The growth of electronic money in Indonesia was extremely fast and significant. According to data Bank Indonesia, the transactions of electronic money have witnessed a thriving growth with a Compound Annual Growth Rate (CAGR) of 107.40% in the last five years. In 2020, Bank Indonesia recorded that the number of transactions of electronic money reached IDR 201 trillion. The COVID-19 pandemic has revealed the real potential of digital payments and mobile wallets. Also, the current development of information technology and payment systems has stimulated the development of electronic payment instruments
Throughout 2020, the value of electronic money transactions increased from quarter to quarter. In the first quarter of last year, the value of electronic money transactions was IDR 46.1 trillion. In the second quarter, the value grew 3.2% to IDR 47.54 trillion. In the third quarter, the number of electronic money transactions increased by 7.3% to IDR 51.01 trillion. In the last quarter, the value of electronic money transactions was 10.4% higher at IDR 56.33 trillion.
"Our digital economy and finance are moving tremendously. This pandemic is pushing extremely hard. The numbers being monitored also tend to increase," said The Governor of Bank Indonesia, Perry Warjiyo.
<Trend of value electronic money in Indonesia (IDR trillion)>
Source: Bank Indonesia
Perry is optimistic that the electronic money in this year continues to soar. Bank Indonesia calculates that the electronic money will reach IDR 266 trillion or increase 32.3% compared to last year. Despite of the electronic money, the transaction of e-Commerce and digital banking have a potential to rise. Bank Indonesia Predicts that the e-Commerce transactions in Indonesia will surge 33.2% from IDR 253 trillion in 2020 to be IDR 337 trillion in 2021. Likewise with digital transaction banking will grow 19.1% from IDR 27.036 trillion to IDR 32.206 trillion in the same period.
"The COVID-19 pandemic has accelerated the acceleration of transactions from offline to online. People are starting to reduce the use of cash to avoid the spread of the virus," said Perry.
Bank Indonesia realizes that the flow of digitalization in the economic and financial sectors is inevitable. This is because people are increasingly demanding financial services that are fast, cheap, and safe. Digitalization opens wide opportunities for economic and financial inclusion for all people, both unbanked and banked. On the other hand, digital opens risk like cyberattack, money laundry, etc.
To minimize risks, Bank Indonesia has released a blueprint for the Indonesian payment system 2020-2025 which aims to support the integration of the national digital economy-finance. Through this blueprint, the central bank supports the digitalization of banking as the main institution in digital finance through open banking and the use of digital technology and data in the financial business. In addition, it also guarantees the interlink between fintech and banking to avoid shadow-banking risks to protect consumers and fair business competition.
Meantime, a report from Standard & Poor's (S&P) titled Southeast Asia E-Money Market Report shows that Indonesians prefer payments from financial technology to banks. The use of fintech services has boosted e-commerce transactions to games. S&P noted that the use of fintech payment services in Indonesia is the largest in Southeast Asia. In 2019, electronic money transactions in Indonesia reached USD 10 billion. Meanwhile, digital wallets (e-wallets) from fintech contribute around 72% of electronic money transactions in the country. "Fintech has surpassed banks as the main payment providers in Indonesia," said the S&P Global report.
S&P said, fintech organizers in Indonesia build physical and digital infrastructure, so that people can easily transact on the platform. The services most frequently used include money transfers, bill payments, and transactions in shops. In addition, the digital ecosystem in Southeast Asia has been developed, namely e-commerce, ride-hailing, and games. As a result, the use of fintech services has become more and more S&P, exemplifying GoPay in the Gojek ecosystem. This fintech payment service can also be used to order transportation, e-commerce, food delivery and games. Likewise with OVO which is integrated with Grab and Tokopedia. Then, Shopee got into this business through ShopeePay. S&P noted that the fintech affiliated with Shopee contributed more than 10% of electronic money transactions in Indonesia.
The growth in electronic money transactions is also driven using smartphones in Indonesia. According to Statista, the number of smartphone users in Indonesia is expected to increase 33.7% in 2025 to be 256.11 million people from 191.6 million people in 2020. Smartphone users are increasing as various brands compete in the local market. This makes the company have many strategies to win the Indonesian market including offering competitive prices. Various cellphone vendors issue products that target various types of consumers from lower, middle- and upper-income earners.
<Smartphone penetration rate forecast and trend in Indonesia (%)>