PAYMENT SYSTEM IN INDONESIA
:: What is the Payment System?
What is the payment system? The payment system covers
the legal and regulatory framework, institutions and mechanisms used to
transfer funds in order to settle liabilities arising from economic
activities. What, then, are the components of the payment system?
Needless to say, there must be payment instruments and a clearing
mechanism that includes settlement. Of course, other components are
involved, such as the institutions participating in the operation of the
payment system. These include banks, non-bank financial institutions,
non-bank funds transfer providers, switching companies and even the
central bank (see Growth).
:: Evolution of Payment Instruments
There has been very rapid and sophisticated
advancement in payment instruments. If we look back to the early days
of payment instruments, the barter system was a common practice in
ancient times. Gradually, people became accustomed to the use of
specific units representing a value of payment, more commonly known as
money. Now, money is one of the most widely used payment instruments in
society. Payment instruments later advanced from cash-based instruments
to non-cash payment instruments, such as the paper-based instruments of
cheques and bilyet giro (non-negotiable bank clearing payment orders).
Following this, payments took a further step forward to the use of
paperless instruments, such as electronic funds transfers and card-based
instruments (ATM cards, credit cards, debit cards and prepaid cards).
:: Cash Instruments
Cash exists mostly as banknotes and coins. Cash
continues to play an important role, especially in small transactions.
In today’s modern society, the use of cash such as banknotes and coins
is declining in comparison to payments drawing on demand deposit funds.
In 2005, cash accounted for 43.3 percent of the total money supply.
However, cash also has disadvantages in regard to
efficiency. Inefficiency arises because of the high costs of cash
handling, not to mention loss of time when making payments. For example,
one can spend a long time queuing to make a payment at a counter. Also,
conducting high value transactions in cash runs the risk of theft,
robbery and counterfeiting.
In view of the inconvenience and inefficiency of
using cash, BI has taken the initiative to promote the building of a
less cash society (LCS).
:: Non-Cash Instruments
Non-cash instruments have become well established and
are in popular use. This shows us that non-cash payment services
provided by banks and non-bank financial institutions (NBFIs), whether
for funds transfers, clearing operations or settlement, are available
and operating in Indonesia. High value non-cash payments are processed
by Bank Indonesia through the BI-RTGS (Real Time Gross Settlement)
system and the Clearing System. The BI-RTGS System is the major channel
for settlement of financial transactions in Indonesia.
Almost 95 percent of high value and urgent financial
transactions, such as on the interbank money market, the stock market,
government transactions, foreign currency transactions and clearing
settlement, are processed through the BI-RTGS system. In 2005, the daily
turnover of transactions handled in the BI-RTGS system reached at least
Rp 82.8 trillion. By comparison, only Rp 4.7 trillion was recorded in
daily non-cash transactions using card-based instruments provided by
banks or NBFIs.
The importance of the BI-RTGS system to the national
payment system means that the continuity and stability of the system
must be safeguarded at all times. If at any time the BI-RTGS system
breaks down or experiences a technical fault, there will inevitably be
highly disruptive impact on the operation and stability of the domestic
financial system. This does not even include the material and
non-material impact of system breakdown. BI therefore pays very close
attention to maintaining the stability of the BI-RTGS, which is
categorised as a Systemically Important Payment System (SIPS), one that
processes high value, urgent payment transactions.
Bank Indonesia therefore has every reason to take
great care in safeguarding the stability of the existing SIPS. To do
this, it manages the risks, design, technological reliability,
supporting networks and the SIPS rules. In addition to the SIPS, there
are also System Wide Important Payment Systems (SWIPS), which are
systems used by the public. The clearing system and card-based
instruments come within the SWIPS category. BI also pays careful
attention to the various SWIPS because of their popular use. Whenever a
system experiences disruption, the public interest in conducting
payments will also suffer, as will confidence in the system and the
payment instruments processed within the system.
BI does not only seek to create efficiency in the
payment system, but also equitable access and consumer protection.
Creation of efficiency in the payment system is intended to provide
convenience to users in which they can select a payment method
accessible throughout Indonesia at the lowest possible cost. Equitable
access means that BI also considers how equity considerations are
applied in the operation of the payment system. Lastly, consumer
protection means that operators have the obligation to adopt reasonable
consumer protection principles in their system operations.