Mobile Payment

Successes and Challenges of the Industry

and the Consumer’s Perspective

47th APEC Telecommunication and Information Working Group

23 April 2013

Rudyanto Herlambang ST., M.Sc.

Head of Mobile Payment and Digital Money Business Management Division
Indonesia – Facts on Banking and Telcos services

Total population • 245 Million

Bank Addressable • 165 Million (unbanked 86M and

population bankable 79M)*

Telco Addressable • 190 Million

Population

Banks Telcos operators

Penetration • ~40% from addressable • 118% from total population
population
Geographic • 7,71 Branches per 1000km2, ATM • ~61,000 terminals per 1000km2
coverage 12,39 ATM per 1000km2 (~95% coverage)
• 30,000 branches & 47,000 ATMs • ~400,000 reseller points
Cost per • Branch: 8000 Rp/trx • Mobile banking: 1,100 Rp/trx
transaction
• ATM: 3000 Rp/trx
Customer • Middle High • All Low – Middle - High
Segment Income

Source: AT Kearney Analysis, WorldBank 2011, KKSK BI Mar 2012, Mobile Banking, IFC 2010,
* Unbanked avg annual income Rp 8 – 12 Million, Bankable Avg annual income above than Rp 12M 2
Given low bank penetration and high mobile penetration,
Indonesia has high m-payment potential across multiple services
In ‘000 283 174 225 200 150
562
1.955 1.794

5.576 4.883
7.908
11.184

User 19.235

Non
User 1.406

Payment Shopping Buy Shopping Utilities F&B Legal Movies Modern Paying KRL Taxi*
user in Gas in in Payment in Parking 21 / Book- Toll Jabo-
Jakarta*
Usership Mini SPBU SPM/HPM Modern Blitz store tabek*
Market Merchant

Routine Payment Activities

Source : Brand Health Tracking Project for Telkomsel – Q3 2012 3
* Prediction only
However current e-money offerings in the market remain highly
fragmented with no integrated solutions, leading to low take-up
Lower Higher
penetration penetration Prepaid offerings

Modern Modern
Train Bus Taxi Toll Parking
Grocery Retail
No. of payment 157 stations all over TransJakarta: 11 corridors, 46,990 vehicles all 31 toll ways, 1,300 toll 250 hypermarkets, 2,157 156,000 stores
points (vehicles, Indonesia 217 stops, 700 buses over Indonesia booths supermarkets, 18,000
stations, shops 63 KCJ stations Total: 49,000 buses convenience stores
etc)

Smartcard: Batik Solo E-Toll, Indomaret E-Toll: parking E-Toll and Indomaret
Trans and Gaz cards: 12 managed by ISS cards: Indomaret, E-
toll ways, 520 toll Toll and Gaz cards:
booths in 125 gas stations
Jabotabek

Flazz, in partnership with Flazz: Trans Jogja, Trans BCA Flazz card BCA Flazz in >23k merchant outlets
PT. KAI Pakuan Bogor: 30 EDC accepted in Secure parking
in 30 buses Express taxis

Jakcard: TransJakarta: Jakcard: 156

Corridor 6, aim to cover all Indomaret stores in
corridors by end of 2012 Jakarta

Railcard: 9 train stations Intermode card: Batik

in Java, and 1 mall Solo Trans, Trans Jogja
Intermode card:
Prambanan Ekspress

Brizzi card accepted in Brizzi: 100 merchants

TransJakarta (restaurants, gas
stations, dept stores)

4
Sources: Jakarta Post, Jakarta Globe, Bisnis Indonesia, Detik, Kompas, Solo Pos, Company Websites
Going forward, there is a clear objective of moving Indonesia to
a cashless society
Cashless Society - Objective

Deputy Director of BI – Puji Atmoko

"it will improve efficiency in transactions and it is relatively inexpensive to

maintain. Moreover, electronic transactions are easier to trace, thus helping in
Cashless the prevention and eradication of corruption and money laundering crimes“
Society
“Printing new currency costs a lot of money and maintenance costs are
also quite high,”

“a Cashless society can be established only if there is cooperation between the

Ministry of Communication and Information Technology (Ministry) and BI”

We need a solution that is effective, efficient and fast in achieving a cashless

society

5
Access to e-money and moving towards a cashless economy
will deliver variety of macroeconomic benefits
Macroeconomic benefits
Indonesia has a long way to go e-payment Cash displacement will create macroeconomic
penetration benefits
Proportion of electronic Benefits of increasing e-payment
to total tx. (%) penetration by 10% (IDR Tn)
100 • “Shadow Economy” is
Netherlands Transparency – commercial activities
reduce hidden from public
Canada 428 authority
80 “Shadow
Australia Economy“ • Shadow economy can
account for 30% of
France U.S. GDP
60 Cost savings • Reduction of cash
South Korea from 86 usage can contribute up
Japan reduced cash to 1% of GDP
40 India

