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Looking to a cashless future with EDC machines
Quick and easy: A cashier uses a card processor to complete a purchase at a grocery store
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Quick and easy: A cashier uses a card processor to complete a purchase at a grocery store. Bloomberg/Paolo Fridman
Mery took out the shiny, new electronic data capture (EDC) machine from a drawer and placed it lightly on her dusty work desk in the back corner of the auto repair shop she owns.
'Now I accept card payments to make things easier,' she said, as she plugged the machine's cable into the socket.
'It's pretty easy for me to use, too. I basically punch in the transaction value and wait for it to get verified.'
Mery recently installed the machine in her auto repair shop, which can accommodate up to eight cars. For more than 15 years she only accepted cash or bank transfers from customers as payment.
Now, however, customers can pay for monthly maintenance and new tires ' services costing about Rp 700,000 (US$58) each ' without having to prepare a thick wad of cash beforehand.
Clara, who once ran a boutique-clothing store, added that having an EDC machine encouraged people to shop more.
'And people have been inclined to spend more because of the zero percent installment programs banks are offering on credit-card use,' she says.
Chief operating officer Adrian Anwar, said that the surge in debit, credit and pre-paid card use had encouraged more merchants to install EDC machines at their businesses, especially Kartuku.
Kartuku provides payment solutions, including those related to EDC machines found at retail merchants. Roughly 220,000 EDC machines at modern retailers are connected to Kartuku networks.
'There were approximately 83 million debit-card holders in 2013, and 15.6 million holders of credit cards. But there are far fewer EDC machines, just 800,000 machines in the first half of 2014,' he said. 'This means that a lot of cards are potentially dormant in terms of use.'
However, he also pointed out that EDC machines in Indonesia were being underutilized.
'EDC machines can be used for more than just swiping payment cards,' he said.
In more developed markets, he said, EDC machine screens showed advertisements.
Instead of just simple, commercial transactions, EDC machines could aid in the disbursement of government aid, he added.
EDC machines fitted with fingerprint scanners and embedded with the right software could be used to efficiently verify the identities of beneficiaries.
'All aid agents have to do is scan the fingerprints of those trying to collect aid. The machine then does the verification,' he said.
He added that these kinds of EDCs would come in handy in terms of the government's social security program.
'In line with aid, EDC machines can support the provision of micro-lending and the opening-up of bank accounts,' he said, referring to the branchless banking initiative by the government.
'The technology is ready, but it cannot be implemented yet because regulators are still working on the necessary rules and permits for that to happen.'
Bank Indonesia [BI], with the cooperation of large, local banks, aims to implement branchless banking to provide financial services to those living in remote areas.
Services include setting up bank accounts and creating a system for small cash withdrawals at businesses like truck shops and mini-markets.
'Through technology, we want people to enjoy services they previously had no access to,' Adrian said.
EDC machines have long eased transactions between merchants and customers carrying debit, credit and pre-paid cards.
Even delivery services from pizza companies utilize these machines so that patrons can avoid paying in cash.
But how do these machines actually work?
In a nutshell, Adrian said that EDC machines and banks were connected via a simple and direct network. However, if Visa or MasterCard were involved, the network would grow in complexity.
Visa and MasterCard are payment technology companies that link banks with merchants.
'This is because the network would have bypass Visa's or MasterCard's network, too,' he said.
He added that once a card was swiped, the information was directly sent to the bank's system, where the transaction was validated. Once validated, the bank sends back its approval and the receipt comes out.
Various software and applications can also be installed to allow an EDC machine to manage multiple types of transactions, including granting reward points to a shop's club members.
Kartuku, which offers payment-solution services, serves nearly all the major banks in Indonesia, and has a market share of around 20 percent.
Andrian added that for security reasons, payment-solution providers did not retain sensitive information regarding the transaction.
'For example, we can not see the 16 digits on the credit card,' he said, pointing out that sometimes only the first six and the last four digits were visible.
'The digits in the middle are masked. In addition, there are rules on what data can be seen,' he added.
He said that moving forward, all EDC machines on their network would support PIN-based credit cards.
In an effort to beef up security, Bank Indonesia has ordered the use of six-digit PIN codes on all credit card transactions starting in January 2015.
'Preparations by our banking partners to implement PIN-based transactions have reached about 80 percent. And PIN-based transactions would be good because the added security will help accelerate cashless transactions.'
