Digital payment transactions in Indonesia have recorded strong growth over the last three years. Prepaid cards are have consistently gained market share in this region of Asia. According to PayNXT360, prepaid card market in Indonesia is expected to record a CAGR of 12.8%, from 2019-2023, to reach US$ 9,625.2 million in terms of transaction value by 2023. During the review period, the transaction value increased from US$ 1,954.0 million in 2014 to US$ 4,969.4 million in 2018, posting CAGR of 26.3%. In 2018, the market registered a growth rate of 22.7%, and is expected to grow at 19.5% in 2019.
Mandiri Bank is the largest banks from Indonesia that controls over 80 percent of prepaid card transactions of Indonesia. In the first half of 2018 recorded 703.4 million transactions with e-money cards with total transaction value of IDR 8 trillion (US$ 547 million). The targets for 2018 were exceeded which were decided to reach IDR 10.5 trillion with issuing 18 million e-money cards. The cards were used for road tolls and train tickets.
PT Bank Central Asia Tbk (BBCA) stands second largest with distribution of nearly 15 million electronic money cards or BCA Flazz in the first half of 2018. The cards are mostly used for road tolls and public transport (Transjakarta, Commuter Line Jabodetabek, and Trans Jogja). BCA Flazz are multifunctional prepaid cards and can be used at 57 thousand merchant outlets including food and beverage, minimarket, supermarket, hypermarket, gas station, parking, book store and for recreation.
Then there are certain tourism and local transport focused prepaid cards like Jakcard from Bank of Jakarta. Jakcard is one of the leading tourist card used in Jakarta that is issued by bank of Jakarta. Recently about 50 thousand JakCard starter packs were issued to tourists visiting a popular tourists spot called Monas.
Talking about banking and financial practices, Indonesia has developed rapidly into a digital economy and today potential for issuing electronic money licenses is seen growing. About 21 electronic money licenses have been issued till date and more are potentially to follow. E-wallets and mobile banking are seen as dominant opportunities as about 60 million Indonesian possesses mobile phones.
However, high level of financial illiteracy is a main hurdle in developing digital economy in Indonesia. About 96 percent of the population does not have credit cards and the real reason for this non-receptive attitude from merchants is fear for frauds. So even today, cash payment is the most used payment channel.
Latest Global Financial Inclusion Index database released by the World Bank finds that percentage of adults with a bank account rose from 20 percent in 2011 to 49 percent in 2017. This is considered as a result of efforts made to educate unbanked to realize the benefits associated with a bank account ownership.
The efforts towards digitizing wage payments and other government payments is a strategy been used by Indonesian government to curb the unbanked population. Most Indonesians work in private sectors and are paid in cash, turning this about 20 million of population is the next aim. We cite this as an opportunity for prepaid card business to introduce various types of cards including payroll cards and prepaid credit cards.
Consolidation of payment infrastructure assets and growing interoperability between banks will consolidate the banking sector from Indonesia. At present, central payment infrastructure is not fully interoperable. However, with the initiative from international and native payment gateways there is an increasing consensus for simplifying the acceptance process for electronic payments. This will help in allowing payments using mobiles and other digital means than relying on physical banking which looks more prevalent method for financial transactions.
Indonesia’s central bank launched National Payment Gateway (GPN) in late 2017. The bank is now actively campaigning for its residents to have their debit cards and electronic money cards exchanged for the GPN card. These cards provide cheaper transaction costs and loads of benefits on merchandising over international cards.
Prepaid card business will need harsh efforts if they want to get hold of this market. Millions of unbanked workers working in private sectors brings opportunities for prepaid bank cards and there cannot be better time than today when government is encouraging cashless economy and providing centralized processing and administration platform for digital banking.
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