This is the second post in the two part series on branchless banking in Indonesia.
Indonesia is currently undergoing a transformation in financial services as the government launches a new National Financial Inclusion strategy including branchless banking through agents and mobile phones, to reach to all segments of the population across its expanse of more than 17,000 islands. With over 250 million people, Indonesia has the fourth largest population and is the largest Muslim market in the world. It has emerged as one of the strongest economies in the world, but with only a quarter of the population fully banked and 22.1% of the population living under the poverty line. Progress in branchless banking has been slow thus far, but a large market opportunity exists and new movements hold promise for change.
Photo Credit: Handra Halim
In mid May 2013, the three leading mobile network operators surprised the financial services industry by announcing they will interoperate their wallets, including Telkomsel (120 million subscribers), Indosat (60 million subscribers) and XL Com (53 million subscribers). The decision to interoperate the MNO wallets was made at the CEO level, drawing on historical successes around interoperable SMS and shared infrastructure to inform the new partnership. Users can go to agents, outlets and ATMs to access the service at a charge equivalent to 20 cents. The MNOs are still in the early phases of working through effective strategies to leverage the interoperability, and while interoperating wallets will be the first phase, the second phase may involve interoperating agents as well.
The branchless banking pilots and increased functionality of mobile wallets are being actively embraced by the Indonesian government as a part of its strategy to move the country to a “cash light” environment. Telcos are also currently in discussions with the government on how best to compete against cash, looking at strategies to incorporate digital payment capability for transportation and basic needs, most importantly food, bills and fund transfers. A next key step in building a stronger environment for e-money is planned for July 2013, when the three ATM switches are set to interoperate, to include the use of POS networks. Non-bank e-money issuers, including MNOs are exploring how they can engage in card-based banking infrastructure. Currently it is possible move money from a bank account to e-money and efforts are underway now to allow for the reverse as well. Pilot banks and MNOs are working to implement new technologies, agent strategies and products within a very short time frame. While the MNOs are more prepared with existing wallet offers, they are all still building agent networks and core partnerships.
Key questions remain on where is the real (and realistic) finish line for branchless banking in Indonesia. In particular, what are the factors that could promote or detract from rapid scale and viability? We know, for example, that many of the big players are poised for action, but are they ready to invest in the amounts needed for scale? Successful deployments in Kenya, Pakistan and Bangladesh attest to the scale of investment required. Some banks in Indonesia are still working to incorporate the “simplified account” (or Tambungan Ku) product for branchless banking, although past experience with the product has included high levels of account dormancy, a challenge for many branchless banking deployments worldwide.
The test for success will likely come with full branchless banking regulations planned for release in late 2013. Many of the participating banks and mobile networks have indicated interest in non-exclusive agents, more flexibility in KYC requirements, as well as clear standards around client protection standards moving forward in branchless banking. BI is also gravitating to a four –tiered, asset-based approach to allowing commercial banks to engage in branchless banking and technology which may impact innovation. MFI-oriented players such as BPR KS and Bank Andara, for example, which has nearly 400 MFIs in Indonesia on an active mobile payment platform, are waiting to see how this new approach will affect their ability to engage in branchless banking due to their relatively small asset size.
Indonesia has a great opportunity to learn from global experience (the good and the bad) as it moves forward with branchless banking in areas such leveraging interoperability, building strong agent networks and structuring successful MNO-bank partnerships. And with 40% of Indonesians receiving transfers from government, predominantly delivered in cash through the post office, Indonesia also has strong potential to drive G2P payments through emoney, as we have seen in Brazil and the Philippines. Over the next year, highly diverse Indonesian banks and MNOs will be implementing very different strategies reaching out to different market segments, often with rural focus. Results will be very interesting to assess, but most players already admit they don’t know their new target clients well enough to guess at future success. We will check in again on the way to the finish line.
----- The author is CGAP's consultant in East Asia
I hope that CGAP as the world's Financial Inclusion & Micro-Finance expert also participates in the analysis of the recent research on Mobile Banking Security undertaken by Security Research Labs, which the UN's Telecommunications Union has already reviewed. This study points to the vulnerability of many SIM cards now used in the world, where hackers can especially can enter a user's mobile payment systems.
The author refers to the "Tambungan Ku" in Indonesia as a "simplified account" - First its name is "Tabunganku" which means "my savings" and refers to a big issue of confusion in Indonesian retail banking. A current account is on many levels (legal, operational, financial) different from a savings account that also non-banking financial institutions may operate. Ignoring and avoiding this issue may add to other reasons that will make this World Bank Group supported initiative another failure (such as the Mzansi Account in South Africa).
Let's help the World Bank Group, including CGAP, become more responsible.
excellent article ; thank you for sharing