ID’s thriving payments sector to drive an interconnected Asean consumer class

Indonesia is among the Southeast Asian markets that witnessed strong shifts toward non-cash payments, with overall 30 percent growth in transaction volume from 2016 to 2021.

Sumit Kumar and Kanchanat U-Chukanokkun

Sumit Kumar and Kanchanat U-Chukanokkun

The Jakarta Post


Scan and pay: A buyer pays his bill using Quick Response Indonesia Standard (QRIS) code at a street foodstall on Jl. Ampera Raya in South Jakarta on Feb. 6, 2021. Bank Indonesia estimated 12 million micro, small and medium enterprises would shift to the cashless payment method in 2021.(Antara/Reno Esnir)

October 7, 2022

JAKARTA – The race for advantage in the payments sector continues worldwide with an anticipated total revenue pool expected to double to US$32 billion by 2030, up from about $15 billion this year. Boston Consulting Group’s 20th edition of our trademark global payments analysis has revealed that as economies return to business as usual, the payments industry remains buoyant and upbeat, bolstered by increased competition, higher rates of “platformization”, innovative disruption and increased involvement from regulators, governments and central banks.

The Asia-Pacific region too has witnessed strong growth for payments, with non-cash payment transaction volumes increasing 28 percent from 2016 to 2021 and expected to grow at a healthy 17 percent in the next 10 years.

Indonesia is among the Southeast Asian markets that witnessed strong shifts toward non-cash payments, with an overall 30 percent growth in transaction volume from 2016 to 2021. This is expected to increase by more than five times by 2031.

The country also saw strong growth in card transactions per capita in the past five years, driven mainly by higher debit card usage. With Indonesia set to become the fourth-biggest consumer market in the world by 2030, behind China, India and the United States, these trends will continue.

To drive digital payments adoption, Bank Indonesia (BI) has released the Indonesia Payment System Blueprint 2025 (BSPI), launched the Indonesian Standard QR Code (QRIS) and lowered merchant discount rates (MDRs). However, the low-to-no margins from QRIS coupled with the low MDR fee structure are likely to push businesses, such as fintechs and banks to seek alternate revenue sources.

Disruptive regulation changes

Initiatives within the BSPI, aimed at accelerating the digitalization of the economy through the financial sector, are making significant headway. Among these is the strengthening of retail payment systems through platforms such as BI-FAST, which facilitates retail payments for consumers as well as the digitalization of capital market transactions.

With around 81.45 percent of the national retail payment system now represented, BI-FAST services will gradually be expanded to include bulk credit, direct debit and requests for payment.

The QRIS, launched in 2019, has come into greater enforcement, with over 20 million merchants across the country expected to be fully integrated this year. This will allow e-wallet providers to benefit from an interconnected, efficient, inexpensive and safer integrated payments system. Some 25 million users are currently connected to the QRIS and BI-FAST platforms.

The BSPI also aims to drive open banking for greatfinancial information disclosure between banks and the country’s growing fintech sector. The development of public infrastructure for consumer data protection, which will be integrated with all payment transactions, aims to boost start-up innovation and deepen financial inclusion. Financial market infrastructure is expected to benefit from stronger regulatory frameworks.

Fixed QRIS fees drive increased competition

At present, MDRs imposed on merchants for transactions via debit cards on electronic data capture machines, are 1 percent for “on us” transactions (where the acquirer and card issuer are the same entity) and 0.15 percent for “off us” transactions (the acquirer and card issuers are separate entities). Following its introduction, BI introduced fixed fees for various QRIS transactions. With the exception of donations or social assistance, which will not incur any fee, MDRs for transactions within the education sector and gas station payments have been set at 0.6 percent and 0.4 percent, respectively, and at 0.7 percent for all other regular QRIS transactions.

In 2020, with the intention of doubling QRIS usage among micro, small and medium enterprises (MSME) and boosting cashless transactions within the country, MDRs for this segment were dropped entirely for a limited period. The 0 percent MDR has since been extended several times, with the latest extension provided until end of December 2022. According to BI, MSMEs currently account for 20.5 million of total users.

Lower MDRs drive businesses to pursue alternate sources of revenues

Payment players are offering lending services such as Buy Now Pay Later (BNPL) as an alternative source of revenue. BNPL has become an increasingly popular payment method among consumers. Traveloka, the first non-fintech company to offer this service in Indonesia from 2018, saw its PayLater users increase by 750 percent since the program’s launch. Tokopedia’s BNPL transactions doubled in 2020. Kredivo reported more than 4 million users, representing over 50 percent of Indonesia’s BNPL market (as of November 2021). Major banks across the country are also adopting BNPL. However, in spite of its popularity, some players face high risks and may become unprofitable due to engaging with customers with poor credit history.

The key is to find the right context in BNPL lending such as providing more services rather than goods, or by leveraging BNPL as the initial contact with customers before upselling or cross selling more profitable products.

In other Asian countries, some players are offering value-added services such as payroll, bookkeeping, or loyalty offering. True Money, the largest e-wallet player in Thailand, recently launched TrueMoney payroll in Indonesia, enabling businesses with unbanked employees to have access to online payroll. This helps businesses to reduce operating costs from cash handling, while avoiding lengthy manual distribution processes.

When India scrapped MDRs for its Rupay and Unified Payments Interface (UPI), it drove widespread adoption with over 200 million daily UPI transactions. The zero MDR drove some fintech players, such as e-wallet unicorn, BharatPe, to expand its business to include loyalty cards and lending services for merchants.

Within four years, it on-boarded 10 million merchants in over 400 cities across India, reaching an all-time high of $20 billion in annualized total payments volume. While it has acquired SME merchants by being a low-cost payments service provider, its monetization was built on advancing credit to merchants on the back of transaction data in partnership with banks and non-bank financial companies.

Indonesian payments start-ups can catalyze the government’s efforts to transform digital payments and encourage greater adoption of the QRIS through similar approaches. From advancing short-duration unsecured working capital and business loans for merchants, to extending loyalty mechanisms for merchants to increase customer stickiness, and launching point of sale (POS) terminals for card acceptance, payments companies can expand their revenues through a multitude of ways.

With a projected $1.3 trillion in total consumer expenditure by 2030, representing one-third of ASEAN’s consumer spending, Indonesia is the largest consumer opportunity in the region. And with Millennial and Generation Z users fueling digital consumer spending, the opportunities for Indonesia’s payments players are vast.

They become even greater as the QRIS and BI-FAST platforms, currently being trialed in Malaysia and expected in Singapore and the Philippines by 2024 and 2025 respectively, connect the payments sector across ASEAN. *****

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