Indonesia takes its credit card network in-house

Indonesia’s central bank, Bank Indonesia (BI), has announced plans to develop a domestic credit card system. The move comes as south-east Asia’s biggest economy seeks more autonomy over its payment infrastructure by minimising the role of foreign payment providers.

Once completed, the new system is expected to cut costs and transaction processing times, while helping to shield Jakarta from an increasingly fractious geopolitical environment. 

President Joko Widodo underscored government concerns in March when he was quoted by local press outlets as saying, at the opening of a business forum, that “Visa and MasterCard are a problem” in light of the impact of US sanctions.

The president also reminded ministries, regional administrations and state-owned institutions, among other players, to use the government-issued payment cards that were launched in 2022. 

For its part, a BI spokesperson told the Jakarta Post that progress on the new consumer credit card scheme stood at 90% by late March, and that the apex institution had been holding discussions with local financial institutions on its development.

No final launch date has been announced and it is thought the scheme will be voluntary rather than mandatory for issuing organisations. BI did not respond to a request for comment from The Banker in time for this article. 

“The [authorities] want to reduce [Indonesia’s] dependency on the international payment system,” says Freddy Karyadi, partner at Indonesian law firm Ali Budiardjo, Nugroho, Reksodiputro and board member of the country’s Fintech Alliance. “In general, the market portion of credit card payment is not high. The utilisation of a local credit card payment system would provide more alternatives for Indonesian banks and finance companies to offer new products for credit cards,” he says.

Local card system

From a technical standpoint, the rollout of a new credit card system could be relatively easy to achieve. In late 2017, Indonesia launched its National Payment Gateway (NPG) to act as an “integrated and connected national retail payment system” to bring together a fragmented non-cash payment landscape.

Local NPG debit cards are a feature of this scheme and run alongside foreign-owned card systems. As such, applying an Indonesia-backed credit card offering to the NPG would be a feasible infrastructure pathway. 

The addition of a local credit card system would also be in keeping with the government’s overall legislative and regulatory focus of recent years. 

Since 2020, Indonesia has tightened restrictions on foreign participation in the payments sector. This includes the introduction of local ownership rules governing payment service providers and payment system infrastructure providers, among other changes. 

According to Mr Karyadi, further regulatory changes to the country’s payment market could be on the way. “We believe further regulation may be issued to strengthen the rules concerning the national payment gateway and to put more limits on foreign participation in Indonesia’s payment system,” he says. 

Even if the changes shaping Indonesia’s payment market are, broadly speaking, mirrored in some other jurisdictions, they are occurring against a backdrop of shifting cross-border payment dynamics.

On March 31, at the conclusion of a meeting of finance ministers and central bank governors from the Association of Southeast Asian Nations (Asean), participants resolved to increase local currency settlement arrangements and lower their dependence on the US dollar and other hard currencies for trade and investment. 

Changes taking place across Asean and, more specifically, Indonesia will have profound consequences for the future. Most estimates indicate the regional bloc will be the world’s fourth-largest economy by 2030, while Indonesia itself is expected to be the world’s fourth-largest economy by 2050, according to PwC.

As such, the choices made by these markets today will shape the future of the global economy in the years ahead.