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Enabling interoperability, the QRIS seeks to level the playing field until now dominated by GoPay and OVO – disruption that could go beyond the e-wallets scene 

Bank Indonesia, the country’s central bank, has rolled out its Quick Response Code Indonesian Standard (QRIS), a single system for all QR code-based payments in the country. From January this year, merchants no longer have to show a different code for every different e-wallet, and customers can use any compliant wallet at any merchant accepting QR payments. Everyone who wants to accept QR code payments will have to use a QRIS-compliant code – including foreign e-wallets like Alipay and WeChat Pay, which both recently gained regulatory approval to operate in Indonesia.

In the last four years, the country's most popular e-wallets – GoPay, offered by the ride-hailing unicorn Gojek; the Lippo Group conglomerate’s OVO; and the EMTEK-Ant Financial joint venture DANA – have changed how Indonesians shop and pay, be it online or offline. The wave started in urban areas as major retailers began accepting QR code-based payments. In the past two years, MSMEs have begun using QR-code payments too, even in rural areas.

The central bank wants to improve financial inclusion by encouraging wider adoption of e-wallets. More merchants are opening bank accounts – as required by regulators before they can accept QR-code payments – and as a result, they gain access to more financial services. At the same time, e-wallets are giving unbanked Indonesians access to financial services they could not use before, such as online shopping, bill payments, even quick loans. This is important for Indonesia, where roughly half of its adult population do not have bank accounts and are hence excluded from basic financial services.

Through the standardization, the central bank also intends to create a more level playing field in the e-wallet space and encourage innovation in the industry. “Without standardization, the big players will get bigger, while smaller players have less room to develop the technology,” said Ricky Satria, deputy director of Bank Indonesia’s Department of Payment Systems Policies and Supervision. 

New winners

As early as in 2015, some banks and smaller e-wallets, like DOKU, offered QR-code payments, but were soon overtaken by GoPay and OVO, which offered steep discounts, ease of use and wider merchant adoption.

Merchants were also quick to embrace GoPay or OVO – often both – hoping to attract more customers as the biggest e-wallets kept their cashback campaigns running. A few more new e-wallets like Paytren entered the market subsequently, but without the same funding support as the VC-backed GoPay, they were soon left behind. Meanwhile the e-wallets offered by banks could only be topped up via accounts with the banks, unlike GoPay and OVO, which users can top up with cash via offline agents, such as Gojek and Grab ride-hailing drivers.

As the biggest players extended their lead, there have been alleged cases of monopolistic practices. Smaller companies found themselves unable to compete against the long-running cashback campaigns that continued to win over users. In a more extreme case, OVO was reported to the Business Competition Supervisory Commission for alleged monopolistic practices, especially in Lippo-owned properties. 

With the QRIS's interoperability, banks and smaller e-wallets can now spend less time and effort getting merchants onboard and focus on getting more users for their platforms. More than 1.2m merchants already display QRIS-compliant codes. This means banks that didn't have e-wallets before can now start rolling out QR-code payment functions in their mobile banking apps for customers to make payments from their accounts. Existing e-wallet apps, like DOKU and Paytren, may get a boost in usage from their loyal users.

The QRIS will also give LinkAja, the e-wallet backed directly by state-owned enterprises, a fighting chance. Despite being made by combining five e-wallets – from four banks and a telco – and having as many as 22m users, it was soon surpassed by DANA, which was launched at the end of 2018. LinkAja can now spend less resources on merchant acquisition and focus on improving its services by, for example, improving links with other state-owned enterprises and handling payments in government facilities.

Chinese e-wallet giants Alipay and WeChat Pay have also entered the local market by partnering Indonesian banks. Tencent's WeChat Pay is authorized to accept payments in Indonesia, collaborating with CIMB Niaga acting as the acquiring bank. Alipay is partnering with state-owned banks, BRI and Bank Mandiri, and is expected to shortly accept e-payments in Indonesia. Both e-wallets aren't available to locals and are meant to serve Chinese tourists in destinations like Bali and Yogyakarta.

