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Payment Systems

By definition, Indonesia's national payment system covers a legal and regulatory framework, as well as institutions and mechanisms for transferring funds to settle liabilities arising from economic activities (Bank Indonesia 2004). At the core of the system are commercial banks and NBFIs, which function as payment system participants. As of December 2008, there were 124 commercial banks under the supervision of Bank Indonesia: five state banks and 119 private banks (including foreign-owned institutions). Of the private banks, 88 were private commercial banks, 26 were regional development banks, and five were Shariahcompliant banks (see Figure 4 [ PDF 16.2KB | 1 page ]). According to the latest data (March 2008), Bank Mandiri (a state bank) held the largest assets of any Indonesian bank, valued at Rp282.71 trillion. The second largest assets (Rp213.957 trillion) were held by Bank Central Asia, a private commercial bank. Other than these commercial banks, there were 1897 regional credit banks that were not members of the national payment system.1 NBFIs comprise leasing companies, insurance companies, pension funds, and capital-market-related institutions, such as mutual funds and securities companies; all are under the supervision of the Badan Pengawas Pasar Modal and Lembaga Keuangan (Indonesia Capital Market and Financial Institution Supervisory Agency) (BAPEPAM-LK) and the Ministry of Finance.

Law 3/2004 states that the central bank (Bank Indonesia) is responsible for regulating the national payment system (Bank Indonesia 2004). Bank Indonesia is also responsible for further developing the national payment system in order to help ensure effective monetary policy and maintain the stability of the financial system. In recent years, efforts to develop the system have intensified as a result of changes made to the national payment system blueprint in 2004.2 In addition to increased daily economic activity, an update to the system blueprint was necessary to accommodate: (i) more sophisticated technology, (ii) deeper regional cooperation among central banks, and (iii) stronger linkages between systems for retail and high-value payments. These factors led to innovative changes to the system, and to a shift in the preferred method of conducting payment transactions—from traditional means of payment such as cash, to safer, more-reliable, and more-accurate (non-cash) instruments. As a result of this shift, the use of paper-based instruments, such as demand deposits, and card-based instruments, such as credit cards, debit cards, and automated teller machine (ATM) cards has grown in popularity. In the future, payment instruments will become more sophisticated, eventually making possible a completely paperless payment system when combined with new high-tech and legal infrastructures. Figure 5 [ PDF 100KB | 1 page ] illustrates the amended technical architecture of the national payment system.

The new blueprint was intended to provide clear guidance for developing a reliable, efficient, accurate, safe, and effective national payment system. The 2004 amendments identify four areas of focus: low-value payments, high-value payments, linkages with the securities settlement system (delivery versus payment), and linkages with the international payment system (payment versus payment [PVP]). The low-value payment system is characterized by high transaction volume and routine, scheduled transactions of relatively low monetary value. The settlement of low-value payments is usually conducted through a clearing mechanism. Though the transaction value of paper-based payment instruments is less than 5% of inter-bank payments, its volume continues to increase—in 2008, the transaction volume of paper-based instruments grew 6.1% from 39–42 million transactions (Bank Indonesia 2009a). Conversely, the high-value payment system typically processes a low volume of high-value, potentially risky transactions. In the future, the central bank will develop the national payment system such that it can support settlements of multi-currency transactions by domestic and cross-border parties. The current clearing system and realtime gross settlement system (RTGS) are not able to accommodate these types of settlements efficiently. At this time, multi-currency transactions must be settled in rupiah, while cross-border transactions must be settled through bilateral relationships between banks in Indonesia and their counterparts abroad.

3.1 Cash Payment System

People still use cash instruments in Indonesia—mostly banknotes and coins. Cash cannot be completely replaced by non-cash instruments, particularly for low-value payment transactions. In 2008, the ratio of cash to money supply was 11.11 % (Bank Indonesia 2009a). Figure 6 [ PDF 24.2KB | 1 page ] shows some indicators of cash instrument use in Indonesia.

