Mobile Payments in Indonesia
    Category: Column By : Joshua Agusta and Kresna Hutabarat Read : 390 Date : Thursday, March 01, 2018 - 23:13:52

    For the last couple of years, we often heard the term “cashless society” being promoted by both private and government-owned financial institutions in Indonesia. Bank Indonesia (BI), as Indonesia’s central bank, initiated a movement called “gerakan nasional nontunai” (national cashless movement) back in 2014, with goals such as providing convenience to users and more importantly, reducing the handling cost. David Wolman in his book “The End of Money” stated that cash transactions are costly, and are the main “nemesis” for banks, because banks need to count cash manually, hence increasing banks’ operating costs. In a macro-scale, non-cash transactions are making the economy more efficient. The handling process that has been done by businesses and governments will be more transparent and accountable.

    We believe that the constant push from this cashless movement and the increasing trend of smartphone penetration in Indonesia will lead to the next big trend: mobile payments. People, especially the younger generations, are inseparable from their mobile phones. Research conducted by Qualtrics and Accel stated that millennials are checking their phones 150 times per day. Research by Statista in 2017 predicted that mobile payment transaction value will reach $59 million by 2021 with 85% CAGR.

    However, for this vision to come into fruition, a “cashless habit” should be developed. We all know that cash is still the king as the most popular payment method in Indonesia, where according to eMarketer, 65% of Indonesian consumers are still choosing cash on delivery as the payment instrument for digital purchases. Hence, developing a habit of paying for goods cashlessly will be very challenging-and costly. Of the top 10 most popular mobile payment brands in Indonesia, almost all of them are backed by big-name investors or corporations with plenty of cash to burn (Go-Jek’s Go-Pay is backed by KKR, Google and Warburg Pincus; Grab’s Grabpay is backed by Softbank; Telkomsel’s T-Cash is owned by Telkom Indonesia; and so on).

    Most mobile payment services in Indonesia right now are subsidizing every transaction through cashbacks, discounts with merchants, and price cuts to increase usage. This highly competitive market—plus the tight government regulations for mobile payment licenses—in the end will create an oligopolistic market structure, and making it almost impossible for early-stage startups without any prominent backers to enter the market and succeed. Benchmarking to China market, there are only two big mobile payment players—Alipay and WeChat Pay—controlling almost 90% of mobile payment market share there.