Wednesday, March 27, 2013

Good News for e-Money and Remittance Operators in Indonesia

For a few years now, all eyes have been on Indonesia as a potential growth country for mobile money and branchless banking. The market potential is obvious – with an enormous population (250million), a large number of unbanked (40-60%), booming mobile ownership and challenging geography, it seems like a clear winner. But every attempt has come across an obstacle – regulation. Banks are unable to use agents to provide accounts, so cannot build low-cost agent networks. The big telcos have all received licenses for electronic money and remittance services, but have been unable to capitalise on them. An article in the Electronic Money regulation (Bank Indonesia Regulation Number 11/12/PBI/2009) prohibits outlets from “cashing out” e-money unless that outlet has a remittance license. This has effectively limited mobile money services to operating through large organised retail chains and telco’s own outlets, excluding small owner-operated businesses.
In some recent good news for e-money operators, this last restriction appears to have been lifted. The Regulation on Funds Transfer 14/23 /PBI/2012 has a specific provision, Article 4, that says that Cash Payment Points (Tempat Penguangan Tunai or “TPT’s”) are allowed to provide a cash-out service without requiring a funds transfer license.  Although this regulation doesn’t specifically mention e-money, it is covered as one of the “record keeping” systems as specified in the definitions of this regulation.

This change will cover cashing into or out from a customer’s own wallet, but it’s still not clear if it would cover “over the counter” or “wallet to non-wallet” transactions. Bank Indonesia is working on a circular to help clarify these points which is expected in the coming quarter.

In recent months, representatives from Bank Indonesia have made some significant statements on their desire to see more innovative and financially inclusive services from both banks and mobile operators. While banks are still awaiting promised guidelines on branchless banking, it’s good to see the sorts of transactions available to e-money providers expand and I look forward to seeing e-money issuers and funds transfer providers take advantage of this change.

The regulation in Bahasa Indonesia is available here. An unofficial English translation is available here.
- Michael Joyce

Michael Joyce is a policy advisor working with the Government of Indonesia on mobile money and financial inclusion. He has been working on mobile money in Asia for five years, specialising in risk, regulation and operations. The views on this blog are his own and do not represent the views of the Government of Indonesia or constitute legal advice.

Friday, March 1, 2013

BBM Money - BlackBerry Taking the Lead in Emerging Market Payments

The launch of BBM Money in Indonesia this week is interesting for a number of reasons. Using the BB PIN as a proxy for an account number that allows 'in-chat money transfers' to BBM contacts is one. Another is how the service uses elements of an unbanked mobile payments business model to provide services to banked customers. 

Before I discuss this it would be worth sharing some background of the environment in Indonesia where BBM Money was launched;  

BlackBerry is a premium product in Indonesia. It's even considered cool#. The large majority of its users are banked. In fact the premium nature of BlackBerry ownership is a prime indicator of an affluent customer. Launching a dedicated payment service in Indonesia for BlackBerry's 7 million economically active customer base is part of a very targeted strategy.

BB Messenger is king in Indonesia. BBM has 98% penetration of BlackBerry users. BlackBerry have combined with Indonesian MNOs to offer prepaid 'Biz-Social' plans for as little as US$6/m, providing unlimited emails & BBM access. BBM is the business and social communication tool in Indonesia. When I was working in Jakarta last year the ratio for business communications was 30 BBM conversations : 4 emails : 1 phone call. Before I got my BlackBerry, work progressed very slowly. Similar ratios would apply for social communications. Not having a BlackBerry in some Indonesia circles is akin to placing yourself on social death-row.   

Scheme credit & debit card (i.e. Visa & Mastercard) penetration in Indonesia's banked populations is low. However the electronic banking infrastructure is advanced and better than most developed countries. A payments service that uses Card-Data-On-File like Google Wallet will only have a limited application. However a service that allows transfers to a 'pre-paid account' will appeal to a greater number of users.

So the BBM Money service is smartphone based, is integrated into a widely used social/business communication tool and targets banked customers, what elements of the unbanked business models did it take its lead from and how was this achieved?  

1. Available To The Mass Market. BBM Money can be downloaded for free from BB App World. While not available to all of Indonesia's 250m population, it is available to 7m BlackBerry consumers. BlackBerry's has a significant 50% market share of smart phones in  Indonesia. BlackBerry's subscriber base growth is benefiting as consumers shift from feature phones (...and yes Android phones have impacted their share of the smartphone pie however BlackBerry still have doubled their subscriber base in the past 2 years).   

2. Simple On-The-Spot Account Opening. Once the BBM Money App has been downloaded from BB App World, a simple on-the-spot registration process opens an underlying Permata Bank e-money account and associates it to the users BB PIN. This uses Indonesia's e-money regulations that allow for limited-use account opening with no KYC checks.  

3. Multiple Points to Cash In & Cash Out. After the registration a user's BBM Money account can be loaded real-time from any bank's online, mobile or ATMs service. This utilises Permata's real time gross settlement through multiple ATM switch integration, connecting BBM Money to 100+ banks and 70,000+ ATMs. Effectively a user can download, register and load their account within 5 minutes, all from their lounge room.

Cash out is either a cardless ATM withdrawal at one of Permata Bank's 700+ ATMs or simple 'transfer to bank account'- real time to 100+ banks.
4. Remote KYC Checks: The Indonesian e-money rules allow for accounts to be opened without KYC check, however to send P2P or cash out a user must confirm their ID at an agent. BlackBerry has leveraged their handset sales retail networks to facilitate this process. This is a key asset to the service as they are located in every major and most minor shopping centres- a location where most affluent consumers spend their leisure times on evenings and weekends. 

5. Supports a payment proposition that solves a pain point. In additional to the heavy conversational traffic use of BBM, Indonesians also use BBM Groups as a channel to sell goods. A user will post a picture of items they want sell, which other group members bid for- effectively BBM Groups are used to run a private eBay service. What is lacking is an accompanying payments service, like PayPal is to eBay. A client survey revealed that  70% of BlackBerry users were aware of BBM Group selling and 50% had participated in it. The Groups are based on invitation-only principle so while BBM Money lacks the supporting Pay Pal structure like charge backs, the participants are 'known through contacts' and replaces the current settlement process of bank account transfers.  
Will BBM Money be successful when many new mobile payments have and continue to fail? Only time will tell. However the approach of utilising unbanked business model principles in targeting banked customers is interesting and I thought it was worth sharing.

- Paul Reynolds 

Paul Reynolds is an Associate Consultant with Mobile Accelerate. He previously worked for Monitise in Indonesia and was part of the team that designed and built BBM Money. 

In Indonesian marketing circles they talk about the 'The Three Bs of Cool' in youth aspirational marketing. This includes; BlackBerry, Black Mild (cigarette brand) & Braces.