State of Indonesian Payments part 1

HOW TO ENCOURAGE E-MONEY IN INDONESIA

- part 2

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13-14 AUGUST 2015 | JAKARTA

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Why does Bank Indonesia have to be present in promoting financial inclusion?

Financial inclusion is found to be highly relevant to support effective functions and tasks of Bank Indonesia in terms of monetary aspect, payment system, and macroprudence.

In terms of financial system stability, financial inclusion helps reduce pressures from liquidity risk and credit risk in banking sector.

From liquidity aspect, banks gain relatively stable retail fund sources even in shocks.

From credit aspect, new retail markets open, primarily micro and

small credits, endorsing diversification of

portfolios and credit risks.

Financial inclusion programs further help increase

community’s capability with the resulting financial responsibilities after

implementation of financial education and consumer

protection programs.

From monetary policy aspect, with financial inclusion, policy

rate can touch the community at all levels in any places because

policy rate is transmitted through banks, thereby supporting to realize effective monetary

policies and the community will not be affected by the second round effect of the policies.

Meanwhile, from payment system aspect, smoother

payment system to the whole areas leads to the common

use by wider community wherever they are. In

addition, less cash society program may be implemented

with added value for the community and economy.

ENTER INDONESIAN PAYMENTS

WITH CONFIDENCE




What are the strategies of Bank

Indonesia?

Educating people at the bottom of the pyramid to learn to keep their money

from cash-based in the house to account-based in

electronic money accounts.

How to encourage use of e-money

It may help reduce consumptive tendency and serve as the initial point of financial diary, managing

simple finance supported by financial education programs.

How to reduce consumptive tendency

Through BI roles in financial inclusion, it is expected that the capability and life quality of people at the bottom of the pyramid will improve.

The impact of financial education

high printing cost of approximately Rp 3 trillion/year, small money in hand,

much time to count the change, and difficulty in

keeping much cash

The cost of cash for Indonesia

Bank Indonesia and the relevant institutions (the Coordinating Ministry of Economic Affairs, Ministry of Finance, DKI Jakarta

Province Government, and the Association of Indonesian Province Governments) as well as industry actors in payment system under the Association of Payment System in Indonesia

(ASPI) have launched Non-Cash National Movement (GNNT) on 14 August 2014.

Who are leading the Indonesia’s Non-Cash

Movement?

The GNNT initiative aims to encourage and expand the use of non- cash

transactions to increase economic efficiency, security, and convenience in transactions, strengthen transparency

and accountability, and support efforts to prevent corruption, money laundering,

and terrorism funding.

What is the Non-Cash National Movement

(GNNT)?

Efforts to realize expanded use of non-cash transactions are made not only for retail

transactions, but also for high value transactions to facilitate financial revenue

and expense transactions of corporations and the

government.

1. service expansion through telco network 2. synergy of banks and non-banks, e-

commerce services3. public and government services in 34

ministries4. regional government services, and 5. the services of state owned enterprises

(SOE) and regional owned enterprises (ROE)

What are the 6 Priority Programs in the National Non

Cash Initiatives?

GNNT aims to increase public awareness of the

use of non-cash instruments to gradually

establish less cash society (LCS), particularly in making transactions in their economic activities.

As a form of our commitment to the expanded use of non-

cash instruments, we will make GNNT as an annual movement with various

activities to increase public understanding on the use of

non-cash instruments in making payment transactions.

the huge potential of transportation sector in

Jakarta of Rp 23.4 trillion/year (US$ 1.76bn)

Potential of e-payments in Indonesia

HOW CAN OMNICHANNELS INCREASE YOUR

PAYMENTS REVENUE?


Dr Moekti Soejachmoen, Economist and Head of Mandiri Institute, Bank Mandiri chairs this session.



GROW THE REAL BUSINESS, NOT JUST

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will be proud of by meeting people who have already scaled

payments and achieved wide adoption, like Dr Moekti

Soejachmoen, Head of Mandiri Institute, Bank Mandiri, who will

be chairing the panel on Omni-Channels to Support Digital

Banking and Discuss How You Can Widen Adoption with

practical insights.

In just 17 years, Bank Mandiri has earned 16 million banking

customers, with US$ 2bn in profits. Through important

partnerships, it is set to grow to tap the 50 million Indonesians

who will enter the middle class before 2020.

Don’t you want this valuable inside information?

TransJakarta buses carry 320 thousand passengers every day with an annual

turnover of Rp 680 billion.

Electric trains as the veins of transportation in Jakarta can carry 400 thousand passengers per day

with an annual turnover of Rp 1.4 trillion.

That’s a lot of passengers!

The biggest potential is fuel expense in gas stations, which, with an assumed

consumption of 1-4 liter per vehicle per day, will reach Rp 14.6 trillion per year.

How others are helping with the GNNT less cash

initiative?

E-ticketing of Jakarta commuter trains has been interconnected to

4 electronic money of 4 banks.

To increase the local revenue of Jakarta, e-payment has been

implemented for redistribution by street vendors and e-parking.

If you wish to ride on TransJakarta buses, you must also use electronic

money.

GNNT is also a part of services program for

Indonesian migrant workers by the

Ministry of Manpower and

BNP2TKI through payment of

placement and protection services

for Indonesian migrant workers

and financial education program

for Indonesian migrant workers

and their families.

It is also encouraged that remittance in relation to

Indonesian migrant workers is made through electronic

money. It aims to help reduce the relatively high remittance cost borne by

Indonesian migrant workers.

