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Understanding the challenges and solutions of the digital payment boom
It is likely that the so-called network effect since the pandemic-era surge in digital transactions has highlighted the challenges that still remain in closing the gap in digital payment adoption between Java and regions outside the major island.
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Instant payment: A customer uses a smartphone on May 6, 2024 to scan a Quick Response Indonesia Standard (QRIS) code to complete a digital transaction at Klojen Market in Malang, East Java. (Antara/Ari Bowo Sucipto)
T
he COVID-19 pandemic in 2020-2022 catalyzed significant growth in the use of digital payment globally, including in Indonesia, driven by the rise in e-commerce and the need for contactless transactions.
Indonesia, ranked first in Southeast Asia and sixth globally in the number of start-ups, has seen robust digital market penetration, with digital payments offered as part of major product suites.
A key milestone was the introduction in 2019 of the Quick Response Indonesian Standard (QRIS), which aims to integrate national payment systems to provide more inclusive financial services. It ensures speed and efficiency in mobile transactions for buyers while enabling merchants to receive payments in real-time, particularly micro, small and medium enterprises (MSMEs), which make up more than 90 percent of the over 30.1 million merchants in the ecosystem.
Following QRIS, other payment methods like e-wallets (Dana, LinkAja), e-money (GoPay, OVO) and virtual accounts remain popular. E-money transactions grew 43.35 percent year-on-year (yoy) to total Rp 835 trillion (US$52 billion) in 2023 and are projected to increase 25.77 percent this year.
Visa’s annual Consumer Payment Attitudes Study shows that e-wallet usage among Indonesians surged to 92 percent in 2023 across all age groups, except the 57-75 group. Virtual account transactions grew around 7 percent yoy, accounting for 50 percent of the total payment volume for local payment gateway Xendit.
Despite promising growth, Indonesia still faces challenges in achieving a more inclusive digital payment ecosystem. The use of digital payment methods among merchants is still heavily concentrated on Java.
The latest Boston Consulting Group report highlights a lack of differentiation among fintech applications, alongside concerns about security, is deterring usage. Technical difficulties are particularly deterring those aged 40 and above.
