pay for services with cash, but 70% used GoPay. For e-wallet users of any type, the attraction may not necessarily lie in the chance to avoid cash, or the excitement over using new technologies – the promotions appear to draw people in.

These promotions include cash-back offerings on specific types of purchases, or loyalty points that can be used in various ways within the e-wallet ecosystems. Rewards can potentially obscure or help to mitigate the fact that consumers must pay fees to use these platforms, and that funds stored in e-wallets do not earn interest, as they might when deposited into a conventional bank account.

OVO and DANA are in second and third place, respectively, in terms of market share. In addition, there are a number of more recent entrants to the market, including LinkAja, a mobile payments services platform created by an alliance formed by partially state-owned Telekomunikasi Indonesia – the country’s largest telecoms firm – and public financial institutions Bank Mandiri, Bank Rakyat Indonesia, Bank Negara Indonesia and Bank Tabungan Negara.

Formerly known as TC ash and re-launched as LinkAja in March 2019, the platform uses QR-code technology to allow customers to make cashless payments on their mobile phones, enabling them to pay utility bills without needing a bank account. Customers can also top up their accounts at convenience stores or via ATMs.

In a move to protect consumers, BI, which regulates payment systems, has capped fees on e-wallet transactions; they vary by service but can no longer exceed 0.7% of a transaction’s value. BI has also mandated the use of a new QR-code technology called the QR Indonesian Standard. This version of the technology ensures interoperability so that consumers using one type of e-wallet are able to use it to pay a merchant using a different type of e-wallet.

For now, it appears that the focus at GoPay, DANA, OVO and other payment platforms is not profitability but growth, as reflected in market share and overall engagement levels. Payments platforms are not necessarily seen as standalone businesses, but as a part of a wider offering.

E-wallet providers are typically owned by parent companies that offer these services in integrated platforms, or are establishing partnerships to share in the profits. However, they are also aware that the data they gather on consumer behaviour is of great value to merchants, making merchant services another potentially lucrative revenue stream.

Non-Cash Movement

The rapid growth in digital payments aligns with the government’s aim of boosting financial inclusion and reducing the overall volume of cash transactions. Since 2014 BI’s national non-cash movement has sought to limit cash payments – which make up an estimated 99% of all transactions by volume – in an effort to curb money-laundering and bribery.

Only around 50% of adults in Indonesia have a bank account, according to the World Bank’s 2018 Global Financial Inclusion Index. Although this marks a considerable increase from 2011 and 2014, when 20% and 36% of Indonesians had bank accounts, respectively, it is still well below regional benchmarks Malaysia (85.3%) and Thailand (81.6%).

One potential route towards a cashless society that looks unlikely to develop in Indonesia is that of alternative currencies. Indonesia allows trading in cryptocurrencies such as Bitcoin, which are regulated by the Commodity Futures Trading Regulatory Agency, part of the Ministry of Trade.

Cryptocurrencies can be traded as commodities through licensed traders with a minimum paid-up capital of Rp1trn ($70.5m) – a higher threshold than for other commodities, which has disappointed would-be traders in the country. They are not allowed as a method of payment, according to BI. In the past BI has considered introducing a digital rupiah – former minister of finance, Chatib Basri, suggested that it could be a way to counter the growth in cryptocurrencies and retain sovereignty over currency in the country – but as of early 2020 there were no formal plans to do so.

The first quarter of 2020 was marked by severe disruption to the economy in Indonesia and across the globe as a result of the Covid-19 pandemic. With many retailers currently closed and social-distancing measures enforced, an increasing proportion of Indonesians have been forced to make use of the cashless payment options available for daily transactions. While the longevity of such spending habits remains to be seen, this could accelerate the transition to a cashless society as greater numbers of Indonesians grow accustomed to digital payments.

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