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Digital Payments to Aid Indonesia’s Economic Recovery

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In the last ten years, technological disruption in the financial sector has given birth to new types of digital payments, which has subsequently encouraged the adoption of digital transactions. In Indonesia, digital payment is becoming increasingly popular.

About three decades ago, banks began to adopt digital channels such as phone, SMS, and/or mobile banking which is more of a “conventional” digital payment. Now as the digital economy is driving the growth of Indonesia’s entire technology sector, it is crucial for Indonesian citizens to use digital payments in order to support the country’s economic growth.

Despite massive growth in smartphone adoption and rising demand for digital banking, the majority of countries continue to rely heavily on cash. Some Indonesians do not own a bank account, demonstrating that cash is still necessary for financial inclusion. Cash is also deeply embedded in the economies of many developed markets.

Therefore, tech firms are now offering new digital financial services, such as e-wallets or e-money, which were previously integrated with e-commerce platforms. The trend was accelerated when the COVID-19 pandemic struck in early 2020, limiting people’s mobility.

In an article, OpenGov Asia reported that online banking has evolved into the most convenient service for paying bills, transferring funds, and accessing a record of your checking account activity all from the convenience of a web browser. Everything related to personal finances easier when people can bank from the comfort of their own home, at any time of day or night. Digitalisation is transforming how people interact and conduct business on a daily basis, and advances in banking technology are influencing the future of financial services all around the world. The banking industry is being transformed by increased demand from millennials and Gen Z’s for a digital banking experience.

Mobile banking or online banking has become a major differentiator for banking leaders since it allows consumers to make deposits, account transfers and manage their expenditure and profits. Online banking has been a more important feature in banking services among respondents since the commencement of the coronavirus pandemic. Financial institutions are increasingly eager to know which mobile banking services customers enjoy the most and where they stand in comparison to their competitors so they can work in certain sectors.

There is no industry in Indonesia that has grown as fast as the digital economy. It is predicted that by 2025, the digital economy in Indonesia will have reached $124 billion, up from $44 billion in 2020. Even during the COVID-19 pandemic, the country’s digital sector is projected to grow by 10%, up from $40 billion in 2019 – far outpacing other sectors that are currently stagnating.

The rising digital payments transactions reflect the evolving digital financial literacy of the Indonesian population. It also demonstrates the increasing acceptance of fintech and e-commerce services in the country. BI foresees that the uptake of digital transactions will continue with e-commerce and e-payments growing by 33.2% and 32.3%, respectively in 2021.

As more e-wallet players transition to multi-line businesses to provide financial services, the industry must strengthen interlinkages among providers to provide a more seamless experience for customers.

In contrast, banks should incorporate the open banking era by adding more application programming interfaces (APIs) that e-payment players, Fintechs, and other digital platforms can easily access. Banks will be able to create a comprehensive payment ecosystem, tap into the existing ecosystem, and broaden access and market to offer their services by utilising API. Over time, it is expected that the use of digital banking and even e-wallets will significantly contribute to economic development and the abolition of poverty in the country.

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