Payment System and Small and Medium Enterprises

According to data released in 2008 by the Central Bureau of Statistics and the Ministry of Cooperatives and Small and Medium Enterprises, the number of SMEs in Indonesia has reached 49.8 million. As of 2007, SMEs in Indonesia had employed 91.8 million workers, and had contributed about 20% of non-oil export value and approximately 53.6% of GDP (Kementerian Negara Koperasi dan Usaha Kecil dan Menengah Republik Indonesia 2008). Most SMEs in Indonesia are domestic-market oriented and approximately 80% do not have access to the banking system—they used their own capital and/or take out loans from nonbanking institutions.

Ideally, access to the benefits derived from improvements to the country's payment system should be universal. Whether or not Indonesia's SMEs have been benefiting from such improvements is an empirical question. To the authors' knowledge, no research has yet been done to address this question. Nevertheless, anecdotal evidence (outlined below) suggests that SMEs have not been able to take full advantage of recent developments to the payment system.

First, as noted, commercial banks and NBFIs form the core of the national payment system. SMEs (small enterprises in particular), however, are not able to access all the services provided by these institutions. For instance, SMEs may be able to transfer money through banks, but many of them still use cash for most of their business activities. Bank Indonesia has identified two reasons for this: (i) low availability of payment instruments accessible by SMEs, and (ii) weak payment and customer service infrastructures (e.g., communication networks and information technology systems). Other problems stem from the public's lingering distrust of non-cash payments.

Second, despite the fact that SMEs can achieve substantial savings by moving to electronic payments—in actual transaction costs and productivity gains—many SMEs have been slow to do so. Some make individual payments via internet banking, but few have fully automated the payment process. One reason is that few SMEs have computers (20% in 2007) (Wahid and Indarti 2007). Another reason is that computer literacy among SME staff is relatively low.

According to the most recent data (Ure 2008), around 40% of the Indonesian population uses (mostly prepaid) mobile phones—this number represents a 30% increase in mobile phone subscriptions from 2007 Mobile payment systems have great potential in Indonesia, as they would be accessible to people in rural areas where ATM machines are difficult to find. The option of mobile payment would also allow people without bank accounts to make payment transactions. A key challenge to progress, however, is a lack of legal infrastructure. For example, it took until 2008 for the first law on electronic information and transfers to be enacted (Bank Indonesia 2009a). Other problems in developing this type of payment system are due to banking sector delays in adopting “know-your-customer”⁶ guidelines (Bank Indonesia 2003) (although these have been made mandatory by Bank Indonesia to prevent money laundering) and mobile network organizations' reluctance to make registration compulsory for prepaid subscribers. The latter has resulted in a lack of customer protection, as mobile network organizations cannot disable fraudulent subscriber identity module (SIM) cards.

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