The humble QR code is set to give the Indonesian mobile payments market a huge boost when the central bank formally switches on a system allowing transactions between competing players, including banks. 

Although they already saw rapid growth in 2018, transactions via mobile payments platforms and prepaid cash cards, which are very popular in underbanked Indonesia, still account for a small slice of retail sales. They will make up a bigger slice in 2019 when Bank Indonesia launches a centralised gateway allowing cross-platform transactions. At the heart of this system are QR codes, the low-cost, low-tech, phone-scannable bar codes which are powering commerce across Asia. 

This may prove crucial for a central bank aiming to achieve 75 per cent financial inclusion by 2019, a target that is unlikely to be met by relying solely on traditional banks. In 2017, the World Bank estimated only 49 per cent of Indonesians aged 15 and over had bank accounts. 

Go-Pay leads but competition is growing

Our latest survey found that Go-Pay, the payment arm of Indonesian tech start-up Go-Jek, remained the country’s most popular mobile payments platform, but it faces growing competition from OVO Cash, part of the Lippo Group conglomerate. However, the two companies are likely to face stiffer competition next year as traditional banks take a greater share of the market. 

Our survey found that Go-Pay was used by almost three-quarters of mobile payments users in the three months to the end of September, up slightly from the same period last year, followed by OVO, which was used by around 42 per cent (some people used both). 

OVO is a relative newcomer — this was the first time we included it in our annual survey. It only recently expanded from a service that was used mostly at retail checkouts to become the preferred payment partner of ride-hailing app Grab and Tokopedia, Indonesia’s largest online marketplace. 

Like most payment brands in Indonesia, OVO’s rise largely resulted from aggressive promotions. It currently offers up to 60 per cent cashback in the form of points that can only be spent at OVO’s merchant partners and service providers. After tying up with Grab and Tokopedia, OVO claims it has become the number one platform in Indonesia by payments volume. 

Still in infancy

Mobile payments have soared in the past year on the back of these costly promotional activities. Indonesian mobile payments accounts held Rp1.1tn ($75m) in October, more than triple the amount the year before. However, this only represents around half of the value of funds stored in the prepaid cash cards issued by banks. 

Prepaid cash cards are widely used in Indonesia, especially for paying road tolls and making purchases at ubiquitous convenience stores, such as Indomaret and Alfamart. Although the total value of transactions using mobile payment systems and prepaid cash cards hit Rp36tn in the first 10 months of this year, this is equivalent to just 15 per cent of the shopping transactions made using debit cards and only 3 per cent of overall wholesale and retail sales. 

A game changer

Bank Indonesia is pushing competing mobile payments platforms to use its centralised payments gateway rather than their own internal payments networks. Doing so will allow a merchant using a Go-Pay account, for example, to receive funds from a buyer on the OVO platform. 

Banks that have adopted QR codes, including major domestic ones such as Bank Mandiri and Bank Rakyat Indonesia (BRI), will also be able to handle transactions on this open system. The system should be fully deployed in the second half of 2019 and is expected to dramatically increase the volume of transactions. 

This will contribute to the gradual obsolescence of prepaid cash cards, which are impractical compared with payments systems running on QR codes and require relatively expensive infrastructure — particularly in remote regions. Our survey showed that cash cards are already less popular than mobile payments, especially outside Java. 

Among the banks, we see Bank Central Asia, Indonesia’s largest bank by assets, as having the best chance for early success in QR code adoption. The bank’s mobile payment system, BCA Klikpay, already ranks fourth in our survey. 

Mutual growth

The expansion of mobile payments will also benefit banks in generating more offline transactions. Their extensive digital payments infrastructures can be quickly converted to accept QR codes. For example, Bank Mandiri, Indonesia’s second-largest bank by assets, has credit and debit card readers installed in 240,000 merchants, compared to the 27,000 merchants that accept OVO point payments as of August. 

Given this untapped growth potential, banks’ expected inroads into the mobile payments sector is unlikely to come at the expense of the likes of Go-Pay and OVO. Fintech companies will continue to dominate on their own turf, such as in ride-sharing, delivery services and ecommerce ecosystems, but they cannot afford to maintain their promotional activities.

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Industry players told FT Confidential Research that during the initial stages of brand promotion, a fintech company can spend up to Rp500bn a month subsidising customers. 

Those companies that can monetise their services will have a better chance at reducing their dependence on subsidies. In this regard, Go-Pay’s parent, Go-Jek, is currently leading — mainly due to a food delivery service which boasts 250,000 merchants across 50 cities — making it the largest in Asia outside China. 

— Andi Haswidi, Indonesia Researcher, Financial Times Confidential Research