Digital Payment

Transformation

BANK INDONESIA
AGENDA

01 Key Trends in Payment System

02 Implication of Technological Innovation to

Economy, Financial Stability, & Payment System

03 Policy Responses
AGENDA

Key Trends in Payment

01
System
 ……
Technology Evolution
Digital technology begins semiconductor discovery, developed into computers, internet networks, smart devices utilized by
financial services .. Currently and in the future financial services will be influenced by advanced technologies such as
biometrics, artificial interlligence, blockchain, etc. and more done by non-conventional financial institutions (startup)

Fintech 2.0 (Financial Institution) Fintech 3.0 & 3.5 (Startup Companies)

Ref: World Economic Forum, The Evolution of Fintech: A new post-crisis paradigm, Arner, 2015
,
 ……
Trends in Payment System
Technological innovations bring changes in payment system landscape

1 Bank
Payment Channel
Various payment channels, mostly using
Non-Bank
mobile technology, that provide easier
and faster payment services

2 Payment
Technologies
Technological innovations, such as NFC, RFID,
QR Code, etc, accelerate the transaction
process, offer cheaper fee and provide safer
Internet Payment Mobile Payment Card reader service

3 Players

New players (non-traditional player,

such as telco, IT company, etc) will enter
and new business models may emerge.
 6
Demographic Structure & Digital Vision Indonesia
Indonesia demographic is conducive to digital economy and predicted to be one of the strongest in Asia
by 2020
Population: Nominal GDP: Active Internet Users:
265.4 million Account at a Internet Speed
USD 888.6 billion financial institution 132.7 million (50%)
Urban Population: GDP per capita (US$): (Mbps):
56% (% age 15+): Mobile penetration: 4.1
3534 36% 91% (Compared to
Population aged 15-64:
67% Digital Economy Vision
5 year avg real GDP
growth:
Avg hours spent online
per day:
Singapore: 61 Mbps
Median age: 5.5% y/y & ASEAN Avg:
30.5 8H51M 17.7 Mbps)
Online Shoppers in 2017 Credit Card Penetration Debit Card Penetration Mobile Phone Penetration

Becoming
5% the biggest
2% digital economy
26% in
912020
%

Source: BBVA Research, Bloomberg, CEIC, World Bank, WeAreSocial2018, Newzoo report
2015
 ……
Changing Behavior of Payment Transaction
The use of cheque and BG continues to decrease while the card use tend to increase over the years

2017 2,5 B

2016 2,2 miliar

41 M 37 M 33 M 30 M
2015 1,9 miliar

30% 2014
1,7 miliar
dari 2014
2014
2015
2016 80%
2017 2013 1,4 miliar
dari 2013

Over the last four years, cheque and bilyet giro (BG) Card payment have increased by 81% in the last five
1 2 years.
use have dropped by 30%

Ref: Bank Indonesia

7
 …… Behavior of Payment Transaction
Changing
The use of non-cash payment instrument has increased over the last 10 years

CARD PAYMENT / HOUSEHOLD CONSUMPTION ELECTRONIC MONEY/ HOUSEHOLD CONSUMPTION

0.55
Card Pyament/ HH 0.06 0.00 0.06

0.50
Consumption 0.00
0.06
0.05
0.45
0.00 Electronic Money/HH 0.05
0.00 Consumption
0.05
0.05
0.40 0.00

0.04 0.00 0.04

0.35 Currency with denomination
0.00
<Rp50000/ HH Consumption 0.04
0.04
0.30
(rhs) 0.00 Currency with denomination 0.04
0.00 <Rp50000/ HH Consumption
0.25 0.03
0.00
(rhs) 0.03

0.20 0.03 - 0.03

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3
2010 2011 2012 2013 2014 2015 2016 2017 2010 2011 2012 2013 2014 2015 2016 2017

Over the last 10 years, the use of card payment and electronic money have increased. Additionally, the use of cash with
denomination <Rp 50000 has decreased.
Ref: Bank Indonesia
 9
Fintech Landscape in Indonesia
Growth of FinTech market in Indonesia shows an upward trend, in term of transaction value and number of
startups

