What Is Electronification?

​Background

Bank Indonesia announced the National Noncash Movement (GNNT) on 14th August 2014, which aims to create a secure, efficient and always available payment system and, in turn, facilitate an effective and efficient national financial system. GNNT is also expected to minimise the constraints associated with cash payments, such as damaged or worn currency no longer fit for circulation, as well as increased transaction efficiency as the public is no longer required to carry large amounts of currency.  Therefore, GNNT will also boost transaction effectiveness by avoiding human error.  Ultimately, GNNT will create a cashless society ecosystem.


 

Consistent with efforts to expand GNNT, Bank Indonesia is acutely aware that the payment system must adapt to the emergence of digital technology.  To that end, Bank Indonesia issued the Indonesia Payment System Blueprint 2025, one vision of which is to support banking industry digitalisation as the dominant force of the digital economy and finance through open banking and utilisation of digital technology and data in the finance business.


 

Greater efficiency, convenience and inclusivity driven by digital economic and financial integration are expected to contribute to solid, balanced, inclusive and sustainable economic growth.  Bank Indonesia’s efforts to integrate the digital economy and finance are achieved through electronification policies and programs, including the electronification of local government transactions, electronification of social aid program (bansos) disbursements, and electronification of the transportation sector.  The programs are expected to boost economic growth through greater financial inclusion, physical health and economic efficiency.


 

The shift from cash to cashless instruments is more practical and confers a number of efficiency benefits in terms of cash handling, broader access, transaction transparency and more accurate economic planning identification.



Definition of Electronification

Financial transaction electronification represents a shift from cash to cashless payment methods.  Furthermore, financial transaction electronification is a part of the National GNNT Movement announced by Bank Indonesia.

 

Bank Indonesia’s Role in Electronification

Bank Indonesia's role in electronification is as follows:

  1. Coordinate and facilitate electronification in line with Bank Indonesia's payment system duties.
  2. Socialise and/or educate external stakeholders concerning implementation of the electronification program, including supporting regulations and policies, while publishing educational materials targeting the public regarding cashless transaction services through the media in coordination with Bank Indonesia representative offices, government ministries/departments, payment system service providers and other relevant parties.
  3. Monitor the effectiveness of electronification program implementation through surveys, focus group discussions (FGD) and/or on-site visits.​

Bank Indonesia actively encourages the ongoing shift in public preferences from cash to non-cash instruments through four salient electronification strategies in synergy with government programs as follows:


  1. Facilitating business models
  2. Supporting regulations and policies
  3. Optimising local resources
  4. Education and monitoring

Electronification Program

The electronification program implemented by Bank Indonesia encompasses the electronification of local government transactions, social aid program (bansos) disbursements and the transportation sector.


a. Electronification of Local Government Transactions: 

  • The electronification of local government transactions strives to integrate efforts that transition cash to cashless local government transactions in order to increase accountability and transparency in terms of local financial management.
  • Within the local government financial transaction electronification ecosystem, the main components have been divided into two groups:
  1. End users of electronified financial transaction services, namely local government and the public; and
  2. Providers of electronified financial transaction services, namely banks managing regional treasury accounts (RKUD), bank partners, bank agents, payment points and FinTech.

The following points must be considered in terms of local government financial transaction electronification ecosystem sustainability:​

  1. The financial and information systems in local government must have connectivity with the banking system as managers of regional treasury accounts in order to support cashless transactions for transfer/payment, payroll and enquiry activities.
  2. The availability of payment instruments and channels must be expanded through cooperation between RKUD banks and bank partners in order to facilitate public access to cashless transactions with local government.
  3. 3. Local government and the banking industry must cooperate in synergy to provide education that introduces finance and expands public access through cashless payment instruments and channels.
  • Regulations for the electronification of local government transactions commenced with the National Noncash Movement (GNNT) initiated by Bank Indonesia in conjunction with the Government in 2014 seeking to create a cashless society.  Aligned with the GNNT movement, Presidential Instruction (Inpres) No. 10/2016 was issued containing the necessary directives to accelerate cashless transaction implementation throughout all government ministries/departments and local government.  Furthermore, seeking to accelerate the local government financial transaction electronification program, Home Affairs Minister Circular Letter No. 910/1866/SJ concerning Implementation of Cashless Transactions in Provincial Government and Home Affairs Minister Circular Letter No. 910/1867/SJ concerning Implementation of Cashless Transactions in Local Regency/City Authorities were reinforced through the promulgation of Government Regulation No. 12/2019, Article 222, which requires local governments to implement electronic-based government systems for regional financial management;
  • The electronification of local government financial transactions will support various economic activities in the following ways:
    1. Optimisation of locally generated revenue (PAD) through cooperation between local government, RKUD banks and other banks that provide various payment channels to facilitate the receipt of cashless tax and levy revenues.
    2. Stronger financial governance in local government, as reflected by the availability of simpler administration processes, broad access, the ability to log all transactions, greater financial management efficiency and more accurate economic planning.
    3. Broader financial access, as demonstrated by greater availability of diverse cashless payment channels and instruments throughout Indonesia, which ultimately expands the opportunities for the unbanked to access formal banking services.
    4. Stronger financial controls systematically (appropriately logged and documented), which will facilitate real-time control and evaluation by various parties as well as the preparation of financial reports based on general accounting principles. 

