Encouraging digital payments to support Indonesia's economic recovery


An employee tops up an e-money card at a Mandiri building in Jakarta. - Antara

JAKARTA (The Jakarta Post/ANN): Digital payment is becoming more and more prevalent in Indonesia.

This shift began when banks began adopting digital channels, such as phone, SMS and/or mobile banking around three decades ago. These are more "conventional” digital payments.

Technological disruption in the financial sector, pioneered by various technology companies in the last 10 years, has given birth to new types of digital payments, which later encouraged the adoption of digital transactions.

Tech companies now provide new digital financial services such as e-wallets or e-money, which were initially integrated with e-commerce platforms.

When the Covid-19 pandemic struck in early 2020, restricting people's mobility, the trend was accelerated.

Data from Bank Indonesia suggest that new forms of digital payments — e.g. e-money — are growing. Since the early stage of the pandemic, the transaction value using e-money — especially server-based e-money — has continued to grow positively.

In fact, in early 2020, the annual growth of e-money transactions continued to record positive growth on a monthly basis.

By May 2021, it had recorded a 57.4 per cent increase year-on-year (yoy). This contrasts with more conventional digital payments such as debit and credit cards. Transactions using conventional digital payments tend to follow the pattern of mobility, as card-based transactions still require a physical presence.

This can be observed when the mobility is relatively restricted.

From March 2020 to February 2021, the spending value of card-based payments — i.e. either debit or credit cards — had contracted yoy.

Card-based transactions returned to positive territory recently. As of May 2021, debit card spending grew 81.1 per cent annually while credit cards grew 31.6 per cent.

This positive growth was mainly driven by increased spending during the Ramadan fasting month and Idul Fitri holidays as well as increased mobility.

The increasing use of e-money can also be observed from its contribution to total digital transactions, which we define as a combination of payment using e-money, debit cards and credit cards.

As of May 2021, the contribution had reached 32 per cent, about triple that in early 2019, which was only around 10 per cent. The highest contribution was in April 2020, which reached 37 per cent, when people mobility was very low due to social restrictions at the early stage of the Covid-19 pandemic.

With lower mobility, people tend to shift to online shopping, especially through e-commerce platforms. They also made payments using e-wallets that are already integrated with these e-commerce platforms.

Using internal data, we found that the frequency of e-wallet top-ups using internet banking continues to increase.

Compared to March 2019, the top-up frequency in May 2021 increased nine-fold.

Generally, top-ups are used for e-commerce payments. However, its usage is beyond e-commerce shopping activities.

Digital payment intended for paying various public services, utilities and social activities also continues to increase.

For instance, compared to two years ago, the frequency of payments using internet banking for vehicle taxes increased fourfold, while payment for tap water and zakat (alms) doubled.

We observe that debit card transactions began to pick up. The current contribution of debit cards to digital transactions reached the peak since the beginning of the pandemic at 43 percent.

This is correlated with increasing people mobility nowadays. It also reflects that some businesses have returned to normal, such as dine-in at restaurants or shopping at supermarkets and malls.

However, the contribution of credit cards continues to decline, currently contributing only 26 percent, the lowest ever recorded. With these developments, the ratio of electronic money transactions to national household consumption continues to increase.

In 1Q19, the ratio was around 1 percent, but in 1Q21 the ratio increased 2.7 times to 2.7 percent. This is because payments using e-money are getting more popular.

However, the total contribution of digital transactions to national household consumption has decreased. In the prepandemic period (1Q20), the contribution reached 9 per cent, but in 1Q21 the value fell to 8.6 per cent.

The decline was mainly due to lower debit card contributions (3.6 per cent in 1Q20 vs 3.4 per cent in 1Q21) and credit cards as well (3.3 per cent in 1Q20 vs 2.4 per cent in 1Q21).

It is possible that all transactions using e-wallets, especially transactions on e-commerce platforms, are not fully recorded, so that the total value of noncash transactions recorded is lower than the actual amount.

In the future, the adoption of noncash payments needs to be encouraged continuously. One way to do this is by encouraging business players to always provide and encourage their customers to do digital payments.

In a Mandiri Institute survey on micro, small and medium enterprises (MSMEs) conducted from March to April, most respondents reported that their businesses were improving in early 2Q21.

The improvement in sales performance was still limited, nevertheless. But in general, they reported optimism that economic recovery would occur this year.

On digital adoption, online sales have been going quite well with the majority of businesses using social media and instant messaging as sales media.

However, there are still many MSMEs that have not used digital payment channels for their business.

Thus, there is still a gap between sales and payment systems that are not yet fully integrated digitally. This shows that cash-based payments still dominate transactions in MSMEs.

For this reason, digital payments need to be continuously encouraged, and this will only happen if financial literacy and inclusion really increase. In this context, we still really need active roles from the financial sector, technology companies, infrastructure readiness, educational institutions and more accommodative policies from regulators. - The Jakarta Post/Asia News Network

* Bobby Hermanus is an analyst at Mandiri Institute

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