Forecasted Actor
Transaction value (Growing by 34.29%)**
(Increasing by 22%)*

2018 2017
2017 2016
17.7 B 21.6 B 140 188
*Transaction Value
99% are related to digital payment, 0.11% to
personal finance and 0.08% to Business Finance
Projection of transaction value (statista, 2018)
AGENDA

Implication of Technological
02 Innovation to Economy,
Financial Stability, & Payment
System
 11
Implication on Real Economy

1
Transformation of
physical markets towards
digital market
(“market place”)
BENEFIT RISK
 Efficiency increase
 Cost reduction  Disruption to market, both
 More opportunities for SMEs retail and wholesale
 Closer distribution of SME  Unemployment, especially
products in Advanced Economies
 Accelerators of market
movement
2
3 Artificial
Intelligence in
financial sector:
Robotic
utilization in STRATEGY
algorithmic trading, manufacturing
smart financial sector  National champions in  Re-skilling of
advisors digital economy impacted labor
 12
Implication on Financial Services
Global Player Domestic Player

BENEFIT RISK
 Increase efficiency
 New threats to established FIs
 Supporting economy
 Cyber risks
 Financial inclusion
 Procyclicality
 Regulatory arbitrage
 Contagion risks

1. Better service: faster, simpler, cost-saving

retail services STRATEGY
2. Competition with traditional financial institutions,  Fintech Office, Regulatory sandbox: balancing between
particularly banks innovation-led growth and technology induced risk
 Support digital companies to flourish: employing latest
3. Changes in business model technology (big data, API, QR code & cloud)
 Encourage fintech providers to collaborate with traditional FIs:
preventing excessive shadow banking
 Implication of Virtual Currency
 Convertibility risk: no warranties are exchanged for fiat money,
Payment Systems  Consumer protection risk: no party handles customer complaints
 No investor protection.
 Operational risk: Hacking, Cyber threat, irreversible transactions, can not be corrected

 Potentially disrupt the stability of the financial system if it grows fast, bubble burst occurs.
Financial
 The risk of price volatility is high because its value is determined on the expectation of
Stability future supply and demand (speculative)
 Regulatory arbitrage because transactions can be made from other countries with more
accommodative provisions.
 Weak KYC, often used for illegal transactions, money laundering, illicit trade, tax evasion, terrorism
financing in violation of APU-PPT rules.
Illegal Activities  Pseudonymity of the transaction mechanism causes the transactor not to be identified
 Transactions faster and easier to move, even abroad and making it difficult to freeze or confiscate
criminal cases.

Consumer  No regulation has been set that regulates virtual currency increasing user exposure to financial losses.
protection  There is no clear manager so it is difficult to hold accountable when problems occur

13
 14
Implication on Cross-Border Transaction

Cross-border trade and investment More immediate and

 Challenges in the border: Customs, Cross border financial services: spillovers across
FDIs technology utilization opening countries
 Targeting direct retails more markets
 Improved cross border trade and  Balancing between market access
investment vs. disrupted market and protection
 Racing between technology and
regulation

STRATEGY Improving domestic and regional resilience

AGENDA

03 Policiy Responses
 Policy Response - BI Regulation and Initiatives
Financial Regulation on Regulation on Regulation on Regulation on Regulatory
Technology Payment Transaction National Payment AML/CFT for Financial Sandbox
Office Processing Gateway Non-Bank FI Technology

Nov 2016 Des 2016 Jul 2017 Sept 2017 Nov 2017 Nov 2017

The speed of technological innovation and its penetration into Payment System area demands Bank
Indonesia to take a precise and appropriate policy response to ensure sustainable innovation within
prudential corridors. In addition for expanding variation of business models, innovation in the Payment
System also nurtures new fintech entrants, including e-commerce.
16
 NPG in Brief

SECURE

EFFICIENT

RELIABLE

Standard Institution Switching Institution Services Institution

Issuer
A B
AcquirerR
Payment Gateway
C D
Other Parties

•
•
•
•
•
 18
Going Forward
Developing of QR Code Standard

Plan to develop Open API Platform to support

interoperability for server based instruments

Continuing NPG Roadmap – EBIPP, Online Payment, Credit

Card,

Establishing Toll Road Multilane Free Flow

Fintech Roadmap & Digital Economy Landscape

Thank You