The directorate general of taxes at the ministry of finance to implement the 10 percent of value added tax (VAT) mechanism in every item in 10 digital firms like Tokopedia, Bukalapak, and Lazada - Photo : Special

JAKARTA (TheInsiderStories) – For Indonesia, Digital Payment System may well be the next big thing, combining existing mobile phone usage and the country’s growing financial services.

Digital payment system not only promise an accelerated economic growth in Indonesia, but also is expected to give significant changes in business practices and replace traditional methods of financing.

In Indonesia, DPS offers prospects to capture an estimated 110 million unbanked people in the country to gain access into banking services and products, according to McKinsey’s report.

The government has encouraged citizens to reduce cash dependencies through the National Cashless Movement. According to data from the Bank of Indonesia in 2016, only 10 percent of people in Indonesia are using cashless payments.

The government estimates that value of transactions created from the digital industry to US$130 billion by 2020. However, there are some regulatory hurdles and the country needs a strong breakthrough in pushing cashless payments.

Ride Hailing App in the Front Line

In a bid to serve more Indonesian customers, several ride-hailing firms had to sacrifice some of its dearly-held user experience and had to learn to handle cash.

Ride hailing firm GO-JEK, for example, has created GO-PAY, a cashless payment platform. With massive support funding from Tencent, Go-Jek managed to convince three fintech players to join their business, as rivals are making a push into the burgeoning market.

This has yielded some promising outcome. GO-PAY announced in October 2017 that it has gained 30 percent share in overall e-money transactions in Indonesia.

According to GO-JEK’s research, people prefer using GO-PAY on their GO-JEK application due to the variety of promotions, the removed hassle of fumbling for small change, and its pure ease of use.

The tech company is looking to expand its ride-hailing services to three to four countries in Southeast Asia, escalating its rivalry with Grab and Uber Technologies Inc.

“Somehow, our focus today is Indonesia, it has always been our primarily focus because GO-JEK is Indonesian born company, but we would be lying if we don’t see other market as well. We are exploring, will we go to other market? it all depend on how well we execute today in Indonesia,” said Budi Gandasoebrata Chief and Risk Complience Officer of GO-PAY, Wednesday (5/4).

Consolidation in the e-commerce industry also appears to take place in Indonesia. Recently, a Las Vegas based e-commerce firm Smartag International, Inc. announced that it has entered a joint venture agreement with PT Supratama Makmur Sejahtera, an Indonesian financial technology (FinTech) company to offer a rural e-Wallet FinTech services to approximately 10,000 boarding school students.

Smartag intends to combine these different business platforms into one mobile FinTech platform which will provide students e-Wallet services.

The Protection of Information Privacy

However, one of the payment business challenges in Indonesia, is consumers’ inadequate trust in transaction fraud leading to poor consumer sentiment. McKinsey report showed that the fraud in the transaction, data privacy and the payment security are the factors taken into account by e-commerce users to purchase.

The protection of consumer’s information privacy is one issue in Indonesia’s e-commerce to be addressed to reinforce the online security. Many sellers or merchants operating in Indonesia have built their security systems with technology approach to protect consumers’ information privacy.

They also state a privacy policy to enhance consumer’s trust about how they treat the information privacy. However, the security system and privacy policy used in e-commerce sites is not standardized, and these will lead to unequal treatment of consumer information privacy.

As a business player, Vincent Iswaratioso Chief Compliance Officer of DANA, a payment FinTech company, believes, Bank Indonesia and Financial Services Authority (FSA) will responsive to protect customers data by issuing some regulations.

“I would think in the next two years there would be some dramatic changes will be happening. We have seen many regulations have many changed. But one thing for sure there is always a room for discussion and dialogue on going,” said Iswaratioso.

In light of evolving technological innovation and information systems in Indonesia, especially those related to e-commerce and the financial technology industry, the Indonesian government seeks to more properly regulate electronic payment systems and transactions in Indonesia. This spirit is reflected in the 14th Economic Policy Package announced on 10 November 2016.

All payment gateway Service Providers, and e-wallet Service Providers that have (or plan to have) at least 300,000 active users, must obtain a Service Provider license from Bank Indonesia. While e-wallet Service Providers with less than 300,000 active users do not require a Bank Indonesia license to carry out their e-wallet business activities.