Cash remains a preferred payment instrument for small-value transactions in Indonesia. However, with the increased consumer awareness about the benefits of electronic payments (e-payments), the high cost of handling cash, and constant efforts by the government to reduce dependence on cash, its share in the overall cards and payments industry has declined during the past few years. In terms of transaction value, cash accounted for only 3.0% in 2014 as compared to 4.7% in 2010.

 

“While the country’s banking infrastructure is well developed in urban areas, it is still under development in rural parts of the country. Nevertheless, the situation is gradually improving as banks expand their branch networks. The rural population is slowly switching to payment cards, although at present they are mainly used for cash withdrawals. However, with the development of banking infrastructure, the introduction of new products and services, as well as the expansion of distribution channels, the use of payment cards is anticipated to gradually increase over the forecast period,” comments Kartik Challa, Analyst at Timetric.

 

The growth of payment cards will be bolstered by increasing levels of government support. The Bank Indonesia (BI), launched its National Non-Cash Movement initiative in August 2014 with the aim of increasing public awareness with regards to the benefits of non-cash payment instruments. As part of the government’s efforts to achieve a cashless society, the BI has urged businesses and consumers to opt for alternative payment methods. Payment cards are favoured by the government as it is much easier to track taxes compared to cash transactions.

 

The government is also keen to develop the mobile payments market to reduce dependence on cash. In April 2014, the BI issued regulation No. 16/8/PBI/2014 to permit non-bank financial institutions to issue e-money for payment purposes. This means that mobile financial services in Indonesia can now be offered by a bank alone, or a combination of both a mobile network operator and a bank.

 

“Government efforts play a big role in educating the country about the benefits of electronic payments; however, factors such as: bolstered consumer confidence, improved banking infrastructure and a growing middle-class population, will also contribute to increased payment cards transactions over the next few years,” adds Challa.