Academic journal article Journal of Southeast Asian Economies

Cashless in Indonesia: Gelling Mobile E-Frictions?

Academic journal article Journal of Southeast Asian Economies

Cashless in Indonesia: Gelling Mobile E-Frictions?

Article excerpt

1. Introduction

Indonesia, with the world's fourth largest population (trailing behind China, India and the United States) is often eyed for its young demographics--nearly 60 per cent of its 250 million population is below thirty years of age. Moreover, McKinsey & Company estimates that in 2030, Indonesia will become the seventh largest economy, more than 60 per cent of its working age population will enter middle-class status, and the consumer class is expected to increase from 45 million in 2010 to 140 million in 2030 (Oberman et al. 2012). Furthermore, the country also has a rapidly growing mobile market, which constitutes one of the largest social media user bases in the world.

Amidst the optimism about the country's economic potential, challenges in the country exist. The country has a diverse set of languages and cultures with more than 300 ethnic groups spread over an archipelago of more than 13,000 islands. Additionally, in 2001, Indonesia underwent "big bang" decentralization, transferring political, financial and administrative authority to the second tier of sub-national governments, currently numbering more than 500 regencies (kabupaten) and municipalities (kota). Power has been dispersed from the centre towards hundreds of subnational regions, presenting a highly fragmented market with massive challenges in interoperability and large-scale adoption in e-payments solutions. While mobile subscriptions are growing to near ubiquity in Indonesia, logistics and Internet coverage still remain spotty, with Internet speed rated as the lowest in Southeast Asia. With these challenges, it is extremely difficult to create a long-term institutional framework that builds infrastructure for connectivity.

Indonesia still relies mostly on cash payments, with limited growth in card-based instruments. The country's rapid growth of mobile subscriptions and devices seem to offer the potential for cashless transactions, but intermittent network connections that cause transactions to fail are still prevalent. Until recently, performing a cash-out required a remittance licence issued directly by Bank Indonesia (BI), but after a regulation amendment, major transaction switching companies started implementing inter-operability among different networks. This has led to greater use of electronic money (e-money), (1) inter-bank and inter-operator transfers. However, problems still exist: low trust; slow Internet connection; weak logistics; and a lack of qualified workers. Additionally, while Indonesia has grand development masterplans and blueprints at various levels, implementation is generally patchy, if executed at all. (2)

Based on an analysis of official documents, press and consultancy reports, this research note argues that, given the long-standing constraints of developing fixed infrastructures, and the potential development of mobile technology as a tool for cashless payments, the concept of "gelling" distributed networks, rather than a focus on centralized blueprints and regulations, ought to be considered in future studies. As it is, individual sub-national or network providers have their own operators, users and potential markets, which are often overlapping and conflicting. Indonesia's history has shown how challenging it is to "enforce" centralized laws and regulations amidst ever-shifting overt and covert alliances of political and economic actors, now dispersed not only down to sub-national governments, but also to ever-shifting market forces. The notion of "gelling" not only suggests the potential to build connections and interoperability across existing frictions and existing distributed, non-homogeneous networks, it also highlights the dynamic possibilities of changing fluidity, compatibility, and stickiness that can be caused by various ecological, economic, social, technological, political factors within gelleable, mobile networks (Tironi 2012; Sheller and Urry 2004).

In section 2 of this research note, I elaborate on the current state of affairs--the main players in the market, the number and volume of noncash transactions, as well as government plans. …

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