DIGITAL FINANCIAL INCLUSION IN

INDONESIA

Financial  Inclusion  and  Electronification Task  Force

BANK  INDONESIA  TRANSFORMATION  OFFICE
AGENDA
Digital  Financial  Inclusion  in  Indonesia

1 Indonesia  at  Glance

2 Digital  Financial  Inclusion

3 BI’s  Strategy

4 CHALLENGE  AND  GOING  FORWARD

2
BACKGROUND
Indonesia  at  Glance

3
 Indonesia at Glance Global
Unbanked  people  (Financial   Inclusion  Index)

• Higher  cost  for  setting  up  a  new  branch

• Open  A  BRANCH  is  regulated
• Complex  proccess
• High  formality
• Prefer  non-­‐grass  root  customer
• Prefer  bigger  transaction
FORMAL  FINANCIAL  SECTOR
36%
• No  bank  around  
• it  takes  time  and  cost  to  the  nearest  
branch
64%
• Higher  cost  for  small  transaction
• Low  Financial  literacy INFORMAL  SECTOR
• Unmet  product G  2  P  RECIPIENTS
• Culture  and  Habit
THE  BOTTOM  OF  THE  PYRAMID
Source  :  WorldBank,  Global  Financial  Inclusion  Index,  2 014 4
 Indonesia at Glance
Cash  Economy

Percentage  Transaction  u sing Behaviour  :  Domination  of  Cash  Transaction

Non-­cash  (check  &  p ayment)
Instrument  c omposition  used  i n  Merchants

Instrument  c omposition  used  i n  Merchants

Sumber : Bank Indonesia, 2013

Channel  Used  using  by  farmers  to    receive  the  sales  

proceeds  (rural  area)  
Others

Credit  Card

Post
Remittances  
Service
Remittances  via  
cellphone
Transfer  via  
account
Cash
Source   :  MasterCard  Advisors  Analysis,   2013
Source :  G allup,2013
 Indonesia at Glance
Behavior  :  Mobile  Phone  &  Internet  User
High  mobile  phone  penetration  and  almost  50%  
> 310 Millions of  Indonesia  population  is  internet  user.
mobile  phone  subscribers  in  Indonesia

± 13 Millions
poor  household  in  Indonesia  have  mobile  phone
Source:  Preliminary  Meeting  of  PKH  Pilot  Project,  Bappenas,  S eptember  2013

2.3%
total  of  internet  user  is  in  Indonesia

of  internet  users  in  Indonesia  spend  >  3  hours  

40% to  go  online
Source:  Indonesia  t he  Untold  Stories,  M inistry  o f  Communication  and  Informatics,  2 014

Internet User in Indonesia

SURVEY    of  MOBILE  PENETRATION : 2015* 139  million  u sers

• 51%    of  household  of  PKH  recipient 2014
• 100% of  migrant  workers 107  million  users

• 73%  of  farmers  (Mercy  Corps) 2013

82  million  users
2012
63  million  users

Source:  Indonesia  Internet  Provider   Association 6

 Indonesia at Glance
Low  Savings  Capability

Source: NETHOPE/E-­‐-­‐-­‐MITRA/BTPN/VISA,  Juli  2014

Top 5 Financial Transactions Done by Unbanked

Total Laki
Male Wanita
Female Urban Rural >GK <GK
N=6000 n=2367 n=3633 n=3160 n2840 n=2239 n=3761
Purchase   o f  Goods
Beli  Barang   88% Membeli barang  
Purchase   of  ugntuk  kebutuhan   s ehari
oods  for  daily   -­‐hari  dan  membayar  
consumption   tagihan  psublic  
and  payment   eperti  
listrik  merupakan  transaksi  keuangan    paling  umum  dilakukan
Utilities  
Bayar   Payment
Tagihan 83% utilities,   e.g electricity,   are   the   most  popular  transaction
Airtime  
Beli   Payment
Pulsa 60% 65% 55% 68% 51% 73% 53%
P2P  Transfer 58% 40% 75% 559% 55% 61% 56%
Receiving  
Menerima  Salary
upah 55% 72% 39% 53% 57% 54% 55%
Source: Intermedia,   2014 7
DIGITAL  FINANCIAL  INCLUSION

