Why is Indonesia So Behind on Contactless Payment?

Living in the UK shows how wide the comfort gap is when it comes to frictionless and contactless payments. In the UK, it is easy to use your debit card similar to cash. Well, even better! Virtually every UK resident knows that the majority of face-to-face Visa transactions are Contactless touch-and-go. Year to year, Contactless card is getting more and more issued as it is really handy for everyday payment. Forget topping up your card, just use your Contactless card for transportation, lunch, even your morning coffee. In May 2017, 73% debit cards in the UK are now Contactless (by meaning non-Contactless or single-interface are using only EMV chip in the UK card). According to data reported to The UK Cards Association, the number of Contactless cards in May 2017 grew by 0.4 million to 73.0 million.

This new feature is introduced on payment cards in the UK to make low-value purchases quicker and more convenient for both retailers and consumers. When making low-value payments (currently 30 GBP or less) – rather than inserting a card into the chip-and-PIN machine and typing in a PIN – those with a card featuring Contactless can simply hold it to the reader to pay. As it focused on the retail payment, the average Contactless transaction was for 9.40 GBP. This is split by 9.36 GBP on a debit card and 9.68 GBP on a credit/ charge card.

Retail payment in Indonesia
Let’s start with the condition of retail payment using a card in Indonesia. Card in Indonesia still considered as complementary, not substitute. Making payment using a card in Indonesia inviting face-palm behind your queue, as it took so long to complete your payment: swipe card, enter pin, print receipt. This method is called “swipe-and-PIN”, some use “swipe-and-sign”.

The migration to EMV chip started much later at 30 December 2015, when Central Bank of Indonesia regulates that all transaction cards need to be changed from using the magnetic stripe to chip technology until 31 December 2021. Other than this, national standard of PIN also need to be changed to 6-digit. The Indonesian transition from swipe to chip splurges generous amount of money. It only took 20-25 cent USD to produce one magnetic stripe card, EMV chip swallows 1 USD per card, while dual-interface card took 1.35 USD to produce. Not only regulates the new type of cards, but the payment services also need to substitute the EDC machine to conform the 6-digit PIN as well.

Another payment method that arising in Indonesia is using e-money. Overall, the user experience is poor as customers must add credit to an account before they can transact, and should be noted that the e-money card cannot be topped-up crossed banks; it is bonded specifically to its bank issuer.

Why Indonesia release e-money instead of Contactless debit card?
It gets complicated as Contactless needs to be linked directly to your saving accounts, while e-money and other cashless cards in Indonesia do not need to be linked to specific accounts. However, large Indonesian stakeholders fail to see further the global experience such as the UK or Australia with their Contactless experience. The biggest mistake comes from the issuing banks: banks were mandated to issue EMV compliant chip cards by 2015 and they choose the single-interface chip cards with no Contactless antenna (which save them 35 cents USD per card). 

These lack of ability to provide simple payment in Indonesia retail payment now have led on too many machine choices, even each bank release their own EDC machine for their own debit/ credit card payment. Don’t forget the another separated reader for e-money (argh!). As mentioned by KPMG Siddharta Advisory, this undeveloped and fragmented payment infrastructure, also how certain banks looking to protect their customer base and networks leading to limited inter-operability leads too much work (and money) to organize the current payment system.

EDC Terminal Saga in Indonesia
Recent news on November 2017, around 400 thousand EDC terminal will be integrated into one machine. These EDC prototypes will be released by Bank Mandiri, BRI and BNI to six state-owned corporates such PT Kereta Api Indonesia (Persero), PT Kimia Farma (Persero), PT Pegadaian (Persero), PT Telkom Indonesia (Persero), PT Pos Indonesia (Persero) and PT Pertamina Retail, hoping that it will fasten the retail payment regardless the debit card bank sources. 

But the next question is: how integrated is their EDC terminal? Currently, only Kartuku unify multiple payment terminals to one device. Their EDC terminal accepts swipe, dip, also Contactless method for multi banks. Unless these state-owned banks release similar unified payment acceptance as Kartuku, just expect they will have to spend another budget for developing ‘new’ EDC terminal.

Capture

Does Indonesia have Contactless card?
Yes, we do! Well, only for credit card though. Introducing, Visa payWave. Visa payWave cards have an embedded antenna (NFC) and microchip, enabling Contactless communication with a reader at the checkout. From there, the transaction is processed through the same secure Visa network used for all Visa transactions. Cardholders simply wave their Visa payWave card over a secure reader to pay and go. Until this dated article written, CIMB Niaga is only one of the Contactless credit card provider in Indonesia. I also got an update from Mas Rio, that Indonesia has Contactless debit card from Jenius! For sure I will apply for Jenius m-card once I am back home. 

But then, could I use my Contactless as easy in the UK? Is the EDC terminal suitable for Contactless widely available in Indonesia? The day wide use of Contactless will come, hopefully soon.


Glossary
EDC: Electronic Data Capture
E-money: broadly defined as an electronic store of monetary value on a technical device that may be widely used for making payments to entities other than the e-money issuer. The device acts as a prepaid bearer instrument which does not necessarily involve bank accounts in transactions.
EMV: Europay, Mastercard, Visa

Sources
Bank CIMB Niaga (2017)
European Central Bank (2017)
Jenius (2017)
Kartuku (2017)
Katadata News and Research (2017)
KPMG Siddharta Advisory (2017)
The UK Cards Associations (2017)

2 thoughts on “Why is Indonesia So Behind on Contactless Payment?

  1. Apakah saya boleh tulis ulang artikel ibu ini / saya ambil sebagai sumber / saya modifikasi sebagai bahan artikel di internal kantor kami?

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