Does COVID-19 become the push factor for Indonesia to fully embrace digital payments?
Our country Indonesia has always been a very cash-oriented society. Although the growth of digital payments is growing from year to year, cash is still king. Our country currently is still the second-largest cash-based economy in the world, just look at the stats like 64% of our population is still unbanked and even the penetration of credit card is extremely low compared to other Asian countries.
The growth of e-commerce and the arrival of COVID-19
The booming of e-commerce platform such as Tokopedia, Bukalapak, and Shopee did push the adoption of payment acceptance other than cash, but based on the report from 2019 J.P. Morgan E-commerce Payments Trends: Indonesia, cash still makes up 14 percent of the Indonesian e-commerce payments space, likely due to the fact of the unbanked population. And Cash on Delivery is also a widespread payment option as not 100% of e-commerce customers totally trust online purchases. It does bring headache to the parties that accept Cash on Delivery method — first is from the security and operation point of view, and second, the drop off rate where the customer changes their mind doing purchase is also high.
More than half of people in developed economies believe that cash will always be around, they just can’t totally shake that off. But the COVID-19 pandemic may change this, it is because the hand-to-hand exchange of physical currency could transmit the coronavirus and even most countries have a very strict policy for people to stay at home with movement restriction, this caused countries around the world are being forced to reconsider the use of cash. In fact, COVID-19 might turn out to be the catalyst that finally brings digital payments fully into the mainstream.
China emerges as the leaders after SARS pandemic
China is an example of it. During the SARS epidemic in 2003, it helped the country to launch its digital payments and e-commerce. Consumers hold up in their homes and had to turn to e-commerce sites which they previously try to avoid due to trust issues, during that time Chinese companies built their e-commerce as a way for the customer to still be able to shop because people tried to maintain as less face to face interaction as possible. On that year, JD.com starts selling products online, they become one of the top 2 B2C online retailers in China by transaction volume and revenue. In that same year, Alibaba launched Taobao, the first B2C e-commerce website in that country, then followed by the introduction of Alipay to help solve the payment problem on their platform.
Because of that, China’s mobile payment adoption rate beats all other countries — their adoption rate is the highest amongst other countries based on 2019 StatistaCharts. Indonesia ranks as the third behind India, as you can see we are heading to that direction, and our Central Bank of Indonesia has been started the less cash society movement since 2006. The early growth rate might be slow, but in the past 5 years, Indonesia experiencing a sharp growth of digital payments adoption, especially mobile wallets.
The growth of mobile wallet payments and the introduction of QRIS
As part of the Bank Indonesia’s Indonesian Payment System Vision (SPI) for 2025, Bank Indonesia launched a Quick Response (QR) Code standard for payments through server-based e-money applications, electronic wallets and mobile banking known as QR Code Indonesian Standard (QRIS) on the 74th Anniversary of Indonesian Independence. The QRIS aims to universalize cashless payment in the country with interoperability amongst mobile wallet operators. Since then, the QRIS transaction rate has been steadily growing with around 90 percent of merchants already registered to support QRIS.
During this pandemic situation, we see shops that were allowed by the government to operate such as restaurants, convenience stores, and other essential needs stores prefer to accept mobile payments instead of cash, this will certainly push the adoption rate. On top of that, several e-commerce players in Indonesia are reporting higher volumes of online sales as consumers practice social distancing amid the COVID-19 outbreak. Before the outbreak, e-commerce is just an option for retailers and product manufacturers to sell their products in the e-commerce platform but now it becomes essential for them.
ALTO as a switching and payment technology provider company in Indonesia fully supports the move to the digital payments that are in line with the directive of the Central Bank of Indonesia. ALTO has launched several innovative products in the market such as iDebit, an End to End solution for either Acquirer and/or Issuer to enable Card-Not-Present Purchase to its existing customer. Real-Time Payment, electronic payment solutions that are available 24/7/365. It is designed for mobile real-time transfer via multiple aliases. And Universal API, a payment solution that connects bank account to payment gateways globally. It is a single service that enables access to identity, balance, and transaction data of the user’s bank account. We are committed to continuing to introduce the best and innovative digital payment solutions to the market.
