Such growth has consistently occurred as the National Non-Cash Movement, initiated by the government and Bank Indonesia (BI) in August 2014, aims to increase public awareness on the benefits of non-cash payments and supports BI in controlling money circulation.

E-money itself is defined as a means of payment with money stored electronically and not managed in the usual bank savings account. Credit for e-money can be stored either in (i) chips, where it can be utilized through a contactless mechanism without the need for a customer’s signature or the insertion of a card into a machine; or (ii) servers, where it can be accessed through mobile or web-based applications.

In regard to the development of e-money, BI has finally enacted BI Regulation (PBI) No. 20/2018 on e-money, which revokes the previous regulation, PBI No. 11/2009 as amended several times lastly by PBI No. 18/2016.

PBI No. 20/2018 was put into effect on May 4. In a nutshell, the regulation governs some fundamental points that are seen as an attempt to tailor to the market’s needs and harmonize with prevailing regulations in payment systems.

First, PBI No. 20/2018 increases the permitted amount of unregistered e-money from Rp 1 million to Rp 2 million, allowing customers to save more credits and use the e-money more frequently in their day-to-day activities.

The regulation also introduces a new e-money category called “closed loop”, where e-money is used as a payment instrument for goods or service providers that also act as an e-money issuer. This closed loop category was developed considering the rapid rise of payment instruments that are similar to e-money and used for limited purposes and the increasing amount of floating funds (i.e. the entire value of e-money is received by an e-money issuer as a result of topping up on e-money), such as the use of food court top-up cards in shopping centers. Due to its limited use, closed-loop e-money players with floating funds of less than Rp 1 billion are not required to secure any licenses from BI.

Furthermore, it can be said that the role of e-money operator as part of Indonesian payment system provider has been emphasized by BI through its status determination as the Payment System Service Operator (PJSP), taking into account its licensing applications will be based on the front end of the PJSP, which provides the payment service to the user and merchants, and the back end of the PJSP, which provides processing infrastructure.

Each e-money operator is only allowed to be the operator of one category of the PJSP. This regulation will impact a situation in which the PJSP holds a license in two different categories, as the e-money issuer (frontend PJSP) and as the switching operator (backend PJSP). The said PJSP must adjust with this mandatory provision should it apply for a new license at BI.

Besides this synchronization, BI also set a foreign shareholders limit for e-money principals, switching operators, clearing operators, and/or final settlement operators. The limit, at 20 percent, is the same as those stipulated in the regulation on transaction processing.

For the e-money issuers, the limit is slightly higher under PBI No. 20/2018, at 49 percent. Both of the numbers can be calculated directly or indirectly for the ultimate beneficial owner. This, to a certain extent, will be cumbersome in situations where business players are owned by foreign shareholders, especially through an indirect ownership scheme, as they need to ensure the entire ownership of the PJSP by the ultimate beneficiary owners does not exceed the said limitations.

Another important point that distinguishes the 2018 regulation from the previous regulations is that BI seems to create provisions that maintain the credibility of and ensure fair competition for the e-money operator at all times.

For instance, any e-money operator is required to submit certain written representations, warranties and covenants to BI, in addition to fulfilling general worthiness requirements for its licensing application.

The representation and warranty letter must be accompanied by a statement of an independent legal consultant following legal due diligence. It is also regulated that two e-money operators cannot be controlled by the same parties and involved in a corporate action resulting in a change of controlling shareholders within five years as of the license issuance (unless BI gives the greenlight beforehand).

Specifically, for e-money issuer, it needs to have at least Rp 3 billion in paid-up capital prior to Nov. 4 and, following the increase of the floating fund, such paid-up capital must be adjusted accordingly in stages.

Finally, we need to appreciate BI’s effort in ensuring that the marketing of e-money products does not harm its consumers’ interest. PBI No. 20/18 has added some limitations and prohibitions that broaden e-money regulatory frameworks, such as the prohibition against processing e-money transactions using digital currency (e.g. bitcoin) by non-bank e-money operators.

This approach is viewed as part of the spirit to conform to BI’s belligerent press release issued in January 2018 that states BI does not acknowledge digital currency as a means of payment in Indonesia.

E-money issuers are also prohibited from diminishing the value of e-money after the expiration of its media, eliminating the customer’s dismay in losing unused credit for long periods of time.

Through there were some changes under the new PBI No. 20/2018 in institutional aspects and stringent licensing, shareholding and capital requirements, only respectable e-money operators will grow and, consequently, the e-money industry will be strengthened.

With proper adjustments in e-money infrastructure, risk management and customer protection, it is expected that the use of e-money as a non-cash payment channel for daily transactions will significantly increase in Indonesian communities and become the solution to create a more efficient, secure and practical life.

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The writer is an associate lawyer focusing on banking and financial technology at Armand Yapsunto Muharamsyah & Partners, a corporate law firm based in Jakarta. The views expressed are her own.

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