Italy Singapore Induce

ChinaMalaysia consumption • An increment of 1%
20 9 penetration in e-
To move to cashless society and
production payment will contribute
Thailand 0.01% of GDP
Indonesia
0
0 50 250 300 650
Total 522
# of electronic tx. per capita
Bubble size: GDP per capita

Source: “The Shadow Economy in Europe, 2011”, A.T Kearney-JKU-Visa, “What does it cost to make payment” Humphrey, Willesson, 6
Lindbolm, Berdendahl , 2003, “The Impact of Electronic Payments on Economic Growth”, Moody’s analytics, 2010, A.T. Kearney analysis
Telkomsel’s payments strategy is a long-term play that will
modernize and bring benefits to the country
Telkomsel vision

Modernize the Indonesia as a

country cashless society
NFC platform
Change people’s Mobile payment
payment habit Convenience to users
Electronic retail payment
Government voucher Reduce cost from cash handling

Better monetary control

Modernize public
transportation
Modern society
Electronic transport
payment

5 - 10 years
7
Telkomsel aims to create an end goal m-payment ecosystem

Payment and Banking roadmap

Current products Future development End-goal
Telkomsel currently offers a range Telkomsel is expanding its The end goal is to create an
of payment and banking services services to improve service and ultimate payment mode for
to customers capture larger market Indonesia with Telkomsel e-money

Mobile
Remote e-money payment Proximity payment: contactless financial svcs.
payment with NFC
• Loan - Deposit Advertising
• Cash-in/out • Remittance
Transportation payment and loyalty
• P2P transfer • Insurance program
(train, bus, toll)
• Airtime purchase
• Bill payment
Retail payment
• Online payment Single mobile
• Retail payment money
platform with
NFC capability
Mobile banking Low-cost banking
USSD and SMS • Branchless banking Proximity Remote
based m-banking • Mobile EDC payment payment
service
• Transport and • Server based
retail NFC e-money
payment

8
An open payment system will promote usage of e-payments

Cashless payments
Multi-issuers (banks and
Payment service provider (mobile payment NFC / Card)
telcos):
• Sales and marketing, product
development, customer data
management, float
management

One single platform of payment:

• Interoperable between different issuers and
“One payment transport operators
media for All”
• Standardized technology
• National Principal capability

Public transportation Other usage Multi-purpose:

Future • Multiple payment
Trans • Retail stores applications
KRL Taxis Monorail MRT
Jakarta • Restaurants
• Cash substitutes
• Gas stations
for micro-
• Public facilities
payments
• Government vouchers

Source: A.T. Kearney, Telkomsel, Telkom 9

An open integrated payment system will create benefits to all
stakeholders
Benefits to stakeholders
Payment providers (banks, non-banks)
• Economies of scale from greater acceptance
and penetration
• Minimize duplicate investments
• Improve business model –potential
monetization for future business expansion
Transport operators
• Improved operations – reduce congestions with
faster transactions
• Better accountability of revenue – fully
automated
• Reduce cost from less cash handling –
minimize manpower, logistics, cash loss
• Better monitoring and control of passenger
traffic
Source: A.T. Kearney, Telkomsel, Telkom
Customer
• Provide greater convenience in transport
experience – less queue, less cash handling
• Value added benefits – loyalty programs,
promotions
Government
• Quick win in improving public transportation
service
• Better efficiency in a cashless society
• Better monetary control and monitoring for
regulators
• Future G2C applications of e-money –
government vouchers, subsidies, etc
10
We need to leverage strengths of both banks and Telcos to
drive consumer awareness/ confidence and uptake of services
Leverage strengths of each stakeholder
Banks
• High Experienced in financials
transactions
• Trusted brand name in cash mgmt.
• Ability to facilitate foreign exchange,
clearing, and settlement
• Regulatory compliance expertise
Strengths
• Financial Product and Service
competencies
• Limited coverage penetration in term
of geographic and customer
Weaknesses segmentation by income
• Low penetration overall (40% of
addressable population)
* Big three telcos (Telkomsel, XL, Indosat)
Telcos
• Nation wide network coverage (95%)
• Large customer base (~229 Mn simcard)*
• Capability to handle enormous transactions
• Significant distribution/ dealer network
(~400K points) with capabilities of day to
day cash management for 17 years
• Low transaction cost
• Regulatory compliance expertise
• Advanced technology for huge data base,
storage capacity and customer tracking
• Significant customer service infrastructure
• Fully interconnect among operators
• Lack of brand awareness for financial
products and services
• Less experienced in financial services
11
Banks and Telcos need to rely on each other’s licenses to
implement comprehensive mobile low-cost financial services
Required
Banks Telcos
regulatory framework
• Full financial services • Full network services license
Service covering deposits, loans, including ISP, Jartup, ITKP,
scope/ insurance and payments SLI
licenses (credit, debit, e-money) • Payment/eMoney and KUPU/
remittance
• Regulation to integrate banks
• Branches, ATM network • Full Operational Licensed. : and telcos services for low-
Infra- and EDC with limited Frequency ( 2G, 3G, 4G) with cost mobile financial services
structure coverage nation wide coverage and 95%
population
• Manage float for interest • Manage float by a custodian
Fund mgmt and investments bank

