In contrast to physical infrastructure, retail payment system infrastructure development still relies heavily on contributions from the private sector.
By
RICO USTHAVIA FRANS
·5 minutes read
Something that visible is easier to notice. National infrastructure such as toll roads, ports, airports, railways and other physical infrastructure are easy to see, feel and enjoy. This physical infrastructure has long been a concern of the government. On the other hand, the retail payment system is not very visible, so it has received less attention in the government’s national digital infrastructure development program.
The government plays a key role in distributing the national infrastructure development evenly. The government should not only allocate state budget for infrastructure development for areas with high business potential, but also for areas with low business potential.
If infrastructure development is entirely left to the private sector, there will be areas left behind. Regions outside Java, for example, cannot immediately benefit from national infrastructure because commercially, infrastructure development projects in these areas are still less profitable.
In contrast to physical infrastructure, retail payment system infrastructure development still relies heavily on contributions from the private sector. The investment costs and implementation of retail payment system infrastructure are largely borne by industry players, namely payment service providers (PJP) and private sector payment system infrastructure (PIP) providers, namely banks and commercially oriented financial technology companies. This raises a fundamental problem, namely the uneven distribution of retail payment infrastructure which is very important to support the national digital infrastructure.
Take, as an example, the development of a payment network using an EDC machine (card swipe machine) at the cashiers. The investment, installation, maintenance and operation costs of EDC machines are not cheap. Each device costs an average of Rp 150,000 (US$10.70) per month. On the other hand, revenue from merchants (stores, restaurants, hotels and other outlets that use EDC machines) provides a thin margin for the organizers.
Practically only big banks are able to invest in EDC installation. However, due to commercial considerations, they only focus on the use of EDC in big cities. Remote areas are less prioritized because they are not commercially profitable.
However, the implementation of QRIS does not immediately solve the problem. QRIS, especially those that use QR stickers, is indeed cheaper, but still requires acquisition, installation, maintenance and operation costs.
The QRIS (Quick Response Code Indonesian Standard) initiative from Bank Indonesia (BI) and the Indonesian Payment System Association (ASPI) deserves a thumbs-up. However, the implementation of QRIS does not immediately solve the problem. QRIS, especially those that use QR stickers, is indeed cheaper, but still requires acquisition, installation, maintenance and operation costs.
On the other hand, the average value of QRIS transactions is much smaller than transactions using cards. The average debit card transaction is Rp 700,000, far higher than the average QRIS transaction which is only Rp 30,000. This results in lower revenue per QRIS transaction than card transactions.
BI has indeed pushed for the expansion of QRIS merchants so that by the end of 2021, they will amount to 12 million. However, in the field, many merchants install more than one QRIS sticker, so their actual number is definitely lower. In addition, due to commercial considerations, the implementation of QRIS in remote areas is still minimal.
State budget allocation
Then, how should the government and BI respond to this? The government should consider the payment system as an integrated part of the national digital infrastructure. It would be better if the government or BI allocate a part of the state budget or subsidies for retail payment infrastructure as well as other national physical infrastructure.
Such budget allocation can be supported for several reasons. First, payment transactions using cash are expensive. As a rule of thumb, converting cash payments to non-cash can save about 1 percent of the value of the payment. These savings are obtained from reduced BI costs for printing, circulating and managing currency as well as reduced cash handling costs by merchants and banks.
Second, non-cash payment transactions will encourage faster business cycles because they are faster, easier, more convenient and cheaper. Third, penetration of non-cash payments will reduce the shadow economy. With non-cash payments, cash transactions that were previously unrecorded will become more visible so that they will indirectly increase GDP.
Furthermore, the government and BI should provide space for investors to get a decent and reasonable return.
This has been done by the central and regional governments in terms of physical infrastructure development. If an infrastructure project is not commercially viable, the government usually provides subsidies so that the organizers still get a decent profit.
For example, the Jakarta government wants cheap mass transportation for citizens. On the other hand, the Transjakarta bus operator will suffer a financial loss if it has to run its operations with very cheap ticket prices. Therefore, the consequence is that the Jakarta government must provide subsidies to Transjakarta bus operators in order that they are able to receive decent profits, and will be willing to invest in and operate Transjakarta buses.
The first option is to continue to rely on the private sector and provide a price corridor that becomes an incentive to invest.
Back to the national retail payment system -- the government has two options. The first option is to continue to rely on the private sector and provide a price corridor that becomes an incentive to invest.
The consequence is that the private sector will use commercial considerations, and the national retail payment system infrastructure coverage will not be optimally, evenly distributed.
The second option is a more proactive national retail payment system infrastructure coordinated by the government and BI. Its implementation still involves the private sector, but the government and BI determine the vision of national equity. For areas that are not commercially viable, the government provides subsidies and incentives for the private sector to deploy the retail payment infrastructure.
The second option seems more appropriate because remote areas can immediately enjoy payment system services, without needing to wait for commercial feasibility.
ARSIP PRIBADI
Rico Usthavia Frans
RICO USTHAVIA FRANS, Member of the Steering Committee of the Indonesia Fintech Society (IFSOC)
(This article was translated by Hendarsyah Tarmizi)
