Indonesia, the largest economy in Southeast Asia and the world’s fourth most populous country^*, is rapidly evolving into a digital powerhouse. Through our “Insider Insights” series, we explore the complexities of cross-border transactions through multiple lenses, offering perspectives on navigating this fast-evolving landscape. In this article, we turn our focus to Indonesia’s unique payment ecosystem and its impact on businesses seeking to tap into the country’s vast potential.  

Indonesia’s B2B Payments Landscape is Moving From Conventional Channels

Indonesia’s payment systems have undergone significant transformation, particularly in the realm of B2B transactions. Traditionally dominated by conventional banking channels, the landscape has seen a marked shift towards modern online payment service providers (PSPs) such as Wallex in recent years. This transition accelerated during the pandemic when physical bank visits became impractical, prompting businesses to adopt digital solutions for their payment processes.

As Andy Putra, Country Head of Wallex Indonesia, explains, two primary payment methods are prevalent in Indonesia today: traditional banking, which includes internet banking, and modern online PSPs. The growing popularity of online PSPs is driven by their convenience relative to traditional financial institutions, enabling businesses to transact seamlessly anytime, and anywhere.

Digital Infrastructure Changing the Game with Cross-border Payments

Digital infrastructure has played a pivotal role in shaping the future of cross-border payments in Indonesia. According to Andy, a strong digital infrastructure not only enhances connectivity but also powers the technology platforms needed to facilitate seamless transactions across borders.

"With the advancement of digital infrastructure, we now have APIs that enable the development of robust digital banking systems, which are crucial for supporting cross-border payments," Andy explains. Additionally, digital infrastructure allows for the implementation of secure and efficient online payment methods, making transactions more accessible to businesses of all sizes.

Crucially, digital infrastructure is helping to bridge the gap for small and medium-sized enterprises (SMEs) in remote areas. Indonesia, being a vast island nation, often presents challenges in reaching traditional banking services. However, with the expansion of digital platforms, even businesses in the most remote regions can now access financial services that were previously out of reach. "This is especially significant for SMEs, which play a major role in Indonesia's economy," Andy adds. 

Tackling the Hurdles of Cross-Border Transactions in Indonesia

Despite these advancements, businesses in Indonesia continue to face challenges with cross-border transactions. One of the primary hurdles is navigating the complex regulatory and compliance requirements. Andy highlights that, “Indonesia has a capital flight protection policy that they regulate when people want to transfer the money out of Indonesia” which can be extra work for businesses to navigate. The process of transferring money out of Indonesia involves extensive documentation, whereas inbound transactions face fewer restrictions.  

Another challenge is the high foreign exchange (FX) costs, exacerbated by the volatility of the Indonesian Rupiah. The currency's fluctuations have been particularly notable in recent months, leading to increased FX risks and costs for businesses engaged in cross-border transactions.

Additionally, the range of supported currencies in Indonesia is limited. Most banks only handle a handful of major currencies — typically around 15 to 20. This limitation can pose difficulties for businesses needing access to a broader array of currencies. Andy explains that Wallex seeks to address this gap by offering access to nearly 50 currencies, including both major and exotic options like the Saudi Arabian Riyal, Vietnamese Dong, Malaysian Ringgit, and South African Rand.

For businesses engaging in cross-border transactions involving Indonesia, understanding and adhering to Bank Indonesia’s regulations and anti-money laundering policies is crucial. Compliance with these guidelines is essential to ensure smooth and lawful transactions. Andy also emphasised the importance of partnering with licensed and legitimate payment service providers to guarantee that funds are transferred seamlessly to the recipient's account. Utilising proper channels not only facilitates efficient transactions but also helps prevent transactions from being flagged as suspicious activities.

Looking Ahead: Leveraging Fintech Innovations Shaping the Future

As we look to the future of cross-border payments in Indonesia, Andy shares an optimistic vision for transformative Fintech innovations. He highlights the potential of accessible hedging solutions for SMEs as a key development. Currently, such solutions are largely confined to traditional banking channels and are often out of reach for smaller enterprises due to minimum limit requirements. Andy envisions a future where Fintechs like Wallex could democratise access to these financial tools, allowing SMEs to better manage currency risk and enhance their financial stability.  

Additionally, Andy sees immense potential in the integration of artificial intelligence (AI) technology to revolutionise the cross-border payment experience. By automating Know-Your-Customer (KYC) and Know-Your-Business (KYB) processes, AI could significantly reduce manual work and improve turnaround times for onboarding new clients. This advancement would streamline operations and provide a more efficient and responsive service for businesses.

If he were to set a vision looking ahead, Andy imagines a “World without Currency Borders^TM” as a global financial ecosystem where cross-border transactions are conducted effortlessly, safely, and transparently in real time. Such a seamless integration would empower businesses to expand internationally without currency complexity.

What are your thoughts?

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^*Source: World Bank Group - https://www.worldbank.org/en/country/indonesia/overview