JAKARTA (TheInsiderStories) – The long-awaited electronic payment system finally sees the light of day. Bank Indonesia (BI) on Monday (4/12) officially inaugurated the National Payment Gateway (NPG) with an ‘integration concept’ to create a mutually-connected and inter-operable domestic payment system in various machines and processes in the domestic industry.
The NPG is an electronic payment transaction system incorporating instruments such as ATM cards, electronic money and credit cards, allowing customers to carry out secure non-cash transactions from any bank in Indonesia.
Four electronic money issuers have come to a mutual agreement for systems which can work on various machines – for example electronic money from PT Bank Rakyat Indonesia Tbk (IDX: BBRI), PT Bank Mandiri Tbk (IDX: BMRI), PT Bank Negara Indonesia Tbk (IDX: BBNI), and PT Bank Central Asia Tbk (IDX: BBCA).
BI Governor Agus D.W Martowardojo said that all electronic payments must be processed solely through the NPG by ‘switching agency’ companies, and these must have a minimum of 80 per cent ownership by a domestic entity. He admitted such a requirement has raised significant concerns among foreign investors.
“The regulation defines the NPG as a system that consists of standards, switching and services that integrate all payment instruments and channels nationally,” said Martowardojo.
Indonesian Communications and Information Minister Rudiantara explained how the NPG will support the country’s creative economy sector, booming in recent years, especially e-commerce transactions.
Indonesia is, in fact, lagging behind other developing countries, such as India, Bangladesh or even Palestine, which have already set in place their own integrated payment systems in recent years.
“The system allows an inclusive economy for all, from large and small entrepreneurs, startups to farmers. Consumers’ and producers’ needs can be matched more speedily. Direct payment transactions will also facilitate the business world to expand more efficiently,” he said.
There are currently at least three local service providers offering integrated payment services, but their coverage is very limited. Foreign players offering wider coverage, such as MasterCard and Visa, have been reaping huge profits from the booming e-commerce scene in the past decade.
Last year alone, e-commerce transactions in Indonesia reached $5.6 billion, or around Rp75 trillion, according to central bank data.
The NPG will not only offer financial gains but should also feature non-financial benefits. Through the system, respective institutions will be able to obtain valuable data (that which information technology practitioners call ‘big data’) by observing public spending patterns, lifestyles, trends as well as the export-import traffic.
This is same data that the old players, namely Visa and MasterCard, capitalize on to enhance their marketing strategies. The NPG will also enable the country to make use of ‘big data’ to develop better-targeted local e-commerce.
The ease of online payments is certain to give the creative economy a big boost. Tax payments can also be monitored better through increased non-cash transactions, according to Finance Minister Sri Mulyani Indrawati.
Requirements and Obligations of Parties to the NPG
There are two parties defined as the key entities of the NPG: NPG operators, which consists of standard agencies, switching agencies and service agencies, and parties connected to the NPG, which consist of issuers, payment gateway operators and other parties designated by BI.
The regulation states that all parties connected to the NPG must be members of at least two switching agencies, except for instruments that are interoperable without the services of any switching agency.
Requirements for NPG operators:
This is an entity whose functions are to set, develop and manage standards for interconnection and interoperability of payment instruments, payment channels, switching and security. The regulation mentions that the standard agency should be an Indonesian legal entity that is also a representative of the national payment system industry.
This agency should have the competency to set, develop and manage standards in implementing interconnections and interoperability from various payment instruments and channels, and the operation of the agency should be approved by BI.
To protect the public interest, the regulation states that the standards which are set, developed and managed by the standard agency will be possessed by BI.
This is an entity whose function is to process payment transaction data domestically for interconnection and interoperability. The regulation obliges the switching agency must be at least 80 per cent owned by an Indonesian or an Indonesian legal entity, and have minimum capital of Rp 50 billion.
Any changing of the share composition should be approved by BI. The operations of the switching agency should be approved by BI and it should conduct interconnections with at least two other switching agencies.
This is an entity whose function is to ensure the security of transactions and consumer data and risk management and mitigation. The service agency also conducts reconciliations, clearing and settlements. The service agency should be an Indonesian limited liability company.
Its shares should be owned by switching agencies and a bank with a minimum capital of Rp 3 trillion (category Book 4) with the majority of the shares owned by an Indonesian or an Indonesian legal entity.
Under this regulation, all domestic payment transactions should be processed through the NPG. It obliges the switching and service agencies to process settlements through BI. The parties involved in the NPG should also comply with the National Branding and Price Scheme policy set by BI.
Written by Elisa Valenta, Email: email@example.com