In addition, e-commerce companies, especially those with an O2O angle, can also expand their markets with the QRIS. For example, Bukalapak participated in the QRIS pilot run last year by giving QR codes to offline merchant partners. Offline partners can accept payments from e-wallets, which can be stored in their online merchant accounts. The merchants can then use that balance to restock through the respective marketplaces and platforms.

Fixed-fee problem

While the QRIS will benefit e-wallets as more merchants can immediately accept QR code payments, there are also challenges, in particular, the transaction fee, which is fixed at 0.7%. The fee, payable by merchants, is lower than the 1% fee for off-us card transactions, but higher than the 0.15% fee for on-us card transactions. 

Ikhsan Ingratubun, head of the Indonesian Association for Micro, Small and Medium Enterprises, told news website Katadata that the fee should be waived for MSMEs or at least lowered to 0.15%. “As merchants, we hope to get some assistance in using such a fast and affordable payment method,” he said.

According to Reuters, e-wallet providers often discounted or waived fees for MSMEs, cross-subsidizing them with revenue from fees of up to 2% for larger merchants. However, the QRIS fixes the fee across the board regardless of the merchant’s size of operations. Without the cross-subsidy, micro-businesses may be reluctant to accept QR payments, particularly in smaller cities and rural areas.

To make matters worse, the 0.7% transaction fee is split three ways. Payment issuers will now get only 37% of the fee instead of the entire sum; 34% will go to the acquiring bank and the rest will go to a consortium of companies that operate the National Payment Gateway, a payment service system that has standardized Indonesia’s card-based cashless payments since 2018.

The standardized fee and new distribution formula will eat into the revenue of e-wallet companies. OVO, for example, has to prove that its “cash-burning” marketing initiatives can lead to profitability, after Mochtar Riady, founder of the Lippo Group, revealed that the Group had let go two-thirds of its stake in OVO. With this cut to one of OVO's main sources of revenue, that goal seems even more difficult to achieve.

Diversify or die

To prepare for the challenges brought about by standardization, current e-wallet leaders have been working hard to strengthen their “ecosystems,” mainly by diversifying their source of income. GoPay, OVO and DANA can now be used to pay at various e-commerce websites, digital voucher stores, and even app stores. GoPay can be used on the Google Play Store, while DANA is the first Indonesian e-wallet to be accepted in Apple's App Store. 

GoPay, in particular, benefits from being part of Gojek’s larger ecosystem and is an example of how e-wallets can provide more benefits to its users. It started as a convenient way to pay for Gojek rides, but its utility expanded as Gojek grew. Its users can now sign up for gym classes or buy travel insurance and pay with their GoPay balance following Gojek's recent collaboration with gym pass startup DOOgether and insurance marketplace PasarPolis. They can also pay for their school fees with GoPay at a number of schools and other educational institutions.

Ultimately, such companies are likely to double down on partnerships with other financial services, including fintech startups, to expand their use case and improve their product’s stickiness among customers. They may dedicate significant resources towards building these partnerships or even aim to acquire smaller companies that can add financial services to their platform. 

Investment platforms, such as Bareksa and Investree, and financial planning apps like Ajaib and Halofina, are attractive targets for collaboration, investment, or even merger and acquisition. Currently, GoPay and OVO balances can be used at various mutual fund investment platforms, such as Bibit and Bareksa. In fact, Bareksa was rumored to be a target of acquisition by OVO since April 2019. It was eventually revealed in January this year that OVO was the sole investor in Bareksa’s Series B in 2019. 

Smaller e-wallets, meanwhile, will have to bring something new to the table if they want to compete for funding. Investors will also set their sights on potential new growth areas for startups in e-commerce, O2O and other sectors that could take advantage of the QRIS for offline payments, despite not being e-wallet issuers themselves.

All of these companies can take advantage of the opportunities presented by standardization and the quickest way would be to increase access to financial services, especially for unbanked customers – in line with the central bank’s vision of greater financial inclusion.

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Edited by Bernice Tang, S. Mani


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