A compendium of hot and key issues in the regulatory policies and industrial development of Indonesia's payment system: which companies are involved in India's three-party payment

Indonesia Payments Market Overview

Similar to most developing economies, Indonesia's population is highly dependent on cash and has a relatively low penetration of traditional bank accounts. Geographical distribution has resulted in relatively weak supporting infrastructure, and the country is in the process of transitioning to non-cash payment methods. At the same time, Indonesia's internet economy, including e-commerce and social networking, is in a rapid growth phase, driven by booming domestic and international economic activity, as well as the government's digitisation strategy, which is supporting the transformation and upgrading of payment services. Emerging payment services have a lot of room for development, providing a reference for Chinese payment market players to expand their business overseas.

In this paper, several topical and critical issues of Indonesia's payment system regulatory policy and industry development are selected for examination. Although there is still a gap between Indonesia's payment industry and China's, the establishment of a comprehensive regulatory system and the creation of a national payment gateway (GPN) that makes full use of the National Distributed Transfer Network have fostered a local Indonesian brand of card clearing. This approach is also informative.

The "Going Global" series of payment studies was completed by the joint project team of Tencent Research Institute and Upay Global. We will follow up with studies on retail payment systems in other countries or regions. Stay tuned.

The full text is 5,300 words with 2 images and 1 table. Estimated reading time: 11 minutes. You can also download the full 15,000 word version at the end of the article.

Core features of Indonesia's payment market regulations: a comprehensive licensing regime

As the primary regulator of the payment system, Bank Indonesia is authorised by law to set out the regulatory requirements and detailed implementation rules for payment services, which provide the basis for the regulation of the Indonesian payment market. A review of Indonesia's regulatory laws shows that Bank Indonesia's core regulatory approach to payment services, particularly those conducted by non-banking organisations, is to require market players to be licensed, focusing on entity qualifications, application and approval processes, and operational procedures. The regulatory framework is established based on the responsibilities and obligations of the entities involved. The types of payment services licences in Indonesia are very detailed and cover all segments of the chain, including card payments (including card organisation, clearing, settlement, card issuance and acquiring), fund transfers, payment transaction processing (including money transfer services, payment gateway operations and e-wallet services), and e-money, with varying eligibility requirements for applicants.

In addition, Bank Indonesia's regulatory provisions on e-money classify payment service entities into two categories: front-end and back-end. Front-end entities are institutions that deal directly with customers, including card issuers, acquirers, payment gateway operators and e-wallets. Back-end entities, on the other hand, are institutions that do not have direct contact with customers, including card organisations, money transfer agencies, clearing agencies and final settlement institutions. Applicants can only choose to operate in one of the front-end or back-end categories and can apply for multiple business licences under the same licence. For example, they may apply for both card issuance (front-end) and acquiring (front-end) licences, but may not hold both front-end and back-end licences. For example, two licences for e-wallet operators (front-end) and clearing agencies (back-end) cannot be held at the same time.

Higher ownership restrictions on foreign-owned NBFIs

In order to stimulate innovation among local market players in Indonesia, Bank Indonesia has issued regulations and policies over the past two years that essentially impose various restrictions and limitations on the percentage of foreign ownership of non-bank payment organisations. For example, the 2016 Regulation on Payment Transaction Processing (PTP Regulation, 18/40/PBI/2016) stipulates that applicants applying for licences for card organisations, money transfer agencies and clearing and settlement institutions must be established in the form of a limited liability company, and that the percentage of foreign ownership (including direct and indirect holdings) must not exceed 20%.The 2018 e-money regulation (20 /6/PBI/2018) require NBFIs applying for an e-money licence to be established in the form of a limited liability company with a majority of its board of directors residing in Indonesia. The percentage of foreign ownership of e-money is limited to 49%, including both direct and indirect holdings.The 2017 Regulation on National Payment Gateway Regulation (GPN Regulation, 19/8/PBI/2017) stipulates that the percentage of foreign ownership of GPN money transfer organisations must not exceed 20%.

Indonesia's credit card payments industry faces sweeping regulation

The regulatory requirements for credit card payments (11/11/PBI/2009, 14/2/PBI/2012) limit the "instrument for payment by card (APMK)" to three types: credit, ATM and debit cards.The main entities in the APMK chain include card organisations, issuers, acquirers, transfer agents, clearing agencies, settlement agencies, cardholders and merchants, and outsourced service providers. agencies, clearing agencies, settlement agencies, cardholders, merchants and outsourcing service providers. The credit card payment regulations set general requirements for risk management depending on the type of APMK (credit or ATM/debit card). In order to further improve the security of APMK, Bank Indonesia introduced chip technology and at least 6-digit PIN verification measures in 2012.In 2015, the transaction limits for cash withdrawals and transfers with chip cards were further relaxed and the daily withdrawal and transfer limits were increased.

International card organisations such as Visa and JCB have been granted card organisation, clearing and settlement status for credit and ATM/debit cards in Indonesia, UnionPay has been granted card organisation status for credit and ATM/debit cards, and American Express has been granted card organisation status for credit cards only.UnionPay has been working mainly with local banks and money transfer agencies in Indonesia.

As of 24 October 2018, there were 34 institutions with various credit card operating status in Indonesia. As of 12 November 2018, there were 121 institutions with ATM or debit card operating status. As of August 2018, the total number of debit cards (including ATM cards) in Indonesia was 161.5 million and the total number of credit cards was 17.2 million. The following table shows card payment transaction data for 2017.

Indonesia's PTP regulations require all types of businesses to be licensed

The PTP regulations define payment transaction processing activities as encompassing all links and entities in the payment business chain, including pre-transaction, transaction validation, clearing, settlement and the complete post-transaction process. Payment system service providers, including card organisations, money transfer agencies, card-issuing banks, acquiring banks, payment gateway operators, clearing agencies, settlement agencies, money transfer service providers, e-wallet service providers, and other entities identified by the Central Bank, are strictly subject to the PTP regulations and must be licensed to operate.

In terms of licence application requirements, the PTP regulations set qualifications for transfer/payment gateway service providers and e-wallet service providers. By definition, money transfer refers to the infrastructure for the transmission of payment instrument transaction data such as bank cards, e-money and money transfers; payment gateways are proprietary channels for processing various payment transactions between two parties; and e-wallets are used for storing various payment instrument transaction data information. Money transfer/payment gateway services can only operate within the scope of IT and payment systems. E-wallet service providers need to apply for a licence only if the number of active users reaches or is planned to exceed 300,000 users. Services whose user base does not fulfil this condition