• Transactions at branches • New regulation on Cash-out

and ATMs through agent now without
• KYC required at KUPU license
branches • Optimize prudent vs.
Compliance • KYC required at Telcos
efficiency required on KYC
premises
regulation and AML/CFT
• Cash-in/Cash-out for
eMoney from/to Bank/ATM
network
12
Benchmark : Collaborative approach to building mobile money
solution has seen greatest success
Case 1: Different objective, but
successful only after collaborating
Name of Oi Paggo, Brazil
service (Telco centric model)
Background • Large unbanked population, highly
skewed income levels (42% income
held by 10% population)
• Large prepaid customer base
Objective • Target unbanked population without
access to credit/debit cards
• Objective to promote m-payments
and move to Cashless society
Business • Remote payments using SMS
model based mobile interface – initial
model non-bank based
• Modified model to have a profit
sharing model with partner bank
operating as co-issuer and a 50-50
JV with acquiring partner
Key outputs • Building a closed loop network by
MNO alone did not yield traction
• Collaboration with banks for co-
issuing and acquisition of large
merchant acquirer led to success
Source : AT Kearney, Telkomselis

Case 2: Same objective, and
successful via collaboration
G-Cash, Philippines
(Collaborative/Hybrid model)
• Low banking penetration
(~50%), ATM penetration at 0.1
ATMs/1000 people
• Large prepaid customer base
• Providing basic banking
facility especially to overseas
workers requiring low cost
remittance solution
• Hybrid business model,
collaboration with rural banks
as cash-in, cash-out agents
• Low cost of remittance ~1% of
transactions compared to
2.5%-10% via traditional
• Collaborative model proved
highly successful and saw high
take up
Case 3: same objective, but
failed due to no collaboration
Mobile money, Liberia
(Bank centric model)
• One of the lowest GDP/capita
in the world (USD 370)
• Nascent banking sector
• Large prepaid customer base
• Basic banking especially
access to secure remittance
services for unbanked
population
• Mobile money services
provided by banks and its
agents and MNO operating as
transmission channel only
• However, MTN has offered its
mobile money platform to
Lonestar bank for services
• Lack of innovation expected in
this model as operators are
offered a dormant role in the
model
13
Benchmark : Collaborative approach has been seen ideal to
build NFC payments over the years, worldwide
Collaboration has increased between entities over the years
Collaboration Case 1: 1 MNO, 1 bank and 1
over the years transit player, 1 handset
Name of Maxis (Malaysia)
service (2009)
Objective • To create a technology leader
positioning by launching world’s
first NFC payment solution
Business • Launched Maxis Fast tap over
model Nokia 6216 in 2009 and for use
at Visa Paywave and touch n go
terminals
• Fast tap can be used to pay at
retail stores, transit and toll
points
Key outputs • Initial launch did not see a very
high take up on account of only
one handset being compatible
• Maxis now launching the
service over iPhone with
external NFC jacket
Source : AT Kearney, Telkomselis
Case 2: 1 MNO, 1 bank, 1
payment player, multiple
handsets
Telenor (Norway)
(2011-12)
• To deliver superior customer
experience by enabling major
transit and retail payment
solutions over NFC phones
• Partnered with DNB bank
(Norway’s largest bank) for
launch of NFC payments in
Norway for Android users
• Also partnered with Mastercard
to allow use over Paypass
terminals
• Early pilot results have has
witnessed high interest levels
amongst customers and is
expected to see high
acceptance on commercial
launch
Case 3: 3 MNOs, 1 bank, 1
transit operator, multiple
handsets
Singtel, Starhub and M1
(Singapore)
(2013)
• To bring greater value to high
end postpaid subscribers using
NFC handsets
• Collaboration between 3 largest
operators – Singtel, Starhub
and M1 along with DBS bank
and Ez link transit payment
service for Android users
• Common TSM established by
all entities and each MNO has
its own wallet
• Initial launch has seen healthy
take up, with more number of
NFC handsets arriving in the
market, penetration expected to
be high.
14
Conclusion

■ Large potential for mobile payment services in Indonesia

■ However low penetration of e-money services due to fragmented offerings and low customer
awareness to drive behavior change
■ Telkomsel’s vision is to drive mobile payments usage across multiple usage areas from transit
to retail to remote payments to drive Indonesia’s growth to a cashless society
■ By having the end goal m-Payment ecosystem, it is generating direct revenue plus defensive
& synergy value
– Revenue stream from mobile payment and financial service
– Revenue from new marketing platform on mobile wallet
– Create customer stickiness and reduce churn
– Reduce distribution cost of airtime (direct sales)

■ An open payment system will promote usage of e-payments

■ A collaborative approach between Banks and Telcos is critical for success
■ Benchmarks show that collaboration model has highest probability of success – needs to be
applied in Indonesia as well, but customized to local situation

15
16