In the dynamic business landscape, cashless payments have brought about a transformative shift in transactional practices. Indonesia, an evolving country embracing cashless solutions, has experienced a remarkable surge in adopting digital payment methods like QR codes, e-wallets, and virtual accounts. With a digital economy valued at US$77 billion and accounting for 40 per cent of total ASEAN digital transactions, the country now stands as a prominent player in the digital realm.

In contrast, direct debit has emerged as a dominant payment method in the Western market. With customer authorisation, businesses can seamlessly deduct funds from bank accounts in real-time, making it ideal for recurring financial payments such as utility bills, loan repayments, and subscription payments like Netflix and Amazon Prime. Direct debit also captured 20 per cent of non-cash transactions in Europe, ranking third among popular payment methods in 2022.

In general, while recurring payment solutions in Indonesia have not yet become widespread, drawing from my extensive experience in both Europe and Indonesia’s tech industries, I predict their potential for success in the country.

Considering Indonesia’s dynamic digital economy and rapid growth, here are my three predictions for the future of direct debit as a prominent payment method nationwide.

Access to digital financial services has significantly improved in Indonesia

The accessibility and adoption of diverse digital payment methods have experienced a significant surge throughout Indonesia. According to Statista, e-wallets and electronic money have emerged as the predominant payment options nationwide, primarily attributable to the country’s high levels of domestic internet penetration and smartphone usage.

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Moreover, digital banking has witnessed remarkable growth, as indicated by the World Bank, with 51.8 per cent of Indonesian adults aged 15 and above holding accounts at financial institutions in 2021. This substantial progress represents a notable increase from the 19.6 per cent recorded in 2011.

Furthermore, Bank Indonesia (BI), the country’s central bank, has reported a year-on-year rise of 9.88 per cent in the value of digital banking transactions, reaching IDR 4.944 trillion (US$328.19 million) as of March 2023.

Considering the solid foundation already established for facilitating digital payment services and the growing popularity of digital banking, it is evident that the demand for convenient payment methods, particularly those compatible with smartphones for on-the-go transactions, will continue to escalate in the coming years.

This creates an exciting opportunity for the introduction of innovative and enhanced payment solutions, such as direct debit, which not only provides convenience but also caters to the recurring and subscription payment requirements of both customers and businesses in their daily operations.

Overcoming early adoption challenges with promising regulatory foundations

From my perspective, the limited public awareness and education present challenges to the early stages of the widespread adoption of recurring payment solutions in general. Security concerns, particularly the direct withdrawal of funds from individuals’ bank accounts where substantial savings are stored, contribute to public scepticism.

Notably, the Ministry of Communication and Information Technology (KOMINFO) recorded 486,000 reported cases of criminal offences related to information and electronic transactions from 2017 to 2022, with 83.3 per cent involving online transaction fraud, including phishing scams and fraudulent money transfers associated with bank accounts.

However, Indonesia’s regulatory bodies have proactively addressed these concerns, enhancing the infrastructure for secure digital payment services. Mr. Muhamad Farhan, a member of Commission 1 in the Indonesian House of Representatives (DPR), provided an update on the approved Personal Data Protection Law (UU PDP) during the Open Finance Summit 2023 this year.

This law, aiming to safeguard individuals’ privacy and personal data, is currently in a two-year transition period until October 2024, allowing for necessary amendments and adjustments. Businesses also have this timeframe to align with the PDP requirements.

Bank Indonesia (BI) also has a license for financial service providers in Indonesia called the Payment System Service Providers (PJP) classification. This includes Payment Initiation and/or Acquiring Services (PIAS) for payment forwarding transactions.

PIAS regulates licensed providers to comply with the provisions to ensure customers’ safety in making payments via bank transfer directly from the customer’s bank account. Ayoconnect’s recent acquisition of the license from BI for their direct debit solution demonstrates their commitment to adherence to strict security measures outlined by the regulation, assuring clients.

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The presence of these current and upcoming laws and regulations indicates a promising trajectory for the adoption of recurring payment solutions in Indonesia. The next crucial step involves educating the general public about these regulations to instil confidence and trust in secure digital payment services. By doing so, I believe that customers and businesses can gain reassurance regarding privacy, data protection, and overall transaction security.

Indonesia’s tech and digital sector as a catalyst for new payment methods

Indonesia’s tech and digital sector plays a vital and dynamic role in the country’s thriving digital economy, poised to become the largest in Southeast Asia by 2030. The pandemic has acted as a catalyst, accelerating the shift to online activities and igniting an impressive surge in consumer engagement across various digital industries, such as e-commerce, SaaS tools, streaming services, online gaming, and more.

This remarkable trend has sparked fruitful collaborations between financial service providers and tech companies, driving the introduction of innovative digital payment solutions to cater to the ever-growing consumer base in the digital sector.

Notably, the immensely popular Buy-Now-Pay-Later (BNPL) payment plans have already achieved a staggering GMV of US$3,483.3 million in 2022, firmly establishing themselves as one of the nation’s most favoured payment methods.

Based on my evaluation, implementing recurring and subscription payment management via Direct Debit to facilitate payments across various digital industries offers considerable business potential.

Direct debit emerges as an ideal solution, automating transactions and streamlining the payment process without the need for manual intervention or the exchange of sensitive payment details for each transaction.

Its user-friendly nature and enhanced security seamlessly align with the dynamic nature of BNPL online transactions, fostering an environment conducive to business growth and ensuring customer satisfaction.

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