Cash use in Indonesia during 2008 reached its highest level in 10 years. This was partly due to heavy inflationary pressure, which began in early 2008. Another contributing factor was the preoccupation of the country's political parties with the 2009 election, which was identified as the reason behind the increased number of fake banknotes and coins in circulation (16.6% higher than in 2007).

3.2 Non-cash Payment System

Indonesian banks and NBFIs provide non-cash payment services, and advances in technology have encouraged the development of non-cash payment instruments. Current options available for fund transfers, clearing operations, and settlements include paperbased (e.g., checks, drafts, and non-negotiable payment orders), card-based, and paperless (electronic) instruments. High value non-cash payments are processed by Bank Indonesia through the Bank Indonesia-Real Time Gross Settlement (BI-RTGS) system. For low value non-cash payments, the most common mechanism used is the interbank clearing process, currently known as the Sistem Kliring Nasional Bank Indonesia (SKBNI) (Bank Indonesia's national clearing system). High-value payments no longer always dominate the BI-RTGS, as bank customers have begun using the system for retail/low-value transactions. Bank customers, it seems, are willing to pay more (than for using Bank Indonesia's clearing system) to obtain more efficient, secure, and real-time access to BI-RTGS (Bank Indonesia 2009a).

Advances in technology have also facilitated the development of retail payment instruments, such as card-based instruments (e.g., credit cards, ATM cards, and ATM/debit cards) and emoney. In 2008, the transaction value of cash-based payments already exceeded clearing transaction values. Total transactions reached Rp48,000 trillion (an increase of 4.23% from 2007). About 92% of transactions were processed through BI-RTGS—4.5% through cardbased payment systems and 3.5% through BI's clearing operations.

3.2.1 Paper-based Payment System

Checks, bilyet giro (an instruction presented to a bank to debit the issuer's account and credit another account—it cannot be cashed in), and lalu lintas giro (a paper-based credit transfer) are commonly used, but to some extent have been replaced by paperless electronic bank transfers administered by SKBNI or BI-RTGS. Nevertheless, between 2007 and 2008, there was 6.1% increase in paper-based transactions (from 39 to 42 million). The nominal value of these transactions rose 23.9% to 1,200 trillion in 2008.

Bank Indonesia's national clearing system, SKNBI, covers debit clearing and credit clearing, with settlements processed nationwide (Bank Indonesia 2007a). Clearing is an exchange of clearing documents (e.g., checks and direct debit orders) or of electronic financial data between clearing members, on behalf of a bank or customer, for which settlements are calculated at specified times. Based on Regulation 23/1999 (which was amended later in Regulation 3/2004), Bank Indonesia serves as both host and administrator of the clearing system for rupiah and foreign currencies. As administrator, Bank Indonesia can appoint a third party as interbank clearing administrator in regions where there is no Bank Indonesia representative office. Established in 2005, SKBNI provides national coverage through 108 clearing houses—37 operated by Bank Indonesia and the other 71 operated by Bank Indonesia-appointed commercial banks. Regional credit banks cannot act as clearing houses.

During 2007, the value of clearing transactions increased to Rp1,400 trillion, with an average daily transaction value of Rp5.62 trillion and an average daily volume of 319,000 (Bank Indonesia, 2007f). In 2008, the total value of transactions reached Rp1,664 trillion (an increase of 19.7%), with an average daily transaction value of Rp6.8 trillion (Bank Indonesia 2008a). The total volume of transactions in 2008 was 85.6 million with an average daily volume of 349,000. Table 3 [ PDF 17.3KB | 1 page ] shows how the value and volume of clearing transactions in Indonesia has changed since 2000.

SKBNI comprises two subsystems: debit clearing and credit clearing. Debit clearing involves incoming and return clearing for interbank debit transfers supported by paper instruments, such as checks, bilyet giro, and debit notes. Debit clearing operates locally within each clearing area, and is carried out by the local clearing operator. This operator calculates the debit clearing result based on debit electronic financial data sent in by member banks. There is no limit on amount for fund transfers processed in debit clearing. Credit clearing involves the paperless processing of credit transfers between banks. The credit clearing operator (usually a special unit at Bank Indonesia's head office in Jakarta) processes credit transfers nationwide. The operator calculates credit clearing results on the basis of credit electronic financial data (EFD) sent in by members. The maximum amount that can be processed through credit clearing is Rp100 million. Any transfers exceeding this limit must be processed through BI-RTGS.

