Payments today are not your father's payments of yesteryear. Gone are the days of the quaint cheque and in are twenty-first century demands for real-time payment processing from banks and corporates.
"Without a payment system, [economic integration] is going nowhere," said Ronald Waas, director for the directorate of accounting and payment systems at Bank Indonesia, as he addressed the Society for Worldwide Interbank Financial Telecommunications (Swift) business forum in Jakarta last month. While he spoke about the on-going initiative to forge closer economic ties between the 10 members of the Association of Southeast Asian Nations, his comments rang true within Indonesia.
The country's existing real-time gross settlement system, BI-RTGS, was launched in 2000 and is due for an upgrade. Waas said that while it has all the necessary processes, it lacks global standards, cannot integrate with other systems and does not address inefficiencies in the domestic payments marketplace, for example in retail payment switching.
"The RTGS and the scripless securities settlement system are two of the top priorities now," he said. "That's because they are the main infrastructure of high-value payments in Indonesia. It's time for us to relook at them."
Waas's concerns ring true among market participants as well. "Cost-effective payment systems are something we would like to see," said Budi Gunadi Sadikin, a director at Bank Mandiri, at the forum. "We have seen some improvements in transaction costs but, since we grew our transaction volumes significantly, we cannot maintain the cost structure. We need to continue aggressively pushing down our cost structure." Other issues he mentioned included capturing the high percentage of payments made outside the formal banking system and building a platform that is "failure proof" against something as basic as power outages.
"We are very careful to say let's have one big switch to serve all transactions," said Sadikin. "[But] if something happened to that system, then what's next? In many major countries, including the US and Europe, there are two high-value payment systems. In Indonesia we have one and we pray to god that it never fails.
"[Having] two payment systems in a country is good for comparison and pricing, but it's also good for redundancy," he concluded.
Technically, Indonesia does have more than one payment system, just not for high-value payments. Transactions with values less than Rp100 million ($10.8 million) are processed through SKNBI, a central bank run national clearing system. There are also a number of privately run retail payment switches.
The central bank is now working with market participants and Swift to build a second generation RTGS infrastructure. The highlight of which, according to Waas, will be its ability to integrate regionally and improve efficiencies in processing domestic payments, which could reduce the cost of transactions for banks and corporate customers. The current timeline calls for the system to go live in 2012, though many would consider this an ambitious goal considering it took Hong Kong three years to implement a Swift infrastructure and Indonesia, as Waas pointed out, has only just recently released its request for proposals.
In addition to Hong Kong, which implemented the collective's platform last year, Swift is the basis for payment infrastructures in seven other Asia-Pacific markets. These include Australia, Fiji, New Zealand, the Philippines, Singapore, Sri Lanka and Thailand.
"Swift aims to support the Asian growth and stability," said Franck de Praetere, head of Southeast Asia at Swift. "How we support growth in the region is by focusing on market infrastructures." He added that the collective is in "very high level" talks with regulators in Laos and Malaysia as well as in Indonesia.
What remains to be seen in Indonesia is a realistic timeline for implementation and what the second-generation-payments infrastructure would look like. The central bank and Swift need to address concerns among market participants over ceding control of a national standard as fundamental to a country's economy as payments to a foreign entity like Swift, something the crowd at the Jakarta forum made clear during the Q&A session. What is certain is that whatever is eventually adopted will improve Indonesia's competitive advantage in the world of payments and make it an easier market for businesses to operate in.
"Our payment system in the future will be more efficient, sound and robust as well as protect our countrymen very well," said Waas.
