Digitisation of Indonesia from COVID-19

18/02/2021 By Piers Lee

One of the few upsides of the COVID-19 pandemic for the Indonesian economy has been to move it away from cash towards electronic payments.  Indonesia has been heavily dependent on cash, but when shops and restaurants closed during the lockdowns, it forced the population to shop online for home delivery.

Based on a BVA BDRC survey in Indonesia, during the lockdowns 14% of consumers had used online shopping for the first time, 47% had increased their level of online shopping and 35% had used home delivery from eating outlets.

The switch to buying online prompted many consumers to adopt new payment technology.  Historically, the main beneficiary of electronic payments has been the card issuer, but in Indonesia only 16% adopted new cards during the lockdown. Interestingly, far more moved to other payment technologies including 23% for Paypal and 54% collectively for the other electronic payment methods (OVO, GoPay and DANA).

Digitisation in Indonesia

The need to convert from offline to online during lockdowns prompted 25% of consumers to upgrade their mobile plans versus just 8% downgrading them – this was despite financial pressure on families that might otherwise cause them to reduce costs.

The progress towards more electronic payment-based societies over cash-based has been well studied.  The main benefits are seen in the following areas:

LESS TAX EVASION: cash-based businesses can hide revenue to reduce their tax bills.  Even in developed countries this can amount to billions of dollars of lost tax revenue, but in Indonesia it is even higher.

Indonesia has a tax-to-GDP ratio of around 12% - this is lower than most neighbouring countries and far less in comparison to the developed world, where ratios of 25% to 50% are common.  A reduction in tax evasion should increase tax revenues.

LESS CRIME: staff pilfering and robberies can be an issue with many cash-based businesses, particularly in retail, so if businesses can implement electronic payments there should be a lower risk of theft.

BVA BDRC’s survey reveals 59% of businesses increased their share of receivables from electronic payments in 2020, with 23% taking all receivables electronically.  Only 18% in our survey remain entirely cash based.

EFFICIENCIES: businesses which accept electronic payments can expect to have lower transaction fees. Additionally they save on cash-handling staff time.

Although there can be a downside with transaction fees levied by card companies, businesses generally recognise the net benefits of electronic payments over cash.  It can also encourage consumers to spend more as they do not end up with loose change that ends up in drawers or down the back of their sofa.

Ultimately, there is less banking infrastructure needed with fewer cash payments, e.g. fewer branches where costs tend to be passed onto customers. More efficient banking should mean lower banking costs to customers, particularly if there is competition from new market players in the financial services industry.

The downsides to electronic payments have also been well documented:

FINANCIAL EXCLUSION: as many people, particularly in developing countries, cannot access banking services or be issued cards. New forms of electronic payments, e.g. via mobiles are addressing these issues at least in part.

TRACKED SPENDING: Some also see electronic payments as a means for governments and corporations to  track personal spending patterns and send targeted marketing – not a great hardship, but some may be cautious as to not feel like they are being monitored.

BUDGETING: For some, cash is a good way to budget and regulate spending, e.g. as a daily allowance.  Psychologically, it is easier to spend money electronically without thinking you are overspending – good for retailers, but sometimes bad for the consumer.  There can greater emotional attachment to cash that makes you more conscious of what you are spending. Also receiving an IDR 100,000 note can feel much more satisfying than just getting it credited to your bank account.


Overall, most would agree that electronic payments bring a net benefit to society, and in the last year the health benefits of receiving intangible electronic payments instead of handling banknotes that can carry viruses have been widely accepted.

For Indonesia, another significant benefit of electronic payments is its boost to the e-commerce sector.  The BVA BDRC survey showed that 38% of consumers have second forms of employment income, many of these from side-businesses.  The lockdowns and shop closures prompted 30% of consumers to use retailers who they had not shopped with before, and among these 87% used new dedicated e-commerce retailers.

With a population of 270 million, the possibilities for e-commerce in Indonesia are huge. In a market where an increasing number of consumers are now able to transact online with a wide range of electronic payments, there are clearly huge opportunities in this new era of digitisation in Indonesia.


If you would like to learn more, don’t hesitate to get in touch - we would love to hear your thoughts on this topic.

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