The clearing system's settlement process occurs at the end of a specified period by offsetting liabilities against claims to produce a single net claim or liability to be settled for each bank account. In 2005, Bank Indonesia and participating banks established a failure-tosettle arrangement to handle cases in which a clearing member defaults on settlement obligations (Bank Indonesia 2009a). Under the failure-to-settle arrangement, SKNBI member banks are required to set up a pre-fund in their settlement accounts at Bank Indonesia. If a bank has a clearing deficit (i.e., payment obligations exceed claims), outstanding payment obligations are to be covered by the cash pre-fund provided by the bank. If the pre-fund is insufficient to cover the amount outstanding, the shortfall is to be covered by the demand deposit account held by the bank at Bank Indonesia. If available funds are still insufficient, the member bank may avail itself of the intraday liquidity facility for clearing. Finally, any remaining obligation can be covered by bank-held securities converted through a short-term funding facility.3

Checks and bilyet giro declined by the clearing process—mostly due to insufficient funds— result in the issuer being added to the national blacklist. Blacklisted individuals are banned from making transactions for a six-month period.

EFD is transferred twice daily for credit-clearing purposes: once at 08:15–11:30, and again at 12:45–15:30 (West Indonesia Time). For debit clearing, an exchange of EFD/bank drafts occurs daily at a time set by local clearing operators, with the proviso that data must be sent to the national clearing center by 15:30 West Indonesia Time.

The charge to member banks for debit clearing in areas capable of automatically sorting debit items is Rp1,500 per transaction. In areas that sort debit items manually, the charge is Rp1,000 per transaction. Credit clearing charges are Rp1,000 per transaction. Note that fees charged to bank customers are determined by the internal regulations of each bank member.

3.2.2 Card-Based Payment System

Card-based payment instruments comprise credit cards and account-based cards such as ATM and ATM/debit cards. In Indonesia, banks and NBFIs are permitted to issue credit cards, ATM cards, and ATM/debit cards—assuming they hold a license to do so from Bank Indonesia/the Ministry of Finance. In 2007, about 77.7% of card-based payment instruments in circulation were account-based cards, while the rest were credit cards and prepaid cards that were classified as electronic money (e-money).

Use of credit cards has increased significantly as more banks have begun to issue credit cards (mostly Visa International and MasterCard). In December 2008, the number of credit cards issued reached 11.5 million, a 25% increase from 2007. 19 banks and five NBFIs were issuing credit cards as of 31 December 2008. The total transaction value of credit card use between 2007 and 2008 increased by 47.4% to Rp107.3 trillion, while the volume of transactions jumped 28.7% to 166.7 million (see Table 4 [ PDF 12.6KB | 1 page ]).

An account-based card is a payment instrument for which funds are instantly deducted from a customer's account balance. The ATM card was first introduced in Indonesia in 1995. The card was originally intended simply to replace services provided by bank tellers, so its early functions were limited to cash withdrawal, checking of account balances, and intrabank transfers. Later, as the ATM network infrastructure became more sophisticated, it became possible to support interbank fund transfers. Banks now also offer other features to customers with ATM cards, such as the ability to make regular payments (e.g., for electricity, water, and telephone service). In addition, banks have been installing electronic data capture machines at many points of sale, including shops, supermarkets, and other merchants. With this development, ATM cards can now function as debit cards.

According to a Bank Indonesia survey conducted on public (and service provider) perceptions, preferences, and behaviors regarding non-cash payments, customers preferred using ATM/debit cards for the security and convenience of not having to carry large amounts of cash (Bank Indonesia, 2007f). Merchants and service providers also preferred ATM/debit cards, for the reason that, unlike with credit/charge cards, funds are transferred to their accounts on the day of the transaction. In 2008, the number of account-based cards reached 42.8 million, up 21.6% from the 35.2 million cards in circulation in 2007. The total nominal value of transactions using account-based cards rose 22.4% in the same period, from Rp1.679 trillion in 2007 to Rp2.056 trillion in 2008. The total transaction volume increased by 22.7%, from 1,103 transactions in 2007 to 1,353 in 2008.

On 13 April 2009, Bank Indonesia issued a new regulation on the conduct of card-based payment systems (Bank Indonesia 2009b), which included ATM, debit, and credit cards. (A separate regulation was issued for e-money—see 3.2.3 below.) The regulation states that all issuers of card-based payment instruments (i.e., banks and NBFIs) are required to obtain a license from Bank Indonesia. Banks and NBFIs that were already issuing and administering card-based payment instruments according to the previous regulation (Bank Indonesia 2005) are only required to submit a few additional documents as defined in BI Circular Letter no. 11/10/DASP (Bank Indonesia 2009a). With regard to credit cardholders, the regulation stipulated a minimum age (21 years old), a minimum monthly income, and maximum (income-based) credit limits. To improve security and curb credit card fraud/crime, Bank Indonesia has called for a full migration to chip-based cards by the end of 2009. With regard to ATM cards, the regulation set a maximum daily limit on fund transfers between accounts using ATM machines of Rp25 million per account. A daily limit of Rp10 million per account was set on cash withdrawal from ATM machines (by ATM or credit card).

3.2.3 E-Money

E-money instruments, in the form of prepaid cards, were introduced in Indonesia in mid- 2007. By 2008, the number of e-money instruments—both chip-based and server-based— had already reached 430,000, accounting for a transaction value of Rp76.7 billion and a volume of 2.5 million transactions. As of the end of December 2008, there were nine emoney issuers: five banks and four NBFIs.

According to a new regulation on e-money, issued by Bank Indonesia on 13 April 2009 (Bank Indonesia 2009c), the e-money classification is to be based on whether or not an emoney holder's personal identity must be registered. Previously, the e-money classification was based on its purpose (i.e., multipurpose or single purpose). Issuance of e-money by banks or NBFIs must be licensed by Bank Indonesia. For NBFIs, licenses will only be approved if the minimum float fund of Rp1 billion has been met (Bank Indonesia 2009c). The new regulation also stated that the maximum nominal value of unregistered e-money is limited to Rp1 million per person (Rp5 million for registered e-money)—and must be in rupiah. In addition, primarily to deter money laundering, Bank Indonesia's circular letter set a monthly limit for e-money transactions of Rp20 million. This amount includes payment transactions, fund transfers, and other types of transactions offered by the issuers.

3.2.4 High-Value Payment System

The high-value payment system typically handles a low volume of high-value, high-risk transactions requiring fast and secure settlement. This is usually achieved via a real-time settlement mechanism, such as the BI-RTGS system. Launched in 2000, and designed and operated by Bank Indonesia, the BI-RTGS mechanism is an electronic fund transfer system that enables real-time settlement (in rupiah) of individual transactions (Bank Indonesia 2007b). Member accounts may be debited or credited multiple times in one day, as per payment orders and incoming payments. With the BI-RTGS system, senders use RTGS terminals in their offices to transmit payment instructions to the RTGS central computer at Bank Indonesia for settlement processing. If settlement is successful, the payment is electronically forwarded to the receiver in an automated procedure. Successful completion of settlement requires BI-RTGS members have a sufficient balance in their accounts at Bank Indonesia before transferring funds to other BI-RTGS members. To manage any intraday gaps, Bank Indonesia provides a clearing intraday liquidity facility where banks can deposit Bank Indonesia certificates (SBI) or government bonds administered by Bank Indonesia.

