Update: Indonesia’s New Instant Payment System Officially Kicks Off

December 23, 2021
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As part of Indonesia’s extensive digitalisaton plans, Bank Indonesia has launched the country’s new retail payments infrastructure that enables payment transactions to be sent real-time, around the clock.

As part of Indonesia’s extensive digitalisaton plans, Bank Indonesia has launched the country’s new retail payments infrastructure that enables payment transactions to be sent real-time, around the clock.

First announced in October, BI-FAST is part of Indonesia’s ambition to build a digital financial system that is “integrated, interoperable and interconnected”.

The digital transformation aims to encourage inclusive and equitable economic growth and support Indonesia’s National Economic Recovery programme, the bank said.

Digital transactions have experienced a significant uptick in the country in 2021.

According to Bank Indonesia website, the value of e-money transactions increased 62 percent year-over-year to Rp31.3trn (£1.65bn) in November 2021. Similarly, the value of digital banking transactions increased 47 percent, compared with last year, to Rp3,877.3trn (£204.6bn) in the same period. Payment transactions using ATM cards, debit cards and credit cards grew 8.39 percent to Rp674.9trn (£35.6bn).

With the launch of BI-FAST, Bank Indonesia said it aims to connect digital banking, fintech, e-commerce and consumers in an end-to-end payment ecosystem and accelerate the digitization of the financial economy.

In the initial phase, starting on December 21, the new system will enable individual credit transfer services and other services will be added gradually later on. These will include bulk credit, direct debit and request for payment services.

Although the service was originally planned to launch with 22 banks, HSBC had been taken off the current list of participants. Bank Indonesia told VIXIO that it is because the bank was not ready for the service at the time of launch.

Original story: Indonesia Joins Payment Digitalisation Trend With New BI-FAST Service

Indonesia is about to join the region’s digitalisation trend as it announces plans to roll out a new instant payment service before the end of the year.

Last week, Bank Indonesia governor Perry Warjiyo revealed plans that the southeast Asian country will launch BI-FAST, a new real-time retail payment service, in December 2021.

BI-FAST is part of the Indonesian Payment System Blueprint (BSPI) 2025, the country’s digitalisation initiative that aims to build a retail payment system that is “fast, cheap, affordable, easy, safe, and reliable”. According to the blueprint, BI-FAST will use the ISO 20022 message format to ensure interoperability both in domestic and cross-border payments.

The new service will launch in December 2021 with individual credit transfer services and will be gradually expanded to include bulk credit, direct debit and request for payment services. At later stages, the service will be expanded to process other transactions, such as QR code and cross-border payments.

BI-FAST will modernise the country’s current retail payment service called Bank Indonesia National Clearing System (SKNBI), which processes payments in limited time windows. By contrast, BI-FAST will process payments in real time, 24/7, and will be gradually expanded to support multiple types of use cases.

It will also strengthen the resilience of the national retail payment system and offer better fraud detection and anti-money laundering features, the central bank claims.

In contrast to other mobile banking services currently available on the market, BI-FAST has a proxy address feature that allows customers to send or receive money using only their mobile number or email address.

The transition from SKNBI to BI-FAST will factor in the readiness of the market participants, but eventually, the legacy retail payment system will be reduced to the processing of paper-based cheque instruments only.

BI-FAST participation is open to banks and non-banks alike, as long as they meet the general and specific criteria that have been determined, the governor said in the release.

The central bank will initially launch the service with 22 participants in December 2021, and will add a further 22 companies in January 2022. The participants include HSBC Indonesia, Citibank and Standard Chartered Bank.

The maximum nominal limit for BI-FAST transactions in the initial implementation is set at IDR250m, roughly £17,500, per transaction and will be evaluated periodically. This is typical of many instant payments systems around the world, with value typically increasing as risks management improves and use cases expand.

Participants will have to pay IDR19, or 0.1 pence, per transaction to Bank Indonesia for the service, while the maximum fee that participants can charge for customers is capped at IDR2,500, or 13 pence, per transaction. This is slightly below the existing SKNBI rates.

BI-FAST will be the backbone of the future retail payment system infrastructure, Warjiyo said in the statement, noting that it supports Bank Indonesia’s vision of a “3i” digital ecosystem, which is integrated, interoperable and interconnected.

The COVID-19 pandemic has created new challenges and opportunities, and “digitalisation is the key to accelerating national economic recovery”, the statement noted.

Indonesia behind the curve

Real-time payments have come a very long way in a very short time. As of the second quarter of 2021, VIXIO counts 66 markets around the world with live access to real-time payments. Around three-quarters of live real-time payments markets have done so within the last four years. VIXIO research estimates there were 69bn real-time payments transactions in 2020, up from 34bn in 2018.

A major absentee from this list is Indonesia. With the world’s fourth largest population and 16th largest economy, Indonesia is arguably the largest major economy not to have a fully-functioning instant payments system.

Although still at a relatively early stage of development globally, instant payments are the driving force behind an array of new payment solutions and use cases. Supporting financial inclusion and various digitalisation initiatives, instant payments will also support Indonesia’s open banking plans.

In neighbouring Singapore, Malaysia and Thailand, instant payments services based on ISO 20022 standards are already well established. Indonesian banks and policymakers will be hoping their new BI-FAST will have the same transformative effect as it has in some of these other markets.

To take one example. Thailand’s real-time service PromptPay launched in 2017, reached 5.3bn transactions in 2020. This helped accelerate the country’s non-cash payments development, which increased from 48 transactions per capita in 2016 to 193 transactions per capita in 2020. To highlight the opportunity in Indonesia, Indonesia had 47 non-cash transactions per capita in 2020. If it were to grow at the same rate as Thailand, this would increase the number of non-cash transactions in the country by 39bn to 52bn.

One hurdle that the country looks set to overcome from the outset is participation. Inherently important to any new payments scheme in terms of helping to build momentum is the need to reach all bank accounts in the market. With strong participation from the outset, the Bank of Indonesia will hope to ensure all key banks will be connected to the infrastructure.

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