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 Digital Financial Inclusion
A  process  for  better  quality  life  to  the  last  mile

Chain Financial Inclusion: Generalized Result Chains Indicator

Financial Access
%  adults  with  
1.  INPUT Financial formal  account
The   Use of financial
Inclusion opportunity   Products
channel Keeping
temporarily
2.  OUTPUT  1
Payment/Transfer %  adults   using  
account   daily  
3.  OUTPUT  2 Insurance
Credit Saving

Increase Faster
Increase saving remittances
investment
Poverty Income  level  
4.  Outcome  1 and  Resilience
Reduction
Increase Income smoothed The  
income through shocks resilience  
channel
Subjective
5.  Outcomes  2 Wellbeing Increased wealth; Wellbeing
Other specific measures
Source:  Adjusted,   Porteous,   2014 9
 Digital Financial Inclusion
Definition  &  Components

Digital  financial  inclusion:  “digital  access  to  and  use  of  formal  financial  
services  by  excluded  and  underserved  populations”.  

There  are  three  key  components   :

Such  services  should   be  :
1. suited  to  customers’  needs,  and   Digital  transactional  
2. delivered  responsibly,   at  a  cost  both   platform
affordable  :
a. to  customers  and  
b. sustainable  for  providers.  

Mobile   money
digital  
Agent  banking financial  
Branchless  banking
Correspondent   banking services

Omni  channel   Device  used  by  

Retail  agents customers  and  agents
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 Digital Financial Inclusion
Digital  financial  services  model

Source:  World  Bank,  2014 Fintech &    digital  banking

 Digital Financial Inclusion
Digital  financial  services
v Focus  on  unbanked
v >219  live  implementations  in  84  countries
v Media  :  emoney /  basic  savings  account

Payment  Bank  
(Telco,  
Bank Led Cooperatives,  
Super  Agent)  in  
India

Telco Led

Bank Led

Sumber:  GSMA • Emoney guaranteed  (Kenya,  Nigeria,  

Tanzania)
• Emoney with   interest  partially  (Ghana)
• Emoney (Brazil,  Colombia) • Emergency  loan  via  mobilephone (Kenya)
• Gov bond   retail  (Kenya)
• Credit  scoring,  behavioural data
• M-­Agri (African  countries)
Source:  GSMA,  2014 • Credit  scoring  non  financial  data
BANK  INDONESIA’S  STRATEGY

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 Digital Financial Inclusion
Guideline   Principles

1 Customer
Activation 2 Distribution
3 Front-End

What if : What if: What if:

We could turn a Every one is a bank Anyone with a
one day sign up channel? phone could send
process into less or receive money?
than 5 minute?

4 Back-End
5 Interconnection
6 Products

What if: What if: What if:

Financial transaction You could send Every mobile
processing was money to any phone came with a
digital and the cost savings account
person in the
close to zero cost? and insurance?
world or to other
bank ?
 Digital Financial Inclusion
Framework
Digital  
Financial  
Financial  Inclusion

Services  
(DFS)

education

Customer  
protection

-­ RISK +  ACCESS
Money  Laundering Risk Provide easy  facility  for  
Financial  Stability

account  opening • People • Culture

Liquidity   &  Solvency  Risk   • Government • Interoperability
of  providers  to  Financial   Leverage  from  the  existing   • Point of services
• Provider Opportunity
System  Stability retailer  infrastructure • Regulator business
Risk  of  Losing   Consumer   Source  :  P orteous,  2 014
Money   Benefit  for  macroeconomy

BALANCING REGULATION

MONITORING & SUPERVISION

 Digital Financial Inclusion
Learn  Non  Cash  of  daily  Financial Transaction

Financial Keeping | Payment | Transfer

Management
Digital   Financial   Service
Capability

….is  to  provide  access  

to  a  transaction   Other  
account….   Financing financial  
products
Account   Savings
Based
E-­‐money

Unbanked People
Cash  
Based Time

Empowerment

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 Strategy
Dual  Strategy  :  Infrastructure  &  Ecosystem

Debit  Card
Credit  Card Cash-Lite
E-­‐Money 36%
64% DFS
banked

ELECTRONIFICATON
unbanked Bank,
Bank  Branch Insurance, etc
Agent
FINANCIAL   ATM
INCLUSION e-­‐Banking

DFS DFS
Bank

LAKU PANDAI

ACCOUNT  
CASH   BASED
BASED
unbanked banked
unbanked Keeping/
Transfer
Savings Loan Other  Financial  
Products 7
1

EDUCATION
 Strategy 1
INFRASTRUCTURE  :  DFS is payment and financial services that are provided
Bank  &  Non  Bank by electronic money issuer (Bank/Non Bank) with the
collaboration with third parties (agents) and using
technologies.