b. Electronification of Social Aid Program Disbursements: 

  • The electronification of social aid program (bansos) disbursements represents the transformation of cash to cashless social aid program disbursements in order to realise the 6T principles, namely On Time, On Target, On Quantity, On Quality, On Price and On Administration, while increasing the opportunities and capabilities of the public to access and utilise financial services.
  • The electronification of social aid program disbursements encompasses the Family Hope Program (PKH) and Sembako Program (Non-Cash Food Assistance), which have been integrated under the auspices of the Combo Card (Kartu Kombo).​
  • The provisions pertaining to social aid program electronification are contained within Presidential Regulation No. 63 of 2017 concerning Cashless Social Aid Disbursements.
  • Implementation of social aid program electronification:
    1. Initiated by a directive from the President of the Republic of Indonesia concerning the transformation of cashless social aid program disbursements at the limited cabinet meeting held on 26th April 2016.  The directive is in line with BI policy on financial inclusion and electronification through the National Noncash Movement (GNNT) announced by Bank Indonesia and the Government on 14th August 2014.
    2. Bank Indonesia subsequently initiated the signing of a Memorandum of Understanding (MoU) in conjunction with five government ministries on 26th May 2016 concerning coordination for the implementation of social aid program electronification.  Social aid disbursements are consistent with one of the pillars of the National Financial Inclusion Strategy (SNKI).
    3. The implementation of social aid program electronification began in 2016 with Family Hope Program (PKH) disbursements before expanding in 2017 with the launch of the Noncash Food Assistance Program (BPNT) as a reformed version of the previous Rastra (subsidised rice) program.
    4. A Presidential Directive contained in a Financial Note dated 16th August 2019 stated that the Government will disburse BPNT to 15.6 million families through the Sembako Card, thereby diversifying the foodstuffs available for purchase, with assistance totalling Rp1.8 million per beneficiary family per year.  At a ministerial meeting on 17th December 2019, ministers agreed to evolve the Noncash Food Assistance Program (BPNT) into the Sembako Program, while maintaining the Combo Card as a payment instrument.
  • As of December 2019, Family Hope Program (PKH) disbursements had reached Rp32.7 trillion and helped 9.8 million beneficiaries across four consecutive stages/quarters.  Meanwhile, annual BPNT disbursements had reached Rp15.44 trillion and helped 15 million beneficiaries.

c. Electronification of the Transportation Sector

  • Nationally, electronification of the transportation sector is supported by the Joint Agreement signed between Bank Indonesia and the Ministry of Transportation of the Republic of Indonesia (No. 19/8/NK/GBI/2017), dated 6th January 2017, concerning Cooperation and Coordination in the Execution of Duties at Bank Indonesia and the Ministry of Transportation of the Republic of Indonesia.
  • The electronification of transportation sector payments has been implemented for land transportation, ferry crossings and sea transportation as well as rail-based transportation in line with NPG principles (interconnectivity and interoperability), which is non-exclusively open and available to all issuers of electronic money in accordance with Bank Indonesia Regulation (PBI) No. 20/6/PBI/2018 concerning Electronic Money, dated 3rd May 2018.
  • Towards the electronification of transportation sector payments, Bank Indonesia is cooperating with the Ministry of Transportation, provincial governments, local transportation departments, operators of different transportation modes and payment system service providers in order to increase public awareness, expand access to payment instruments and top-up services, and improve the reliability of ticket vending machines for each respective transportation mode.

d. Electrification of Toll Road Payments

  • Bank Indonesia is also overseeing the electronification of toll road payments, supported by the signing of a Joint Agreement between Bank Indonesia and the Ministry of Public Works and Public Housing of the Republic of Indonesia (No. 19/5/NK/GBI/2017), dated 31st May 2017, concerning Cooperation and Coordination in the Execution of Duties at Bank Indonesia and the Ministry of Public Works and Public Housing of the Republic of Indonesia.  In addition, through Minister of Public Works and Public Housing Regulation No. 16 of 2017, real-time payments of toll road fares must be cashless using chip-based electronic money from 31st October 2017.  Gradually, payments will transition from tapping to contactless mechanisms.​