The electronic payment system is one of the non-cash payment instruments currently widely used by the public. One of the most popular forms is server-based electronic money (e-money).
Even in the Indonesian fintech ecosystem, e-money is an application service with the most extensive user base and level of awareness — one of which was validated by a survey conducted by DSInnovate. It is also adopted by many digital ecosystems, including e-commerce, ride-hailing, online media, online travel, and many others.
However, the development of electronic payment systems will not stop there. Innovation continues to intensify to provide better and affordable services for the community.
This article will discuss the journey of innovation and regulation of electronic payments in Indonesia and the opportunity for Open Finance to be part of it.
Development of Electronic Payment System
According to Bank Indonesia, the payment system will continue to evolve following the evolution of money with three driving elements: technology & business models, community traditions, and authorization policies.
Looking at the graph above, the forerunner of electronic payment services fundamentals has solidified in the last three decades with the rise of Internet Banking and Mobile Banking. Moreover, the increasing penetration of the internet and smartphones makes people look for new, efficient ways to transact digitally.
Server-based e-money has become popular in the last decade. Many non-bank financial services institutions have begun obtaining Bank Indonesia licenses to develop and operate their e-money system. On the other hand, consumer applications began to increase during this time, creating a substantial turnover of economic value in Indonesia.
As a catalyst for the growth of the electronic payment industry, server-based e-money also triggers the birth of a more innovative payment model, replacing the previous model that has not been successful in penetrating quickly. To name a few, Buy Now Pay Later (BNPL) service as an alternative to credit cards; e-wallet as a way for digital platforms to accommodate consumer funds; QRIS (Quick Response Code Indonesian Standard). They all standardized the use of electronic payment platforms for transactions for on-site retail payments.
On the other hand, developments are still happening. For example, blockchain is gaining popularity as an alternative to decentralized financial systems. Many people are starting to become aware, thanks to crypto instruments which are now also an investment commodity that is quite attractive in Indonesia. However, there have not been many use cases for applying this technology in Indonesia's electronic financial system.
Electronic Payment Regulation
As a highly regulated industry, the financial sector depends on the regulators' pace. Each player must undergo a series of administrative processes and technical tests before being able to operate their services. Bank Indonesia and the Financial Services Authority are the two key regulators that oversee the financial sector — both conventional and digital-based.
Specifically for electronic payment regulation, BI plays a central role. Since 1909 BI has continued to launch and develop policies to regulate the payment system in Indonesia. The development of these regulations is based on the dynamics of the world's technology industry and financial system.
One project spearheaded the development of electronic payment was the Jakarta Electronic Clearing System, which was tested in 1998. Then around 2009, the Bank Indonesia Regulation regarding electronic money was launched, finalized in 2012, and has become the umbrella regulation for electronic payment systems.
Technological innovation is increasing. However, due to detailed processes, regulators need a long time to finalize the regulations. In this fintech era, several initiatives were also launched: Regulatory Sandbox in 2017. The Regulatory Sandbox is used as a testing stage where authorities, industry players, and associations collaborate and come together to oversee the implementation of such services.
A new digital financial business model can be listed in Regulatory Sandbox and test its products directly to the public. The regulator will issue special regulations or licenses to cover the business model at a certain point or timeframe.
Electronic Payment System Innovation
There are remaining gaps in the development of existing electronic payment systems. One significant factor is the fees charged for transactions between accounts from different banks or financial service institutions. These fees are usually charged to consumers and business people in payment transactions.
Open Finance presents an open financial system that emphasize interoperability between systems—enabling the public and business actors to get more efficient fees when transacting.
Open Finance works by directly connecting various financial service APIs to bypass the gateway system (intermediary) that is usually used to connect two accounts.
In the end, the data disclosure offered by Open Finance is considered a starting point for a more connected and efficient financial system, which will ultimately benefit users through lower service fees and simpler usage processes.
Learn about Finantier's various Open Finance services here: finantier.co