More Synergies

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Various cooperation and facilitation by Bank

Indonesia have been consistently made to

encourage cash services. In the following year, BI has recorded synergy with 11

Ministries and 34 province governments.

BI records 5 forms of BI facilities related to non-cash services, namely:

1. mapping of available non-cash services forms,

2. preparation of business model and business process,

3. facilitation of non-cash services availability with industries, and

4. implementation of non-cash services and education

Non-Cash Means of Payment: Paper-based and Cash-based

Paper-based includes checks, giro biljet, and debit

notes.

Meanwhile, electronic-based among others

includes ATM/debit cards, electronic money, credit cards, and mobile money.

Various cooperation and facilitation by Bank Indonesia have been consistently made to

encourage cash services. In the following year, BI has recorded synergy with 11 Ministries and 34

province governments.

BI records 5 forms of BI facilities related to non-cash services, namely:

mapping of available non-cash services forms, preparation of business model and business

process, facilitation of non-cash services availability with

industries, and implementation of non-cash services and

education.

Electronic Money = Cash Money changed to an electronic form.

What is e-money?

1. initial deposit2. saved in a particular medium (either cards or

communication devices)3. the main function as a means of payment, and 4. non-deposit making it ineligible for deposit insurance

and interest

Electronic money saved in cards is usually issued by banks, while non-cards are usually issued by telco companies.

What are 4 characteristics of electronic money?

Therefore, electronic money can be used for shopping and purchases.

However, there is something better than traditional money: electronic money can be used to pay bills, transfer between individuals, or withdraw cash. It is similar to a bank account.

Is electronic money money?

1. Unregistered which does not require user data registration, and

2. Registered which requires the

electronic money holder's identity data to be recorded with an issuer

What are 2 types of electronic money?

1. Maximum balance is Rp 5 million,

2. transfer is permitted, and

3. cash withdrawal is possible

What are the 3 advantages of registered electronic money in

Indonesia?

Expansion of financial inclusion: Synergy of Electronic Money and Digital Financial Services (DFS)

http://www2.deloitte.com/content/dam/Deloitte/sg/Documents/financial-services/sea-fsi-digital-financial-services-in-Indonesia-noexp.pdf

As an embodiment of Bank Indonesia’s financial inclusion initiative, DFS is an innovation to bring financial access closer to the community in remote areas.

Through DFS, payment system and financial services no longer depend on the existence of branch offices of banks.

Such service is provided by providers in cooperation with third parties by using mobile and web-based technology devices and facilities.

No more dependence on physical branches

Third parties in such services expansion are called DFS in the form of legal entities or individuals.

DFS individual agents are companies with no legal personality and individuals.

DFS agents function to provide facilities of electronic money registration, top up, payment, cash withdrawal, and distribution of government’s aid to the community.

The product used in DFS is server-based electronic money

transacted online.

1. no need to come to branch offices of banks, 2. save money and time, 3. has a medium to temporarily save money in a safe

manner, 4. learn to save and be recognized by banks, and 5. serve as the first step to recognize other financial

services.

Therefore, the overall transformation process of public culture and paradigm in financial transactions is in line with the road map of financial inclusion and electronification designed by Bank Indonesia.

What are the benefits of DFS for the community?

1. facilitating registration, 2. top up, 3. cash withdrawal, 4. payment of bills, and 5. distribution of government’s

aids.

What are the 5 functions of DFS?

BUSINESS MODELS YOU CAN USE TO ACHIEVE WIDE

ADOPTION

Islamic Boarding School-Based DFS: Financial Inclusion

Development Model

Bank Indonesia has also observed Islamic boarding schools as the target of financial inclusion development through DFS.

In relation to this, Bank Indonesia and the Ministry of Religious Affairs have signed a Memorandum of Understanding on Development of Economic Independence of Islamic Boarding Schools and Improvement of Non-Cash Services for Financial Transactions in the Ministry of Religious Affairs in Surabaya.

Such memorandum signing is one of the series of events of Sharia Economic Festival (ISEF) held from 3 to 9 November 2014 in Surabaya.

This Memorandum of Understanding is first implemented in East Java because there are approximately 6,000 Islamic boarding schools there and it is in line with the government’s plan to make Surabaya the Center of National Sharia Economic Development.

The initial movement in East Java is expected to inspire other areas to accelerate financial inclusion in the community.

The cooperation between Bank Indonesia and the Ministry of Religious Affairs is triggered by the huge number of muslim population in Indonesia.

Accordingly, the existence of educational institutions becomes more widespread, and the number of Islamic boarding school students also increases.

With the huge potential, financial education provided to such students will encourage economic independence, resulting in financial inclusion in the wider community.

Islamic boarding schools will act as DFS agents interacting with banks.

The users in such DFS are the students and the surrounding community. Islamic boarding schools as DFS will provide financial products and services to users.

What is the business model of the Islamic boarding school-based

DFS?

Bank Indonesia is now establishing BMT Sidogiri in Pasuruan, East Java. BMT Sidogiri’s assets in financial year 2013 reached Rp 1 trillion and it is presently the

biggest cooperative in East Java.

BMT Sidogiri Cooperative acts as a DFS agent interacting with the electronic

money issuer.

As a DFS agent, BMT Sidogiri can provide services to pay tuition fees, deposit and withdraw cash, and remit and receive

money.

The students and the community can also shop in Basmallah convenience store

owned by BMT Sidogiri by using electronic money.

ENTER INDONESIAN PAYMENTS

WITH CONFIDENCE




Source: Public Lecture on the Central Bank -

Bank Indonesia’s Policies on Financial

Inclusion through Non-Cash National

Movement

More insights

at…

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