Indonesia is expected to making gradual progress to reduce heavily cash-reliant, with card payments value set to increase from US$44.5 billion in 2019 to $57.1 billion in 2023 - Photo: Special.

JAKARTA (TheInsiderStories) – Indonesia is expected to making gradual progress to reduce heavily cash-reliant, with card payments value set to increase from US$44.5 billion in 2019 to $57.1 billion in 2023, according to the recent report of GlobalData, a leading data and analytics company.

GlobalData’s report, ‘Indonesia Cards & Payments: Opportunities and Risks to 2023’, released on Monday (01/27), reveals that similar growth could be seen in the card payment volume as well, from 1.0 billion in 2019 to 1.4 billion in 2023.

The value of Indonesian card transactions is expected to see compound annual growth of 7.1 percent from 2019 to 2023, with the growth to be fuelled by the higher use of debit cards. In fact, debit card spending is likely to overtake credit cards in 2019, and will eventually make up half of all card transactions by value, the report said.

Lead banking and payments analyst Ravi Sharma noted that growth has been supported of late by government initiatives such as cash transaction limits and financial access in rural areas. For instance, Indonesia has rolled out a national payment gateway for a domestically inter-operable ecosystem and is in the process of moving all ATM and debit cards to the EMV chip standard with a mandatory six-digit PIN, to boost security measures.

Sharma concludes improving payments infrastructure, lowering of card acceptance cost, improving payment security and convenience with the adoption of EMV and contactless technologies, and growth in the e-commerce market are all anticipated to support the Indonesian payment card market growth going forward.

Citing digital bank launch plans by Singapore’s DBS Bank and United Overseas Bank in the Indonesian market, GlobalData added that “the emergence of mobile-only banks in Indonesia is likely to further accelerate the shift towards electronic payments”.

“The government initiatives, including the introduction of cash transaction limits, the launch of branchless banking, electronic payment awareness campaigns and licensing banking correspondents to provide financial access in rural areas all have supported the growth of payments card market in Indonesia,” Sharma said.

To enhance the security of the country’s payment system and boost payment card usage, the country’s central bank, Bank Indonesia, mandated that all ATM and debit cards must be migrated to EMV standard with a six-digit PIN by 31 December 2021. The central bank imposed the QR code standardization called QRIS (Indonesian Standard QR Code), which means that all mobile payment providers must replace their QR code with QRIS for easier transactions.

The discourse regarding QRIS adoption first surfaced in April 2019, giving time for the mobile payment service providers to adjust to these provisions. The standardization of the QR code provides an integrated payment system that is efficient, inexpensive, and safe.

Moreover, it can improve interconnectivity in payment systems so that e-wallets from different providers can be used in one QR scanning system. For example, GoPay users can make transactions on the ecosystem of LinkAja and vice versa.

Back in August 2019, BI set a merchant discount rate (MDR) of 0.7 percent for merchants for regular “on us” and “off us” QR code transactions. “On us” refers to transactions where the acquirer and card issuer are the same entity, while “off us” means that the acquirer and card issuer are different entities.

For merchant transactions specifically in the education sector, the fee is 0.6 percent, and it will charge only 0.4 percent fees for transactions in gas stations. Meanwhile, QR code transactions for donations or social assistance will not incur any cost. This fee is actually cheaper than transactions using debit cards on electronic data capture machines. “On us” transactions using debit cards are subject to an MDR fee of 1 percent. However, “off us” transactions with debit cards only incur a 0.15 percent fee.

E-wallet providers generally do not see the current rates as burdensome for their business or for merchant partners. Both LinkAja and GoPay said that they will always comply with BI regulations and that this standardization will have a positive impact because it creates healthy competition among industry players.

Written by Lexy Nantu, Email: lexy@theinsiderstories.com