AGENT   AGENT  
(legal   (legal  
entity) entity)

Electronic  Money  
(server  B ased)

Agent:
1. Local  people/legal  entity  business
2. Have  business  activity  in  permanent  place
3. Pass  the  fit  and  proper  test
4. Pass  training  program
5. Deposited  fund  
Agent  Services:
1. Facilitating  Open  E-­‐Money  account
2. Keeping/Saving
3. Withdrawing  fund
4. Bill  Payment
5. G2P  Cash   out
 Strategy 2
Ecosystem

ELECTRONIFICATION  :  CASHLITE  POLICY

Government Private Sector  /   Individual  /  
Business Person
Government   G2G G2B G2P
Budget  allocation Grants,  payment  for Salaries,  pensions
Funding  programs goods  and  services Social  protection  
Private  Sector  /   B2G   B2B B2P
Business Taxes,  fees,   Payment  for goods   Salaries, Benefits
permits and  services  in  
value  chain
Development   D2G D2B D2P
Organization Taxes Payment  of goods   Salaries,  benefits
and  services Cash  transfers
Individual  /   P2G P2B P2P
Person Taxes Purchases Remittances, gifts
CHALLENGE  AND  GOING  FORWARD

20
 CHALLENGES  
LESS  20%  ARE  SUCCESS

Month  Implementation

Source:  G SMA,  2 014

 CHALLENGES  

FEW  ACTIVE  CUSTOMERS

1. Inability  to  transact  due  to  network  down  time

2. High  charge  of  SMS/USSD
3. User  interfaces  is  confusing  and  complex
4. Poor  customer  recource
5. Insufficient  agent  liquidity A  human  center  
6. Nontransparent  fees  and  other  terms
7. Fraud design  approach
8. Inadequate  data  privacy  and  protection
 PREREQUISITE

1 Sustainable  Business  Model. Need  sustainable  business   model   that  combine  

the  advantages  characteristics  of  each  involved   parties.

2 Conducive  Ecosystem. Need  to  build   conducive   ecosystem  for  sustainable  

DFS

3 Supportive  and  Proportional  Regulation.

• The  regulation   should   be  proportional   between  goal  &  benefits   for  
financial  inclusion,   risk,  and  positive   development   of  the  industries  
• Regulation  should   accommodate  the  innovation.  

4 Sufficient  Infrastructure.  Infrastructure,  such  as    telecommunication  

network  that  evenly  distributed   across  the  region  

5 Strong  Coordination.  Need  coordination   amongst   stakeholders  (BI,  OJK,  

Ministries,   industries,   etc)
5
6 Education  &  National  Campaign.  
• Need  continue   education  to  change  the  habit  of  cash  based  transaction
• National  campaign  campaign for  building   awareness  of  people
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 FUTURE
DIGITAL  ECONOMY

MFIS  
MICROFINANCE
E-­COMMERCE DIGITAL  
ECONOMY  
Loan  Disbursements  
Online  payments
&  repayments

GOVERNMENT

INCLUSION
Tax  collection   PHYSICAL  RETAIL
License  payments Supplier  payments
Pension,  salary  &   Merchant  payments
subsidies

NGOs EMPLOYERS
MOBILE   Wage&  other  
Aid  Disbursement FINANCIAL   disbursement
TRANSACTIONS
WATER&  
ENERGY  SERVICE TRANSPORTATION
Bill  payments Payment  &  Ticketing

ARGICULTURE
EDUCATION
Output  payments&   Registration&  
HEALTH
subsidies fees  payments
Loan  repayments
Bill  payments
Thank  You