DIGITAL FINANCIAL INCLUSION IN INDONESIA

1 DIGITAL FINANCIAL INCLUSION IN INDONESIAF inancial INCLUSION and ElectronificationTa s k Fo rceBANK INDONESIA TRANSFORMATION OFFICE1 DIGITAL FINANCIAL INCLUSION in IndonesiaAGENDAAGENDA2 INDONESIA at GlanceDigital FINANCIAL InclusionBI s StrategyCHALLENGE AND GOING FORWARD12343 BACKGROUNDI ndonesia at GlanceUnbanked people ( FINANCIAL INCLUSION Index)Source : WorldBank, Global FINANCIAL INCLUSION Index, 2014 Global464%FORMAL FINANCIAL SECTOR36%THE BOTTOM OF THE PYRAMIDG 2 P RECIPIENTSINFORMAL SECTOR No bank around it takes time and cost to the nearest branch Higher cost for small transaction Low FINANCIAL literacy Unmet product Culture and Habit Higher cost for setting up a new branch Open A BRANCH is regulated Complex proccess High formality Prefer non- grass root customer Prefer bigger transactionIndonesia at GlanceCash EconomyIndonesia at

2 GlancePercentage Transaction usingNon- cash (check & payment)Source : MasterCard Advisors Analysis, 2013 Source: Gallup,2013 Channel Used using by farmers to receive the sales proceeds (rural area) Sumber: Bank INDONESIA , 201 3 OthersCredit CardPostBehaviour : Domination of Cash TransactionRemittances ServiceRemittances via cellphoneTransfer via accountCashInstrument composition used in MerchantsInstrument composition used in MerchantsBehavior : Mobile Phone & Internet User6 High mobile phone penetration and almost 50% of INDONESIA population is internet *139 million users107 million users82 million users63 million usersInternet User in IndonesiaSource.

3 INDONESIA Internet Provider Association> 310 Millionsmobile phone subscribers in of internet user is in Indonesia40%of internet users in INDONESIA spend > 3 hours to go onlineSource: Preliminary Meeting of PKH Pilot Project, Bappenas, September 2013 13 Millionspoor household in INDONESIA have mobile phoneSource: INDONESIA the Untold Stories, Ministry of Communication and Informatics, 2014 INDONESIA at GlanceSURVEY of MOBILE PENETRATION: 51% of household of PKH recipient 100%of migrant workers 73% of farmers (Mercy Corps)

4 Low Savings Capability7 INDONESIA at GlanceTop 5 FINANCIAL Transactions Done by UnbankedTotalLakiWanitaUrbanRural>GK<GKN =6000n=2367n=3633n=3160n2840n=2239n=3761 Beli Barang 88%Bayar Tagihan83%Beli Pulsa60%65%55%68%51%73%53%P2P Transfer58%40%75%559%55%61%56%Menerima upah55%72%39%53%57%54%55%Membel ibarang untuk kebutuhan sehari- hari dan membayar tagihan seperti listrik merupakan transaksi keuangan paling umum dilakukanPurchase of GoodsUtilities PaymentAirtime PaymentReceiving SalaryMaleFemalePurchase of goods for daily consumption and payment public utilities, , are the most popular transactionSource:NETHOPE/E- - - MITRA/BTPN/VISA, Juli 2014 Source:In termed ia, 2 0 1 48 DIGITAL FINANCIAL INCLUSIONA process for better quality life to the last mileDigitalFinancial Inclusion9 FINANCIAL INCLUSION : Generalized Result Chains1.

5 INPUT3. OUTPUT 24. Outcome 15. Outcomes 2 Chain% adults with formal account% adults using account daily Income level and ResilienceSubjectiveWellbeingIndicatorFi nancial InclusionPoverty ReductionWe l l be i ngThe opportunity channelThe resilience channelFinancial AccessUse of FINANCIAL ProductsCreditSavingInsurancePayment/Tra nsferIncrease investmentIncrease savingIncrease incomeFaster remittancesIncreased wealth;Other specific measuresIncome smoothed through shocksKeeping temporarily2.

6 OUTPUT 1 Source: Adjusted, Porteous, 201410 Definition & ComponentsDigitalFinancial InclusionDigital FINANCIAL INCLUSION : DIGITAL access to and use of formal FINANCIAL services by excluded and underserved populations . There are three key components :Device used by customers and agentsOmni channel Retail agentsDigital transactional platformSuch services should be to customers needs, and responsibly, at a cost both affordable customers and for providers.

7 DIGITAL FINANCIAL servicesMobile moneyAgent bankingBranchless bankingCorrespondent bankingDigital FINANCIAL services modelDigitalFinancial InclusionSource: World Bank, 2014 Fintech& DIGITAL bankingDigital FINANCIAL servicesDigitalFinancial Inclusionv Focus on unbankedv >219 live implementations in 84 countriesv Media : emoney/ basic savings accountSumber: GSMAT elco LedBank LedBank Led Emoney(Brazil, Colombia) Credit scoring, behaviouraldata Emoneyguaranteed (Kenya, Nigeria, Tanzania) Emoneywith interest partially (Ghana) Emergency loan via mobilephone(Kenya) Govbond retail (Kenya) M- Agri(African countries) Credit scoring non FINANCIAL dataPayment Bank (Telco, Cooperatives, Super Agent) in IndiaSource: GSMA, 201413 BANK INDONESIA S STRATEGYG uideline PrinciplesDigitalFinancial Inclusion1 What if.

8 We could turn a one day sign up process into less than 5 minute?Customer Activation2 What if:Every one is a bank channel?Distribution3 What if:Anyone with a phone could send or receive money?Front-End4 What if: FINANCIAL transaction processing was DIGITAL and the cost close to zero cost?Back-End5 What if:You could send money to any person in the world or to other bank ?Interconnection6 What if:Every mobile phone came with a savings account and insurance?ProductsFrameworkDigitalFinanc ial INCLUSION People Government Provider Regulator Culture Interoperability Point of servicesOpportunity businessSource.

9 Porteous, 2014 balancing REGULATIOND igital FINANCIAL Services (DFS)educationCustomer protectionMoney LaunderingRiskProvideeasy facility for account openingLiquidity & Solvency Risk of providers to FINANCIAL System StabilityRisk of Losing Consumer Money Leverage from the existing retailer infrastructureBenefit for macroeconomy- RISK+ ACCESSMONITORING& SUPERVISIONF inancial StabilityFinancial Inclusion16 EmpowermentAccount BasedCash BasedE- moneySavingsFinancingOther FINANCIAL productsFinancial Management CapabilityTimeKeeping | Payment |

10 TransferUnbanked to provide access to a transaction DIGITAL FINANCIAL ServiceLearn Non Cash of daily FinancialTransactionDigitalFinancial InclusionDual Strategy : Infrastructure & EcosystemStrategy17 Debit CardBank BranchAgentATMunbankedKeeping/TransferSa vingsLoanDFSBankOther FINANCIAL ProductsBank,Insurance, etcACCOUNT BASEDCASH BASEDELECTRONIFICATONC redit CardE- Moneye- BankingFINANCIAL INCLUSIONE D U C A T I O Nunbankedbanked64%unbanked36%bankedLAKU PANDAIDFSDFSCash-Lite INFRASTRUCTURE.