Buy Now, Pay Later (BNPL) has been booming in Indonesia in recent years, filling a huge credit gap and in many cases acting as a credit card in your name. BNPL has grown so temporarily in Indonesia that some analysts will. Update credit cards completely.
Maybe not. First of all, in a country the size of Indonesia (273. 8 million people), it’s even worth exploring a niche market for credit cards. Credit cards can offer much higher credit limits than BNPL, as well as many rewards. Second, BNPL companies lose money, unlike credit card corporations and their banking partners. The commercial style of credit cardssss has proven to be sustainable. Third, the Indonesian government needs to establish a nationwide network of credit cards, which shows that this form of payment has regulatory backing.
Finally, data from the Bank of Indonesia shows that Indonesian credit cards have seen a steady expansion after falling sharply in the first year of the pandemic. Credit card transactions in 2022 reached 323. 6 trillion rupees ($24. 1 billion), up 32% from Rs 244. 5. trillion in 2021 ($16. 2 billion).
Japanese monetary institutions have stepped up their investments in Indonesia’s monetary sector, and in late June, Nikkei Asia reported that Japanese customer credit organization Orico would soon launch a credit card business in Indonesia and an investment in Indonesian fintech startup Honest Financial Technologies, which has created a large-scale virtual credit card business this year for use in smartphones. Orico will bring to the company the deep wisdom of the credit card industry, which will include both virtual and plastic cards.
In Indonesia, Orico will be licensed as a payment service provider, supervised through Bank Indonesia, and as a monetary company supervised through the Financial Services Authority (OJK).
The credit card reconciliation between Orico and Honest Financial aims to solve a bottleneck for Indonesian consumers: the shortcomings of QR payment apps for giant purchases, such as cars. The penetration rate of credit cards in Indonesia is very low, only 5%, up to 35%. % in Thailand and 30% in Malaysia, so the end result is still plentiful.
One of the most intriguing recent developments in Indonesia’s credit card market is the announcement of a government-led nationwide card network. At this point, it’s unclear exactly how the fledgling task will affect foreign card companies, but Bank Indonesia turns out to be our minds to help Southeast Asia’s largest economy build a more comprehensive domestic billing infrastructure.
In doing so, Indonesia would follow in the footsteps of China and India, which have respectively limited the footprint of foreign payments companies and become heavyweights of domestic bills. In the case of China, these are UnionPay, Alipay, and WeChat Pay, while in the case of China, these are UnionPay, Alipay, and WeChat Pay. In India, the United Payments Interface (UPI) payment facility is of paramount importance.
In the case of Indonesia, it appears that the government needs to reduce the country’s existing dependence on foreign credit card giants, even though credit card penetration in the country is not high. Visa and Mastercard represent around 90% of the country’s credit cards. . Freddy Karyadi, spouse of Indonesian law firm Ali Budiardjo, Nugroho, Reksodiputro and board member of the country’s Fintech Alliance, told The Banker: “Using a local credit card payment formula would provide more opportunities so that Indonesian banks and monetary corporations are offering new services. credit card products.
It’s no surprise that Southeast Asia’s largest economy needs infrastructure for its domestic bills, but we recommend adopting a wait-and-see strategy with this initiative. The idea that Jakarta would “just end Visa and Mastercard” is a bit far-fetched. Most likely, governments will need to introduce more festivals to the market, create new opportunities for local businesses, and in all likelihood, help Indonesians avoid some fees related to foreign payment systems.
At the same time, it is vital to note that foreign card giants do, in fact, have global payment networks, which are useful for Indonesian companies involved in cross-border activities. Since the use of the government’s card formula is likely to be voluntary, merchants who gain advantages from using Visa and Mastercard are unlikely to avoid contracting with foreign card giants.
In addition, it is unclear whether the Indonesian government will be able to establish a top-tier national payment formula. As noted by the University of Melbourne, “the formula will have to reliably facilitate business transactions, ensure the security of user data, and save you from falling into fraud. ” It will be difficult to compete with the functions of Visa and Mastercard in those areas.
The good news is that the pie is probably big enough for several payments companies, whether domestic or foreign. In fact, despite all its efforts at monetary digitization, Indonesia still uses money for 76% of invoices. This means that there are still plenty of opportunities for credit cards, as well as other virtual invoice bureaucracy, to capture market share. Indonesia’s card and invoice market earned $51. 4 billion in 2022 and is expected to reach a CAGR of more than 14% between 2022 and 2026.
With this in mind, the Indonesian market will likely be a smart bet for credit card companies for many years to come.
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