Photo by ICT Ministry

JAKARTA (TheInsiderStories) – Indonesia, with its combined market potential factor and infrastructure availability factor, such as adaptive regulatory and ease of online payments and delivery, will potentially become the most e-commerce-ready country in Southeast Asia. With an estimated 60 million internet users already online, digital economy activity is expected to reach US$130 billion by 2020.

Thus, the Government plans to invest US$20 billion in its ‘Mega Indonesian Broadband Plan’ to dramatically improve internet connectivity across the archipelago. By 2019, 71 percent of households in urban areas will enjoy fixed broadband of 20 megabits per second (Mbps), while in rural areas, at least 49 percent of households shall have access to fixed broadband of a minimum capacity of 10 Mbps.

In addition, mobile broadband (no less than 1 Mbps) shall be available to everyone in urban areas and at least 52 percent of households in rural regions, as mandated in Presidential Decree No. 96/2014.

According to the World Economic Forum’s ‘The Networked Readiness Index 2016’, Indonesia ranked 4th out of 139 economies in leveraging information and communications technologies to boost competitiveness, innovation and well-being, still below peers in the region: Singapore, Malaysia and Thailand.

There is still much room to provide physical infrastructure to facilitate ICT services across a wide spectrum of applications and sectors, including finance, as well as public services and procurement.

Rudiantara, Minister of Information and Communication, opines that ICT infrastructure, particularly in e-commerce and e-money, did not consume much internet bandwidth. Existing ICT infrastructure is more than enough to cover such e-money &e-commerce applications.

“We have adequate ICT infrastructure even to cover for example a 75 percent financial inclusion target by 2019. The problem (with e-money & e-commerce) is how to develop programs and create regulations that suit a digital economy environment, characteristically flexible and dynamic,” he said in a press statement on Tuesday (3/10).

The Government has launched its 2017-2019 e-commerce roadmap (Presidential Decree No. 74/ 2017) that focuses on 8 things, including funding, taxation consumer protection, human resources and education, communication infrastructure, logistics, cybersecurity as well as establishment of an e-commerce roadmap executor management.

“On the communication infrastructure side, we already gave free ‘.id’ domain for start-ups, and expanded broadband infrastructure to western Indonesia, along with the central part and eastern part of the country. We have also done a market study for e-commerce infrastructure,” he said.

The e-commerce roadmap also emphasizes how infrastructure development should be executed in line with a regulatory framework. It is not easy to create regulations that can catch up with a speedily-moving digital economy environment. E-commerce roadmap already underlines the central bank’s need to develop a National Payment Gateway, to be fully-implemented by April 2019. Regulatory framework is a soft infrastructure for e-commerce development.

Triawan Munaf, Head of Creative Economic Agency, sees that an immature regulatory framework can hamper e-commerce and cashless payment development. According to a report by MasterCard 2016, cashless payments in Indonesia account for only 31 per cent of the total value of consumer payments.

Indonesia is described as at its “Inception,” alongside countries like Nigeria, Russia and Colombia, who have only just begun to move away from cash. About 67 per cent of the value of all consumer transactions in Indonesia is still cash-based. Only 3.7 per cent are credit card-based and 1.4 per cent move through debit cards. Another 3.27 per cent are accomplished through cheques.

When central bank first introduced regulations on e-money (PBI No. 11/ 12/ PBI/ 2009), they had to revised them two times in order to adapt to forthcoming digital economy development. Even so, in the newest regulation, PBI No. 18/ 17/ PBI/ 2016, they have not ruled yet on more sophisticated instruments such as bitcoins.

Thus on Monday, Oct. 1, 2017, they suspended e-money services from well-known companies such as TokoCash (Tokopedia), ShopeePay (Shopee), Paytren, and BukaDompet (Bukalapak) as these firms had not been listed as a ‘providers of payment services’.

“It’s necessary for our central bank to fix regulations on payment gateways. I am not quite sure that suspending such e-money services is the right thing to do, because payment gateways indeed involve many interests. There should be a formula that is considerably fair to everyone, and the most important thing is to ensure the customer suffers no losses. Regulations should not harm consumer trust,” he said.

In addition, according to Coordinating Minister of Economic Affairs Darmin Nasution, the government will establish an aggregator to stimulate more companies so they can become fully involved in e-commerce and marketplace business. Unlike China that is already considerably ahead, government will first develop e-commerce, then later e-payments. Regarding e-commerce, business players still lack skilled human resources; Government will decrease requirement for e-commerce human resource specialization so that Minister of Labor will only ask 2 or 3 requirements for them.

“Other initiatives in accelerating cashless payment infrastructure are intra-bank switching so they can transfer among one another. There is willingness to attract foreigners to establish super-switching but later the central bank decided not to allow any foreign participation,” he said.

Aulia Marinto, Chairman of Indonesia e-Commerce Association (iDea) added that ICT infrastructure development should make it easy for customers to charge purchases of digital content to their prepaid mobile account or to charge them to their postpaid mobile bill, just like what Alipay offers to its consumers in China. Another useful feature is a service that allows mobile customers to purchase a range of digital content on the web, from e-books, game, etc. through credits.

Grabbing a Global Platform

Thomas Lembong, head of Investment Coordinating Board, concludes there is a little choice but to cooperate with global platforms to foster cashless payment infrastructure development, considering they have more competitiveness and efficiency. Internet development is borderless and close-cooperation is simply will not happen because we can’t prevent people for seeking best services through the internet.

There is only one country that can deal with close co-operation: China. China has 1.4 billion population, six times the Indonesian population, with GDP of US$11.55 trillion a year. Plus, an authoritarian government. Yet, their famous Alipay platform has served more than 300 Chinese, surpassing other global platforms such as PayPal.

“As President Joko Widodo has remarked, be open to global platforms. They have 10 or 100 times bigger economic scale than us. Honestly, we work very close with central bank, financial service authority, as well as Ministry of Information and Communication about it. As mandated in e-commerce roadmap, we should revise negative list and open e-commerce, marketplace, digital ads, on-demand services including applications and over-the-top business sector to up to 49 percent for foreign investment value below Rp100 billion and 100 percent for investment value above Rp100 billion,” he said.

Meanwhile, Ventura Capital, the re-incarnation of Lippo Digital Ventures, the heavily-bleeding startup (remember mataharimall?) that once owned Sociolla and Ruangguru as well as Malaysian transportation online Grab, is also ready to establish their “new payment fin-tech” in the next one or two months, to compete with existing players.

James Riady, CEO of Lippo Group, said that the government should give space to national companies to grow, and act firm to protect national companies as well as to immediately fix the architecture. “We plan to launch (fin-tech) in coming months,” he said.

Writing by Yosi Winosa, Email: