New Regulations enable Digital Financial Services in Indonesia


There has been a remarkable achievement in Indonesia over 2014, as the national poverty level reduced to 11.25% from 13.33% in 2010 and the Unified Database (BDT) launched as a single source for targeting social assistance programs. TNP2K is the Indonesian National Team for the Acceleration of Poverty Reduction (TNP2K) and co-ordinates this work, as part of their duties relating to poverty reduction.


I recently caught up with Michael Joyce, Mobile Money Policy Advisor at TNP2K as part of our research work for our soon to be published viewport “Digital Money in Indonesia 2015”. In this blog I am pleased to share highlights from our discussions, to reflect on important regulatory changes from 2014 and consider how they are likely to impact the adoption of digital money service in Indonesia.



Michael, could you please give us an introduction to TNP2K and your role there?

TNP2K is the Indonesian Government initiative to improve delivery of poverty related programs. It operates to promote financial inclusion with the support of Australian Government through Australian Aid (DFAT) and USAID. It maintains a key database that targets poverty reduction through work promoting electronic payments to improve financial inclusion for poor households.

I’ve been here for two and a half years, and work on regulatory and implementation advice for different parts of the Indonesian Government, to try to improve the financial inclusion benefits.


Could you provide some background on the Indonesian context and developments over 2014?

In terms of a review of 2014, there has been a lot happening with OJK work, payments for some subsidy relief programs and in summary, a significant drive towards e-payments.

Indonesia is an interesting market, with officially only 20% financially included, though anecdotal evidence points to around 50% included. There is a strong savings culture and willingness to save. However the tools and price points are not geared towards reaching the large informal sector. Until 2014, digital finance initiatives were slowed down by regulations.

Although E-money licenses were issued there were restrictions on how these could be used in terms of cash-out services at agents. So banks had not been able to use agents up to now. There is a highly fragmented market, with over 17 e-money licenses, but none gaining traction or able to offer a full suite of services.

We started to see a change in 2013, with pilots geared towards reaching the unbanked. In 2014 the results of the pilots were enacted through a law on electronic money and the concept of LKD or “Digital Financial Services”.


Can you tell me why a new regulator was needed and how this has panned out?

Otoritas Jasa Keuangan (OJK) was created as a new Financial Services Authority in December 2013, and this is similar to the UK and Australia model. This separates monetary policy from prudential regulation. Prior to this, Bank Indonesia (BI) was the single authority that combined roles of a central bank (such as monetary and interest rates) with responsibilities with regards to Payments.

OJK is now the prudential authority. It has proved to be a good thing, as the role has expanded a lot. While Bank Indonesia had more of a bank-related focus, OJK is now better focused on additional areas such as the non-bank financial industry. OJK looks at microfinance (MFI), rural requirements and non-bank providers and this opened up a new potential to bring lots of areas under one roof.

It always takes time for dust to settle, and establishment of the new regulator and transition to them did slow things down in terms of financial inclusion – for instance the pilots had to be terminated in terms of better transition to OJK.


How have the new regulations changed things?

The e-money regulations issued by BI tend to favour the four big banks against smaller banks and telcos. Larger banks can offer a wider range of services through agents. However smaller banks and telcos are restricted to using formal entities as their agents. This proved to be a real restriction as it limits small banks and telcos to formal retail chains, co-operatives and pawn shops, but excludes the mom-and-pop stores that are more commonly found in Indonesia.

The new regulations recently released by OJK provide for a much broader set of services and allow a variety of banks to offer services through agents. OJK was able to obtain and act on industry feedback since the first draft in August, and the final release addressed concerns from a range of stakeholders.

This will let a variety of banks offer effective basic banking account services. There can be a nil minimum balance and they can charge transaction fees lower than normal. At the same time KYC provisions are strong and it properly lays down mechanics of a financial inclusive bank account. There are provisions for microcredit and a whole suite of products for the poor, and interest can be paid and charged.


So what does this mean in terms of the agent network? How many stores and outlets could potentially be utilised?

I could not give a figure for this but certainly big banks are looking to have combined agent networks of over 100,000 locations. This is required to cater to the needs of a population of 250 million. Although Indonesia has banking infrastructure in terms of ATMs/POS this does not reach the areas where it is needed. Also it is based on bank accounts rather than E-money, so as to work with existing systems. Now additional over-the-counter (OTC) services at banks and ATM services could also be available. Certainly the potential is huge!


But where does it leave the telcos?

Telcos are an important part of this but they cannot participate directly in government payment schemes, which are only to be managed by banks and post offices.


In that case would the same problem faced in India not be encountered? In remote areas typically there are airtime top-up networks that banks find hard to control, as compared to telcos

They do, but banks are now learning to manage agent networks. In any case telcos don’t necessarily control their own networks. In Indonesia top-up is now managed electronically and not by scratch cards. This is complex and margins are smaller, but the potential is there.


Are there any further plans for regulations over 2015?

Bank Indonesia (BI) and OJK now want to harmonise regulations. It can tend to be confusing with two similar schemes when there are differences. This will take time some time to be achieved.

By far the biggest activity will be the launch of branchless banking and G2P payments (government-to-person). The most important so far is the recently launched KKS (Family prosperity card).

In Indonesia since the new president came into power, one of his big challenges has been to more effectively manage subsidies. The fuel subsidy previously took up almost 20% of the national budget, and this does not benefit the poor. Consequently there is a focus on reallocating funds to cash transfers to the poor.

The database that TNP2K maintains has data for over 15.4 million households. Today the majority of these are paid through OTC. As of the end of 2014, 1 million are paid electronically. This is paid in E-money from Bank Mandiri using the Post Office as an agent and through SIM cards of the three largest telcos. This now delivers funds smoothly and is really a huge achievement. In less than 2 months Bank Mandiri created so many accounts; mobile operators manufactured and distributed so many SIM cards.


What is the total volume of G2P?

Well, I can’t share a total amount, but it is on an average 200,000 rupiah per family per month. This year payments will be significantly more, with the offset gained by the reduction of petrol subsidy.


How does the model work operationally with SIMs?

It has been really useful to test this out 1800 households. We firstly found one major problem – when surveyed, every family of beneficiaries had a mobile phone. However, often the lady of the house did not have one. In order to ensure control of the subsidy goes to mothers, we gave them SIM cards.

However, to achieve this we ran into two further obstacles. Firstly, obtaining a photo id for them and registering new SIM cards proved to be a major logistics effort. Secondly, the SIM expires very soon in Indonesia. If you don’t talk or add credit, the SIM could expire in as little as a week. With a top-up of 5$-10$ it lasts but then people put in just cents and that expires in days. That is a major problem for distribution of money. When it’s time for the second payment, the SIM may have expired already.

With this learning from the 1800 household pilot, all the telcos co-operated and gave SIMs with a 5 year expiry period. Although top-up would continue to expire, the SIM card won’t.


Could you please share a bit about the business model?

Bank Mandiri is the contracting agency. They use the Post Office as their agent, for which they give them a fee. The whole business model is yet to be finalized.

Telcos earn through SMS charges to Bank Mandiri, but again this needs further refinement for a sustainable long term business model.


How many have formal identity in Indonesia?

It is difficult to get this information. We find that a majority have Id - Over 90-95% had formal id in our studies. The problems are more that this may have expired when they moved house and have not updated the Id. This is not a big obstacle. Indonesia does have a national ID project, but it is still underway and the supporting infrastructure for reading and using the cards isn’t fully in place.


What distinctive changes do you see in developments in Indonesia as compared to the rest of world?

Firstly there is a strong banking sector as compared to Sub-Saharan Africa. So the Telco model is not appropriate. With 50% urban population there is strong role for banks in urban areas and it’s not just a rural problem. We will see more channel infrastructure develop, with POS, ATM and mobile phones.

When I first arrived here we felt that the appropriate regulations were around the corner. However this took time to improve but the industry learnt and readied itself while waiting, so now providers are ready to roll out the services quickly. The E-money program proved that when the country wants to do something quickly they can. So this is an interesting place to watch.


Yes, we saw a similar pattern with Prime Minister Modi in India. How about retail payments?

Yes, there is a lot of activity planned in this area. The first step is to encourage more consumer payments through formal instruments. There will be a wider use of the debit card as BI rolls out a national non-cash initiative.

Banks that issue debit cards are committed to working together. There are a phenomenal number of POS terminals, yet they are not used as the market is highly fragmented. In one case we noted a record number of 12 POS in one place – this was at the airport so not really representative, but it’s not unusual to see 4 POS at a single location. There is far too much use of cash, and this is now set to reduce.


Thanks so much Michael, this is an incredibly interesting time in the development of Digital Money in Indonesia. I wish you all the best for your projects in 2015 and beyond!



Michael Joyce is Mobile Money Policy Advisor at TNP2K where he supports the Vice President’s National Team for the Acceleration of Poverty Reduction with advice on policy and implementation of mobile money initiatives to assist in poverty reduction and alleviation across Indonesia. Michael has a background of working within mobile money and financial inclusion for over six years, previously at WING in Cambodia and with ShoreBank International at Bangladesh.

Charmaine Oak is Author of The Digital Money Game, co-author Virtual Currencies – From Secrecy to Safety

Contact Shift Thought for details of our recently published unique “Digital Money in Indonesia 2014” Viewport.


A refreshing innovation–The Sinar Sip from Bank Sinar, part of the largest banking group in Indonesia

Bank Sinar is a part of Bank Mandiri Group and as part of Indonesia’s move towards financial inclusion Bank Sinar worked with IFC and other partners to carry out a branchless banking pilot. Today we are joined from beautiful Bali by Pak Alit Asmara Jaya who shares his expert thoughts on banking the unbanked using mobile phones: where the challenges lie and what his hopes are for mobile banking in Indonesia in 2015 and beyond.


Pak Alit, thanks for your time today. We are greatly interested in understanding the branchless banking experience in Indonesia, and your experience in launching the branchless banking pilot. For context, could you please give us a bit of background about Bank Sinar?


Bank Sinar is currently majority owned by Bank Mandiri, a state owned enterprise. It has been in operation since 1970, having originated as a peoples’ credit bank. In 2004 we obtained a licence as a conventional bank and then in May 2008 the bank became a subsidiary of Bank Mandiri, the largest banking group in Indonesia. 

The bank focuses on financing micro and small businesses and entrepreneurs. As of August 2014, our portfolio consists of over 80% of micro and small loans, with the rest being loans to medium enterprises.

The bank only operates in Bali for now, with 86 branches and 7 cash outlets. In terms of size, we have nearly USD 110 million in total assets and USD 78 million in total loans.

Our vision is to become the main challenger in financing micro and small business in Bali. Our mission is threefold: Firstly to develop the product and services as per market and customer needs, secondly to grow and develop Bank Sinar in a healthy and sustained manner and thirdly to support the professional growth of our employees.


Please could you describe the needs of the market and why you embarked on a mobile money/branchless banking pilot?


Indonesia has a population of 250 million, being the fifth most populous country in the world. However at present only 60 million people have bank accounts. The rest must depend on informal financial services. In Bali, an estimated 49% of working adults do not have bank accounts. 

We embarked on the pilot with the following main purposes:

  • To renew our commitment to the micro segment and add to our customer base by tapping the unbanked  segment
  • To  differentiate our services in a highly competitive market
  • To serve our existing customers, as the additional services keep  them loyal to Bank Sinar 
  • Over the long term to increase our loan portfolio as savings accounts increase

As a bank, our core business is credit and the main goal of our Branchless Banking service is to provide basic savings and credit products.




Please describe the pilot itself. How many people were involved? What services were offered and how?




We started the project in March 2010 and launched in November 2012, but still without agents because the central bank was still in the process of formulating regulations for Branchless Banking.

At the beginning of June 2013, we started the pilot with agents based on the guidance from our Central Bank. We had 10 agents in 3 districts. Their core business is to run grocery stores and sell mobile phones and airtime top-up. The pilot ended in November 2013 as per guidance. Our project was in partnership with IFC and Axis was our Telco partner.

Our core team consisted of 10 people and was supported by other departments including branch, accounting, finance, operations, legal and compliance teams.

spanduk uplk


The services were of three major kinds:

  1. Saving accounts, including opening accounts at the agents, deposits, withdrawals, balance inquiry and P2P money transfer
  2. Payments, including payment of bills, mobile top up and merchant payment
  3. Other services included linking the account to conventional savings accounts




We used USSD technology with the phone number as the account number. A PIN is required for accessing stored funds and carrying out transactions. Once an account is opened at an agent, it is directly active but with limited transactions until full KYC and verification has been completed by Bank Sinar. Transactions are completed in less than 45 seconds. Completion of every transaction is notified by SMS.  

How did the pilot help, and what feedback did you receive?


We had a list of things to be tested and studied during our pilot. These included product positioning, speed of transaction, pricing/charging, fees paid to agents, agent incentives, customer education by agent, agent training and programs to register and activate customers.


8 Launching UPLK Sri Asih 28 Juni 2013


Of the lessons learnt from the pilot, some key ones include the following:

  • Consumers do have  a need to save after working hours and on holidays
  • The majority of customers who opened accounts at the agents were previously unbanked
  • We need more Telcos to join the service
  • Pricing was not an issue, in fact it was considered affordable
  • The majority of the transactions consisted of deposits
  • Agents who managed phone shops were able to more proactively sell products and they registered many more customers
  • There was a strong demand for more billers to join the service
  • Incentives for agents and customer worked well to increase transactions and accounts opened. 



What are some of the challenges you faced in making such a service successful?


Getting this service to be successful requires attention to a number of different aspects. Some of the areas we have been looking at include the following:

  • Telco coverage is still a challenge. Even the biggest Telco has some problems to cover the whole of Bali
  • A lot of consumer education is required to convince people that use of the service will benefit them. Cash is still very much king
  • We need to work with many more billers
  • We require the ecosystem to include many more merchants
  • It is hard to get agent commitment. Half of our registered agents were not able to make much progress in terms of registering accounts and encouraging transactions
  • So far regulation only allowed Banks with category book IV to have the service and the product is only for e-money, not saving as Bank Sinar requires to do
  • We would benefit from the involvement of the Central Bank and Government to help our campaign
  • The Government must support through their policy to distribute subsidiary payments through mobile money
  • Renewed long term commitment and budget from management

What are your hopes for 2015?

Our partnership with Bank Mandiri with the co-branding model using the e-money product of Mandiri will continue. We are in the process of preparing for it. The model will be the same with the name Sinar Sip but powered by Bank Mandiri. The service will be e-money phone-based service with the use of agents. Bank Mandiri has a licence to go for branchless banking based on e-money. So far this is allowed by regulation.

At present OJK (The new Financial Service Authority of Indonesia) is drafting branchless banking regulations based on basic savings account product and hopefully will release it this December. Bank Sinar looks forward to having our own branchless banking service. We can then reposition the Sinar Sip e-money into the Sinar Sip savings product. This would allow us to pursue our initial plan of outreach to the unbanked for increasing our savings customer base and micro loan portfolio.


I GN Alit Asmara Jaya is currently Managing Director of Bank Sinar, which is the micro-banking institution in Bali and a part of Bank Mandiri Group, the biggest banking group in Indonesia. Having worked in the industry for over 30 years, his wide experience includes operations, risk management, credit, export import, accounting and finance and branchless banking for the last 3 years. He is in charge of the Branchless Banking project of Bank Sinar.


What must happen for Branchless Banking in Indonesia to move beyond pilots?


Rakhi Sahay, Shift Thought distributor in Indonesia shares her thoughts on the payments scene in Indonesia as the regulators seek to encourage financial inclusion through branchless banking. What are some of the sticking points and how can Indonesia join the ranks of other countries where these services have already entered into mainstream use?

Impressions of an Indian in Indonesia

We moved to Indonesia in June 2012 and it’s been wonderful living here since. Yet a few things came as a surprise, for instance the way people pay. Coming from India where people now increasingly use card payments, having to pay with cash took me back a bit. We had heard about the widespread use of cash for transactions in Indonesia but I had not imagined it to be at such a high level. While doing provision shopping even in big departmental stores, I was taken aback when cashiers did not accept local bank debit cards that I was using  – “sorry we only accept X bank debit card or cash”. Generally the small shops and stores that do business along the street only transact in cash in spite of having customers from middle income groups who have bank accounts and can make payment by card.

My interest in branchless banking and payments was further triggered by an informal  cimageonversation I had with my help, Fatimah. Every month she sends money to her mother who lives in a village. For this she goes to the nearby bank to deposit cash into her mother’s account. I got talking to her to learn about how people from her village who work outside send money home or pay their utilities. Do they use mobile technology for purchase and payment? Do they know about some of the new services being launched by banks, mobile operators and other providers in Indonesia?

Fatima knew about mobile banking and in fact had the m-banking application of Indosat on her mobile. However although she knew about the functionality it provides, she does not use it or plan to use it. She does not have a bank account which she believes is needed for mobile payments and transfers and also does not regard transferring through bank as a reliable and secure mode of transfer. Come to think of it, I too have not felt comfortable with using my mobile for payments. My interest was piqued and I chatted with others close to me and both banked and unbanked people tended to have some reason for not yet investigating the new methods available.

20131207_100534This conversation made me wonder - what needs to happen for myself and Fatimah, along with millions of other Indonesians to benefit from innovations to enjoy more convenient payments? If I feel restricted in making transfers and payments, how would people from remote islands and lower economic segments manage their daily needs? Do we need to change the mind-set of people? How can we increase accessibility to gain confidence? Surely branchless banking can add much value for people who have limited access to banking facilities.


20131207_100626Regulations play an integral role in providing a favourable ecosystem for any new banking initiative to flourish. Bank Indonesia, the regulator, has been treading the path carefully and its first pilot which ran from April 2013 just ended in November 2013. The regulators are now consolidating results and by early 2014 intend to roll out the full regulations on branchless banking. Many providers await this in order to obtain the certainty required for investing in the new technology and marketing efforts required to successfully launch the services for all sections of society.

The Market

The country is one of the early entrants in offering financial services through microfinance activities. Although there are a range of service providers to cater to different socio-economic groups, only 19.6% of the population has formal accounts (2011 Global Financial Index). It is estimated that around 100 million Indonesians do not or cannot access formal financial services in a population base of 250 million.


The vast geographical expanse and remote terrain creates hurdles in the provision of financial services. This creates a potential opportunity for alternative channels such as branchless banking and mobile money. Branchless banking is the delivery of financial services outside conventional bank branches through the use of retail agents and information and communications technologies to transmit transaction details (as defined by CGAP).

In 2012 there were 260 million mobile subscribers with 143 million unique subscribers. Only half the numbers of people possess bank accounts as compared to unique subscribers. The opportunity has been spotted, but scope for adoption remains immense. Branchless banking with the use of mobile technology and agent networks is rapidly improving financial inclusion in countries around the world. Mature microfinance markets of Bangladesh, Pakistan and Kenya have been able to achieve rapid adoption rates. Can Indonesia too leverage the penetration of its mobile technology to foster financial service? The large base of mobile users makes it easy for service providers who do not need to educate the masses on mobile usage.

Regulatory Environment

The regulators have been moving cautiously towards creating the regulatory environment required for this. A new regulation of December 2012 allows full encashment for person to person transfers using mobile wallets at agents. Then in April 2013 regulator Bank Indonesia (BI) released guidelines on branchless banking for banks and MNOs. The move caused MNOs to refocus on strengthening agent networks. As a pilot initiative, BI mandated five banks – Bank Mandiri, Bank Rakyat Indonesia (BRI), Bank Sinar Harapan Bali, Bank Tabungan Pensiunan Nasional (BTPN) and CIMB Niaga to offer branchless banking across the country, to cover rural and remote areas as well. The initiative is looking at bank-led, telco-led and hybrid models, to be tested under this program. The banks are also mandated to include provision store owners, gas stations and business outlets as agents in order to extend financial services to the excluded.

Progress of Branchless Banking Pilots

Reports on the progress of pilots suggest that the participating banks are able to see positive results in implementing branchless banking. Customers, in particular local business, homemakers and students benefit from more convenient access.

Banks have gained an increase in the number of new customers as well as agents. Bank Sinar Harapan Bali, a subsidiary of Bank Mandiri, reported an increase in new customers and agents and aims to double the number of agents. Similar information is reported by BRI, another state-owned bank, who is has reported around 200 transactions per day which is equivalent to daily work of one teller.

Going beyond pilots

The pilot has got many other banks and MNOs interested in branchless banking. But they are waiting for the regulator to open-up and also look at results from the pilot phase. The regulators are also considering inclusion of BDPs (regional development banks) to increase accessibility at regional levels. Bank Indonesia now plans to review the pilot phase and look at pan-country roll-out of branchless banking.

The power of mobile technology in expanding the reach of financial services is immense. It is encouraging to see regulators in Indonesia taking informed decisions in formulating regulations in this space. Indonesia has the advantage of being able to learn from other countries that now have mature branchless banking markets. Pre and post roll-out, it might be useful to take a closer look at such successful markets in terms of product offerings, agent selection, processes and platforms. Over 2014 much can be achieved through proper training of agents, pricing and commission strategies and marketing and communications.

clip_image002Rakhi Sahay, Shift Thought distributor in Indonesia, is a development professional with a deep interest in innovative channels that drive inclusive development. Rakhi’s interest in branchless banking is a result of long experience of working with institutions and consulting agencies in India.