Looking for success track in Indonesia m-payment maze (Part 1)

Indonesia less cash society

The disruptive progress of IT and globalization have a considerable influence on the economic system, both macro and micro economics. Among the systems that significantly affected the micro-economic level is the payment system. Advances in information technology have encouraged the presence of various payment instruments which are innovative, efficient, low-risk and easy to use. However, Indonesia is still lagging in access to financial products and services, as reflected in the survey of global finance index in 2011, which showed that only 20% of Indonesian adults who have access to financial services of formal financial institution (World Bank, 2011). Meanwhile, Indonesian government has launched a financial transformation discourse towards a less cash society since May 7, 2008. In line with the trend of non-cash transactions that have been adopted by Southeast Asia countries, such as Thailand as a comparative country for Indonesia.

Thailand's macroeconomic indicators have a similarity with Indonesia, so even with their penetration of mobile phones. In 2011, with its mobile phones and electronic money growth, Thailand has reached 73% in inclusive finance, while Indonesia still 20% (World Bank and ITU, 2011). True Money is one of the successful mobile payment services to shift the dominance of cash transactions in Thailand (Leishman, 2014). In 2012 aggregate national payment system report of Bank of Thailand, e-money transactions volume was ranked 3rd after the electronic card and retail transfers, and in 2013 rose to second place. When compared with the transactions in Indonesia, e-money transactions volume is still under Thailand.

                            Payment system statistic of Thailand and Indonesia in 2012

	Source: compiled from payment system report 2012 of Bank of Thailand and Bank Indonesia

 

Indonesia payment ecosystem is not much difference with Thailand. Thailand has had a highly developed financial sector, as well as Indonesia. Three mobile money players has been relatively successful, i.e. TrueMoney, Advanced Mpay, and cooperation between DTAC and K-Bank. Indonesia also has a mobile payment system that has been run by three major providers of mobile communications, i.e. Telkomsel, Indosat and XL Axiata. The difference between Thailand and Indonesia is the geographic region of Indonesian archipelago that became a constraint of access and optimization to formal financial services, so it takes efforts of access expansion to finance and financial inclusion that more innovative and wireless technology based, and also able to reach wide regional coverage (Indonesia Finance Services Authority, 2013).

Indonesian government has encouraged various efforts to increase non-cash micro-payment instruments with technology based, and the expansion of more innovative financial inclusion. Micro-payment instruments are designed to serve the small-value payments with the use of a high frequency with a very quick payment process. At this time, e-money is the most appropriate solution for micro payment instruments (Hidayat, et al. 2006). According to data of Bank Indonesia, up to November 2014 there were 20 providers of e-money which has obtained a license from Bank Indonesia, and three of them are mobile providers, i.e. PT. Telkomsel, PT. Indosat, Tbk, and PT. XL Axiata Tbk.

According to the International Telecommunication Union (2014) statistical data growth of cellular subscribers in Indonesia from year 2000 to 2013 has rose very high, as well as penetration or mobile phone ownership. This mobile services growth potential to synergize with the inclusive financial access solutions expansion based on cellular technology through mobile payment services, which can reach all coverage of Indonesia wider than formal financial services network owned by banks. The non-cash financial service providers, particularly e-money which is run by mobile operators will get a lot of business opportunities of this system, depend on the perspective of business and assuredness risks are taken, and depend on the regulations of each country's financial authorities. The non-cash financial services also will provide many advantages for the operators, especially for mobile providers, such as new customer acquisition, revenue sources in addition to its core business, increase customer usage, reducing customers churn to competitors, as well as the opportunity to increase sales (Sutadi, 2012).

May 2013, three Indonesia mobile operators agreed to allow interoperability between their mobile payment system. In the future, the high level of interoperability can enable operators to take on additional roles, such as a retail agent can act as an agent while also receiving payment of goods and services from the end user. Growth will be far beyond the scope of remittance and payment of other bills. As the industry foresight, virtual currency that is prepaid and direct carrier billing can be done by all providers as an important payment instrument (Ernst and Young, 2014). Indonesian GDP has reached USD 3,000 since 2011, in line with Nielsen survey results that will give birth to a new people class called the middle class. The consequences of these conditions is the increase in consumer spending in all aspects, including fresh food, transportation, and telecommunications (Nielsen in Boediman, 2014). Based on the study results of a e-money in Jakarta in 2012, obtained a projection that if e-money is effective run, the potential use of it is in total amounting to IDR 24 trillion per year for daily needs, consisting of IDR 23.4 trillion in the transport sector (Busway, KRL, taxis, road tolls, fuel and parking) and IDR 600 billion in the sectors of food / drinks. In addition, the increase in economic activity among the member countries of ASEAN Economic Community (AEC) will require a payment system and final settlement to efficiently support business transactions, which can accommodate cross-border transactions and regional financial integration (Bank Indonesia, 2012). The challenges that were faced today are access to technology, investment costs, business models, security, and above all else is the regulation. On the application of a business model of electronic money systems, mobile providers who wish to cooperate with financial institutions rely heavily on the regulatory aspects of the country where the system is operated. If the agency regulation complicates the providers to manage their finances and serve customers, as a prevention consequences of money laundering criminal acts, the business model of electronic money will not be executed.

This facts and phenomenon leaves question and opportunity for all stakeholders to be its sustainability in the future. Gap that may have occurred between internal capabilities and strategies of mobile payment services business models in this country with the environmental changes such as the market demand, technology, core competencies and regulations as environmental changes or even turbulence. Strategic diagnosis can be a guidance to the right way on the path of winner, who will answer questions; why until now the use of mobile payment is still low although the potential of e-money transactions from mobile business is very large, on the other hand the government has launched a program that is aligned i.e. Less Cash Society since 2007, and what the cause of the low? How is the fit analysis between internal capabilities and strategies of mobile payment services business model that appropriate to Less Cash Society as turbulence environmental change? How is the optimal development of mobile payment services business model?

Reference:

Boediman. 2014. Indonesia digital landscape study 2012. Ideosource venture capital and incubation.

Bank Indonesia. 2014. Information of Licensed Operators and Payment System Support Service.

Ernst and Young. 2014. Mobile money the next wave of growth. Optimizing operator approaches in a fast-changing landscape. EYG. 134(1276530).

Hidayat, et al. 2006. Efforts to increase the use of non-cash payments through the development of e-money.

International Telecommunication Union. 2014. ICT statistics fact and figure. Telecommunication Development Bureau.

Leishman P. 2014. True Money and M-PESA : Two unique path to scale. GSMA Research.

Otoritas Jasa Keuangan. 2013. Press releases Financial Services Authority strengthen efforts to expand financial inclusion and access to finance through financial literacy.

Sutadi H. 2012. Rolling out digital payment platforms – An Indonesian perspective. 17^th Annual Cards and Payment Asia.

The World Bank. 2012. Measuring financial inclusion: The global finance index. World Bank Policy Research Paper 6025.