About 95% of financial transaction settlements are conducted through BI-RTGS. The system is used primarily for high-value payments such as interbank money market transactions, capital market transactions, foreign exchange, payments to the government (e.g., income tax), and transfers between Bank Indonesia accounts. The BI-RTGS is categorized as a systematically important payment system, while the SKBNI, described above, is classified as a system-wide important payment system. When the BI-RTGS was introduced, there were 75 participating banks. By 2008, there were 154 members, including the central bank, commercial banks, and NBFIs.

Bank Indonesia conducts RTGS transactions during weekdays from 6:00 to 16:30 Jakarta Time. For bank customers, RTGS transactions can be handled during time windows set by each bank. The cap on daily clearing transactions, set by Bank Indonesia in October 2002, is currently Rp100 million. This cap will eventually be lowered to minimize the risks associated with using net settlement in the clearing process.

Bank Indonesia charges the same transaction fees to all BI-RTGS members: Rp7,000 for transactions made before 15:00 and Rp14,000 after 15:00. Charges applied to customers depend on each member bank's policy. It is mandatory, however, for each member bank to announce the breakdown of these fees to its customers (i.e., how much Bank Indonesia charges the bank and how much the bank charges its customers).

The total value of transactions settled through BI-RTGS in 2008 was Rp39.9 trillion. This represents a 7.7% decline from the 2007 value of Rp42.9 trillion. The total volume increased slightly from 8.611 million to 10.39 million transactions (a 19.7% increase). The average daily RTGS transaction value was Rp184.2 trillion, while the average daily volume reached 43,200. See Table 5 [ PDF 13.3KB | 1 page ] and Table 6 [ PDF 13.3KB | 1 page ] for more detail.

The decline in the value of BI-RTGS transactions was due to a drop in interbank money market transactions (-28%) and in capital market transaction settlements (-23%). The worsening global financial crisis was also a factor.

3.2.5 Scripless Securities Settlement Systems (Bank Indonesia 2006)

The first stock exchange in Indonesia was established in 1912 during the Dutch colonial era. The GoI reactivated its capital market in 1977. See Appendix 1 [ PDF 16.8KB | 1 page ] for a brief history of Indonesia's capital market.

The institutional organization of the capital market consists of BAPEPAM-LK and three “selfregulatory organizations:” Bursa Efek Indonesia (Indonesia Stock Exchange), Kliring Penjaminan Efek Indonesia (Indonesian Clearing and Guarantee Corporation), and Kustodian Sentral Efek Indonesia (Indonesian Central Securities Depository).

As of 31 December 2008, market capitalization amounted to Rp1.68 quadrillion, comprising stock capitalization (Rp1.08 trillion), corporate bonds (Rp72.98 billion), and government securities (Rp5.26 trillion) (see Table 7 [ PDF 12KB | 1 page ]). While equity market capitalization declined in 2007– 2008, the average daily transaction value rose by 4.17%, from Rp4.27 trillion to Rp4.45 trillion. The average daily transaction volume dropped by 22.34% to Rp3.28 billion.

Prior to 2007, both corporate and government bonds were listed on the Surabaya Stock Exchange;4 as of 1 January 2007, both bonds were listed on the Indonesia Stock Exchange. Trading in corporate bonds weakened during 2008, recording a 23% drop from the Rp68.72 trillion reported in 2007. The average daily transactions of corporate bonds were valued at Rp279 billion in 2007. In 2008, the number dropped to Rp218 billion per day (a 22% decline) as a result of foreign investors pulling out of capital markets in emerging economies.

In the current capital market,5 government bonds continued to dominate. Nevertheless, due to the economic slowdown and recent trouble in global stock markets, trading in government bonds has weakened by 23% compared to 2007. The average daily transaction value has fallen 22%, from Rp5.02 billion in 2007 to Rp3.91 billion at the end of 2008. The Ministry of Finance's latest data on government bonds, covering up to October 2008, is illustrated in Table 8 [ PDF 12KB | 1 page ].

Table 9 [ PDF 14.5KB | 1 page ] shows that banks and non-bank institutions have accounted for almost the same share of tradable government bonds in recent years.

Corporate and government bonds are mostly traded in the over-the-counter market. As Law 24/2002 stipulates, Bank Indonesia is responsible for the administration of government securities in the primary and secondary markets (Bank Indonesia 2006). This responsibility includes ownership registration, clearing and settlement, and payment of interest and principal to the paying agent.

In February 2004, as the central registry for government bonds, Bank Indonesia introduced the Scripless Securities Settlement System (BI-SSSS). BI-SSSS provides a facility for financial market players to make transactions with Bank Indonesia, such as funding for banks, and trades in SBIs and government securities. BI-SSSS provides depository, matching, and settlement services for trades in SBI and government bonds and securities. BI-SSSS is an integrated, automated registry system that connects Bank Indonesia (the central registry) with sub-registries and with its other direct clients.

Settlement through BI-SSSS is conducted on a delivery versus payment basis using the following process:

  1. Buyer and seller input settlement instruction details at a BI-SSSS terminal, which are sent to the BI-SSSS central computer (SCC).
  2. The SCC starts the instruction-matching process. If buyer and seller instructions match, the system checks if there are sufficient securities in the seller's account.
  3. If there are sufficient securities, the system sends the payment request to the BI-RTGS system to check the availability of funds in the buyer's or paying bank's account. If there are insufficient funds, the transaction request will queue; otherwise, the buyer's account is debited and the seller's or seller's paying bank's account is credited. The current queue time is set for four hours. After that time, or at the end of the day, the pending request is cancelled by the system if there are still insufficient funds to make the transaction.
  4. The SCC transfers ownership of securities after receiving payment confirmation from the BI-RTGS system.

Settlement is carried out on the same day unless instructions arrive at the SCC after 17:00 Jakarta Time. There is no central counterparty in a government bond transaction. If one party fails to settle, the transaction is rendered void.

Corporate bond transaction settlement involves its own specific procedures. For over-thecounter fixed-income securities, the computer system displays bid and offer quotations, as well as revised quotations and cancellations during trading hours (Monday–Thursday, 9:30– 12:00 and 13:30–17:00; and Fridays, 9:30–11:30 and 14:00–17:00 Jakarta Time. Transaction settlement is conducted two days after trading day (T+2). For corporate bonds, the Kustodian Sentral Efek Indonesia (Indonesian Central Securities Depository) (KSEI) performs the role of central registry and handles securities settlement.

For shares, there is yet another settlement process. KSEI (2009) uses the Central Depository and Book Entry Settlement System for share transaction processing (whether or not the issuing company is listed on the Indonesian stock exchange). Trading on the stock exchange is divided into four markets: (i) the regular market, for which settlement takes place on T+3; (ii) the immediate market, for which settlement is conducted on T+1; (iii) the cash market, for which settlement is carried out on the same day (T+0); and (iv) the negotiated market, for which the timing of settlement is decided by the seller and buyer. Securities transactions are, by definition, “locked-in,” with the understanding that they are to be settled according to market category. At the end of each day, data on stock exchange trading is delivered to the Kliring Penjaminan Efek Indonesia (Indonesian Clearing and Guarantee Corporation) (KPEI), where it is settled through a netting process. KPEI guarantees trading outcomes, with the exception of those in the negotiated market. On the designated settlement date, KSEI processes regular-market, immediate-market, and cashmarket transactions that have undergone the netting process at KPEI. KSEI also processes negotiated-market trading on a per transaction basis. The process of cash settlement for stock exchange transactions is conducted by appointed payment banks.

The different types of payment systems in Indonesia are summarized in Appendix 2 [ PDF 17.9KB | 3 pages ].

Download this Paper [ PDF 258.4KB| 31 pages ].

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    The views expressed in this paper are the views of the authors and do not necessarily reflect the views or policies of the Asian Development Bank Institute (ADBI), the Asian Development Bank (ADB), its Board of Directors, or the governments they represent. ADBI does not guarantee the accuracy of the data included in this paper and accepts no responsibility for any consequences of their use. Terminology used may not necessarily be consistent with ADB official terms.

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