Picking a winner Cashless Payments for Indonesia
Indonesia is one of the hottest battlegrounds in mobile financial services in the world.
The population, increasing smartphone saturation and growing mobile literacy means that the opportunities for cashless payments in Indonesia are immense. The underlying demographic and economic drivers point towards a rapid shift from cash-based payments to alternative payments through mobile devices – with credit card networks and banking networks at risk of being side-stepped, as an emerging youthful middle class embraces new ways to pay and engage with merchants and brands. Indonesia appears to be on the verge of a cashless payments boom, and we believe there are significant opportunities for companies willing to invest in alternative payment platforms. Many of the players in the market are already committing significant resources to pioneering new solutions to overcome the obstacles in a market with such a low proportion of unbanked and other infrastructure shortcomings.
How do we see the Cashless Payments market developing
To date, the large domestic banks, switching networks, telco companies and more recently large retail groups have not been able to reach agreement on standardized payment infrastructure. All major players are also trying to develop their own customer-facing payment proposition, leaving the payments market fragmented with no established market leader for retail users. This era of fragmentation is due to be over with the launch of Bank Indonesia’s (BI) National Payment Gateway at the end of 2017. Licensing restrictions are slowing the entry of established international payment providers. Therefore, at present, the most capable of delivering an integrated payments platform which will gain the critical mass to become the dominant eEconomy payment player, would appear to be a local with established merchant networks, brand loyalty and significant brand awareness. Looking ahead we expect significant investment and deal activity in the payments space, including:
- Regulatory-driven consolidation of the various interbank switching networks to deliver on interoperability and reduce transaction costs
- Strategic acquisitions of smaller local independent eWallets/mWallets and payment gateways, which have demonstrated innovative ability to overcome structural issues unique to Indonesia
- Consolidation and outsourcing for the provision of traditional payments infrastructure, as banks look to cut costs
- Partnerships between eEconomy platforms, dedicated payment providers and consolidation of telcos and bank-owned platforms, in efforts to gain critical mass
- Entry of large global payment players through partnerships/joint ventures with local licensed operators.
- Successful eCommerce backed eWallets expanding from inline payments provision, to third-party merchant payment gateway provision.