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Analysis: Sustainable cashless payments brings efficiency to RI’s economy
Around 36 percent of Indonesians possess bank accounts, according to the consultancy KPMG, however only 10 percent are in transition to cashless payment transactions
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round 36 percent of Indonesians possess bank accounts, according to the consultancy KPMG, however only 10 percent are in transition to cashless payment transactions.
Customers still prefer cash payments regardless of the transaction costs, effort and time needed for every transaction.
Cashless payments provide business players, especially small and medium enterprises (SMEs), with immense potential. Among other benefits, it allows businesses to expand and increase brand loyalty by offering the best consumer experience.
Non-cash transactions can also boost productivity by enabling business owners to track their entire transaction history instantly.
At present, Indonesia has 56.54 million SMEs that contribute to 60 percent of the country’s gross domestic product (GDP), according to data from Bank Indonesia (BI) and the Indonesian Banking Development Institute (LPPI). Therefore, supporting these business entities will certainly benefit the domestic economy.
As for the government, cashless transactions will push for a more efficient economy. It can save costs normally used in printing and distributing money, cash handling and administrative management.
The reduced transaction costs of non-cash activities will also generate more tax and non-tax state revenues.
Furthermore, as all transactions will be recorded, economic activities will become more transparent and accountable.
For consumers, cashless transactions undoubtedly open access for transactions to be conducted 24 hours a day, further reducing transaction costs.
The government’s vision to create a cashless society needs the support not only of banks, but also of financial technology (fintech) startups.
The role of fintech companies should go beyond providing financial solutions. They should educate the public, especially the unbanked demography, to shift to cashless transactions.
However, building a payment service infrastructure that fully supports cashless transactions is not an easy task.
It is necessary to pay attention to various components, including security and infrastructure, when establishing new ecosystems of electronic payments.
In its 2016 report, survey firm JakPat revealed the figures of electronic payment usage. In that report, GoPay surprisingly became the fourth most-used platform within a relatively short period of time (used by 27.1 percent of respondents), after Mandiri e-money (43.8 percent), BCA Flazz (39.1 percent) and Telkomsel T-Cash (29.1 percent).
Ideally, tight security must supplement the rapid adoption of electronic payments so that users retain trust toward the services.
At the moment, many users still worry that their credit may be taken away, thus they add smaller amounts of credit into their e-money accounts compared to their actual transaction needs.
This must be addressed by electronic payment service providers, especially new fintech startups.
Meanwhile, the ease that consumers yearn has not been supported by sufficient infrastructure. They often face rejection when trying to use their debit or credit cards.
BI data shows that as of May, there were 137.33 million cards used as instruments of payment. However, there were fewer than 1 million electronic data capture (EDC) machines, the majority of which are located on Java Island.
The significant gap between the figure of active cards and acceptance points is a key obstacle in carrying out cashless transactions.
The central bank’s effort to push cashless transactions deserves appreciation. It has rolled out several regulations to support this goal, including the Bank Indonesia Regulation (PBI) on National Payment Gateway (NPG) that allows one card to be freely used among operators with a minimum transaction cost.
The government has also required toll road users to use electronic money (e-money) as the only payment method starting from Oct. 1.
State-owned oil and gas firm Pertamina is preparing for the mandatory use of e-money at its gas stations.
With such concerted effort, it is expected that people will be willing to rapidly adopt e-money.
The government’s support is pivotal in the transition to a cashless society. In this context, Indonesia could learn from other countries that have successfully transformed into such a society.
In India, for example, everybody who makes cashless payments receives discounts or even tax returns in some outlets, such as gas stations and toll roads.
The Indian government has also executed demonetization to speed up the adoption of e-money. The goal is to ensure that the whole population, including those living in rural areas, have access to financial services through banks, allowing for participation in financial inclusion.
The Indonesian government is expected to introduce more policies to enhance economic efficiency through cashless payments without putting an unnecessary burden on customers by way of extra fees.
These policies will in turn encourage business models that could offer sustainable electronic payment services.
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The writer is the CEO and co-founder of Cashlez and a member of the Indonesian FinTech Association.
