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Indonesia pushing for open banking system

By Andreas Ismar

09:05, 23 August 2021

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Indonesia QR
Indonesia QR payments - Photo: Shutterstock

Indonesia has set out a framework for an open banking system which will allow interoperability between digital firms and spur the country's e-commerce market.

The initiative first began in 2016, and on 20 August, Bank Indonesia issued a norm on standards for open application programming interface (API) for payments.

Under the new norm, 16 banks and payment services firms will adopt the open API system by June 2022, with full adoption by the rest of the pack scheduled in 2025, Juda Agung, assistant governor and head of macroprudential policy department at Bank Indonesia, said in a briefing on Monday (23 August).

Common language

According to Juda a key problem is that banking systems in Indonesia do not use standardised programmes, making it nigh impossible for interoperability between service providers.

“Previously, the cooperation between e-commerce and payment systems were fragmented. Some use Sundanese, others use Javanese and Bataknese. Now, with open API, they can using common language, so no more fragmentations,” Juda said.

“It’s the right momentum for digitalisation. With SNAP [national standards on open API], everybody can talk to anybody,” he said.

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The interoperability of payment systems also allows Bank Indonesia to pilot a cross-border quick response (QR) link with Bank of Thailand (BOT). When travels reopen, “one can transact by scanning QR codes. No more hassle in converting money and less costly fees on conversion as the transaction will be settled in local currency under existing agreement with BOT,” said Filianingsih Hendarta, assistant governor and head of payment system department at Bank Indonesia.

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Boon for digital economy

“Transactions will not be limited to physical, the next step would be buying from Thai or Indonesian e-commerce,” she said, adding that the central bank is in discussions with Malaysia for similar pilot testing.

Greater payments flexibility will allow more fertile land for internet economy such as e-commerce and financial technology to flourish. Bain, Temasek and Google estimated that digital economies in six largest countries in Southeast Asia to top $300bn in 2025 from $100bn in 2020.  

The open API system, sometimes dubbed as open banking, “can create synergy and collaborations. Digital ecosystem is the trend going forward, it needs support and services from the banking sector,” David Sumual, chief economist at Bank Central Asia, told capital.com.

State-owned lender Bank Negara Indonesia said that open banking enables collaboration between the better-capitalised conventional bank and the nimbler fintechs in offering greater array of products to end consumers.

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