Safdar Khan, Division President for Indonesia, Malaysia and Brunei Darussalam, Mastercard: Interview

Interview: Safdar Khan

What are the main improvements required in the e-payments ecosystem in Indonesia?

SAFDAR KHAN: Indonesia is the largest economy in ASEAN in terms of GDP and personal consumption expenditure. Today Indonesia’s youth are extremely savvy when it comes to digital and online commerce. With smart-phone penetration over 35% and more than 100m internet users, the country is ready for a paradigm shift in e-payments. However, despite some enablers being in place, e-payments still make up less than 10% of all personal consumption transactions. There are multiple factors that have contributed to this, primarily Indonesia’s geography. Cities like Jakarta are well served when it comes to card issuing and acceptance, however, challenges exist in rolling out and maintaining similar banking and payments infrastructure in remote areas. Second, the majority of small-value transactions are conducted at smaller shops and eateries where electronic payments are not accepted. In addition, the type of consumers shopping there may not have access to credit or debit cards. As an industry we have to think about innovative ways to include smaller merchants and consumers at the lower end of the economic pyramid into the financial mainstream. We need to look holistically at how we can enable consumers by offering payment instruments that suit their needs. For example, if a consumer does not qualify for a credit card, they can be given a debit card instead.

How can we help move consumers from cash-on-delivery (COD) payments to online payments?

KHAN: E-commerce in Indonesia is booming, which is encouraging as it shows a desire to consume more across various segments of society, validating our confidence in the strength of the economy. It also demonstrates that people are willing to buy using a digital channel, meaning they are educated and confident about the benefits of this method. There are two main reasons why COD payments are so prevalent, and each needs to be addressed differently. First, it could be because the consumer has the means to buy online, but does not have a payment instrument. Second, it could be that the consumer is capable of paying via e-commerce, but is concerned about using it online for fear of fraud, as payment safety is paramount to Indonesian consumers. These concerns can be addressed through better education by the industry, so consumers are aware of the available protections in case of a dispute. For the financial services industry, e-payments reduce dependency on cash, while also enabling merchants to reduce reconciliation and cash-management issues.

To what extent can cashless payments and financial technology (fintech) improve financial inclusion?

KHAN: Cashless payments catalyse financial inclusion, as digital payments are often the first formal financial service for those who are typically excluded due to poverty or informality. Digitising financial services – such as social benefit transfers or remittances – brings individuals, households and businesses into the formal economy. Fintech advances inclusion by facilitating innovation around design and distribution. New services and products can disrupt traditional business models that favour affluent consumers because they reduce costs. Consequently, this changes who is bankable and brings new, tailored services to the unbanked, including many micro and small businesses. Bringing businesses into the formal economy is critical to unlocking greater productivity, in turn leading to more sustainable and equitable economic growth. Achieving the government’s target of 75% financial inclusion by 2020 would greatly increase prosperity for all. Additionally, studies commissioned by the G20 found that fintech could reduce the gender gap as it gives women more control over their finances. According to the McKinsey Global Institute, digital financial services could benefit billions of people by spurring inclusive growth, adding $3.7trn to the GDP of emerging economies within a decade.