Indonesia Seeks Domestic Credit Card Network To Rival Visa, Mastercard

April 19, 2023
In a further display of payments nationalism, Indonesia is set to launch a domestic credit card network that will offer a low-cost alternative to Visa and Mastercard.

In a further display of payments nationalism, Indonesia is set to launch a domestic credit card network that will offer a low-cost alternative to Visa and Mastercard.

Bank Indonesia (BI), the country’s central bank, has said the final preparations for the launch of the new credit card network on the National Payments Gateway (GPN) are currently underway, and should be completed this month.

Erwin Haryono, executive director of the BI’s Communications Department, said in March that “90 percent” of the arrangements for the launch are already in place, and the BI is in “continuous discussions” with industry on the launch date.

Haryono added that the launch would have come much sooner had it not been for the “pressure” that had been exerted on Indonesia from foreign actors who opposed the move.

According to Haryono, after Indonesia launched a GPN domestic debit card network in 2017, US interests had lobbied against efforts to further expand this infrastructure to credit card payments.

"There was pressure from the US government as to why the GPN was needed for all these things,” he said, as quoted by CNBC Indonesia. “It’s because right now our payments system needs stability, including at critical moments.”

Haryono said the BI had looked to Japan and China as examples of where a domestic credit card network has benefited local merchants and consumers, and has reduced reliance on foreign providers.

In 1961, Japan became the first Asian country to launch its own domestic card payment network, JCB, and in 1981 it became the first Asian country to launch an international card payment network (JCB International).

In 2002, China followed with the launch of UnionPay, and in 2012 this was followed by the launch of UnionPay International.

National rails evolve

The GPN, on which Indonesia's domestic credit card network will run, has been a work in progress since its launch in 2017.

Prior to the launch of the GPN, the BI had described Indonesia’s retail payment system as “complex and segmented”, due the lack of interoperability across card payments and ATM networks.

With the launch of the GPN, previously siloed payment systems were interconnected for the first time — a move that has helped incentivise the opening of bank accounts and the use of digital payments.

At present, most banks in Indonesia issue GPN debit cards, and all debit card transactions in Indonesia are processed domestically.

Foreign network providers must establish partnerships with domestic switching companies approved by the BI to settle debit card transactions - a set up that will be replicated when the GPN expands to credit card payments.

Frans Wiwanto, managing director at Flywire, a Nasdaq-listed, APAC-focused payments enablement software provider, said that Indonesia’s launch of a domestic credit card network represents the next step in its journey towards payments sovereignty.

“Ultimately, I think Indonesia's decision to build a domestic credit card network reflects its desire to promote financial independence and self-sufficiency, and its commitment to financial inclusion,” Wiwanto told VIXIO.

“Moreover, the country has a large and growing middle class that is increasingly using digital financial services, and this suggests a growing demand for a domestic credit card network.”

Although the domestic credit card network will launch years after the domestic debit card network, Wiwanto said the long incubation period could help to ease implementation issues.

“While this is a significant undertaking, Indonesia has made significant strides to developing its financial technology industry,” he said.

President Widodo’s payments nationalism

In the weeks prior to Haryono’s speech, Indonesian President Joko Widodo was also open about the country’s need to reduce its reliance on foreign payment firms.

Speaking at an event on government procurement strategy, Widodo was asked by a minister of maritime affairs why, ever since he was a young soldier, Indonesia has not diversified its defence suppliers.

Widodo responded that, under his leadership, the government’s aim is to re-shore procurement purchases where possible.

As an example, Widodo pointed to the launch of the Kartu Kredit Pemerintah (KKP), or government credit card, in August last year.

As covered by VIXIO, the KKP will fund government procurement purchases using credit from Indonesian banks, and transactions will be processed to local merchants via QRIS, Indonesia’s national QR code standard.

“In this digital era, all of these things can be done,” said Widodo. “If we can get these things right, then we can truly be independent.

“Let's be careful," he added. "We all remember the sanctions that the US applied to Russia, and how that became a problem for Visa and Mastercard. If we can have our own platform and everyone uses it, we will be much more secure.”

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