While the promise of Digital Money in Indonesia has been much anticipated, the services have taken time to launch and even longer to gain adoption. This had resulted in a highly fragmented market with over 17 e-money licenses - yet none enjoying the adoption
or offering the range of services required. Now this is set to change with a new regulator, new regulations, a database from TNP2K that already includes data for over 15.4 million households and big plans for G2P payments through new branchless banking services.
It should have been easy - With a population of 250 million people and a banking infrastructure that does not yet reach across the 17,508 islands across which they live, surely people should have adopted the 46+ services that we at Shift Thought have been
studying over the last 5 years.
A major issue though was that Bank Indonesia (BI) regulations favoured the larger banks and allowed them to offer a wider range of services through agents while confining smaller banks and telcos to the use of the formal entities that do not reach the 80%
financially excluded people for whom they were meant.
Over 2015 this is set to change as results from the pilots of 2013 have fed into the law on electronic money and LKD or "Digital Financial Services" take off in the country.
Otoritas Jasa Keuangan (OJK) was created as a new Financial Services Authority in December 2013 and now manages prudential regulation, alongside Bank Indonesia, who was earlier the single authority looking at banking and payments. Anticipation of the new
regulator somewhat slowed things down initially - for instance the branchless banking pilots closed down instead of just continuing.
Now though, things are set to change. OJK has issued new regulations that allow a variety of banks to offer services through agents, and this will for the first time allow the mom-and-pop stores commonly found in Indonesia to become part of country-wide
agent networks. According to Michael Joyce, Mobile Money Policy Advisor at TNP2K (the Indonesian National Team for the Acceleration of Poverty Reduction), big banks are looking to create combined agent networks of over 100,000 locations.
Mobile money and branchless banking services often struggle in terms of business case - the GSMA cites this as one of the top 2 challenges, in their State of the Industry report published last month. This is where Indonesian providers now have an advantage.
Government plans for social payments through the new digital money services enjoy the strong backing of the new President Joko Widodo who came into power in October 2014.
A fuel subsidy that previously took up almost 20% of the national budget and did not benefit the poor will now be one of the pots of money that are considered for reallocation to cash transfers to the poor. Over 15 million poor households are already listed
in TNP2K's new unified database and recently the KKS (Family prosperity card) has been launched in a highly successful manner.
Bank Mandiri, the Post Office and the major mobile operators made a record breakthrough in terms of distributing SIM cards to support KKS and 1 million people were already paid electronically as of December 2014. With on an average 200,000 rupiah per family
per month, and significantly more payments planned this year with the offset gained from the reduction of the petrol subsidy, expect to see important changes in the way people pay and get paid in Indonesia over the next few months.