Digital payments are technology-based platforms that bridge the non-cash financial transaction processes for online and offline merchants. Its popularity is increasing due to various factors, including the high penetration of mobile devices, the increasing number of merchants going digital, the more reliable payment system regulation, and the solid ecosystem of service providers.
According to the survey conducted by DSInnovate on 1500 fintech users in Indonesia, digital payment platforms such as e-money and paylater have become the most widely adopted financial technology services in society. E-commerce and ride-hailing applications became their main support. In addition, other digital applications such as OTT to online games also facilitate non-cash payments for their monetization system.
Digital payments today also facilitate various offline transactions from supermarkets to hawkers. They all utilize the QRIS, which is massively encouraged by the authorities. As the regulator that oversees the payment system, Bank Indonesia (BI) also encourages non-cash transactions through various dissemination programs and incentives.
Types of Digital Payment Services
In Indonesia, people can use several types of digital payments. Two parties provide these services in terms of the type of developer: banking and fintech players.
Here is an explanation of some of the popular digital payment products used presently:
E-money, or electronic money, consists of two types, namely chip-based and server-based. For chip-based e-money, it is usually in the form of a card used to make non-cash payments. One example of its implementation in Indonesia is for payment at toll gates. The issuers of chip-based e-money are the banks. People can buy cards through distribution partners (such as minimarkets or e-commerce) and then top up through various mechanisms: ATM, NFC in mobile phones, mobile banking, etc.
Server-based e-money is in the form of a mobile application that can be used for payment. Some popular server-based e-money applications are GoPay, OVO, ShopeePay, LinkAja, Dana, etc.
E-wallets, or electronic wallets, are electronic services to store data on payment instruments, including payment instruments using cards and/or electronic money, which can hold funds to make payments. In its implementation, e-wallets are usually integrated into specific digital platforms, such as travel applications, e-commerce, and so forth, to facilitate the payment transaction and refund processes by/for consumers.
- Internet/Mobile Banking
Internet banking is an online banking service that can be accessed through the website developed by the bank. While mobile banking is a digital banking application that customers can install on their mobile phones to enjoy various banking services digitally, both are almost the same, supporting various needs related to banking services, including digital payments.
Quick Response Code Indonesian Standard (QRIS) combines various QR from various payment system providers that use QR Codes. QRIS was developed by the payment system industry in cooperation with Bank Indonesia so that the transaction process with QR Code can be easier, faster, and gated. All payment system service providers who use QR Code payment must apply QRIS.
QRIS allows consumers to make payments with any application (e-money) with the same QR code. Even for merchant owners, there is no need to paste different codes to receive payments from various types of applications.
Paylater, also known as BNPL (Buy Now Pay Later), is a payment method that has become popular in recent years. This is one of the derivatives of innovation from fintech lending services that facilitates non-cash payments through the installment method - similar to a credit card but in the form of an application. Initially, the paylater service was widely used in e-commerce, but now it has also started to target traditional retail.
- Support Platform
To accept digital payments, a business or developer needs to take advantage of the support services. Today, several types of digital payment enablers are widely adopted, ranging from Point of Sales (POS) for offline retails, payment gateway for online retails, and QRIS service providers.
Regulation of Digital Payments
In Indonesia, there are several regulations directly related to digital payment services, as follows:
- Bank Indonesia Regulation Number 20/6/PBI/2018 on electronic money.
- Bank Indonesia Regulation No.18/40/PBI/2016 and Circular Letter of Bank Indonesia no.18/41/DKSP on implementing Payment Transaction Processing.
- Board of Governors regulation number 24/1/PADG/2022 on February 25, 2022, on the Second Amendment of Board of Governors Regulation Number 21/18/PADG/2019 on implementing the National Quick Response Code Standard for Payments.
- Board of Governors regulation number 21/18/PADG/2019 on implementing the National Quick Response Code Standard for Payments.
- Financial Services Authority Regulation Number 12/POJK.03/2018 on the implementation of Digital Banking services by Commercial Banks.
In addition, some rules support digital payment systems indirectly, for example, the POJK regarding Fintech Lending, which also became the operational basis of the PayLater platform.
Benefits of Digital Payments
The adoption of digital payments provides many benefits for consumers and businesses. For consumers, in addition to the efficiency provided by not having to carry cash everywhere, this method is also safer and better at avoiding crime. The account owner also gets a financial record of the expenses made — because all transactions are recorded and reported automatically in the app.
Meanwhile, the payment system makes it easier for business people to save money and manage cash flow because everything is recorded digitally. Moreover, digital payments avoid classic risks such as not having change or miscalculation issues. Digital payments also allow businesses to increase user retention with loyalty programs such as promos or points organized through POS platforms or payment gateways.
Forming A Financial Profile
For the financial business ecosystem in general, the transition of consumers to non-cash payments can also be seen as a breath of fresh air that brings a more affordable financial system. With the massive adoption of digital payments, many opportunities can be developed to deliver various other supporting financial services. Moreover, in today's era, business people can also take advantage of the sophistication of the Open Finance platform in assisting them with their digital transformation.
One of the Open Finance products that can be utilized is Account Aggregation. Its implementation in an application system allows businesses to form a financial profile of their consumers. It provides the facilities that make it easier for them to determine someone's financial capabilities by connecting their financial accounts, both from fintech and banking applications.
The following is an overview of how it works:
The resulting data can be used for various needs, including:
- Provide personalized financial management services in accordance with the capabilities of each customer.
- Identify the purchasing power or credit capability using alternative data from transaction systems outside of banking services.
- It is ultimately getting a complete picture of spending trends that can be utilized to support business needs in the future.
Digital transformation in the financial sector should be considered an opportunity for industry players to increase their business to a more advanced level. Open Finance could be one of the solutions to deliver a business designed to maximize any existing opportunities, including taking advantage of the digital payment trends that are experiencing rapid growth in Indonesia — and the whole world.