Cash-reliant Indonesians here to stay

Illustration of a cash-reliant Indonesian.
Illustration of a cash-reliant Indonesian. Irfan Hakim/Unsplash.

Indonesia’s e-commerce sector has seen a significant boom in recent years, yet its people’s love of cash payment seems to be flourishing, even amid the Covid-19 pandemic that has driven a global surge in digital transactions.

From 2019 to 2021, the proportion of cash-on-delivery method used in e-commerce transactions increased from 73.04% to 83.11%, according to the latest data from Indonesia’s statistics office BPS. In the same time frame, the proportion of bank transfer shrank from 21.2% to 12.57%.

“Most e-commerce players in almost all business fields used cash-on-delivery method,” said the BPS in December 2022.

At first, it seems that those BPS figures don’t add up, especially considering the growth of e-commerce and digital payments in Southeast Asia’s largest economy.

From 2019 to 2021, Indonesia’s e-commerce market size soared by 92% to US$48 billion in gross merchandise value, while digital payments increased by 13.6% to US$234 billion in gross transaction value, according to the latest e-Conomy SEA report by Google, Temasek and Bain. Restrictions imposed by the Indonesian government in the early phase of Covid-19 pandemic helped accelerate the growth, with many people tempted to shop online when stuck at home.

Expanding middle-class population and widespread internet penetration have played a pivotal role. Middle-class Indonesians contribute to almost half of the national consumption, as stated by the Finance Ministry, and are part of the country’s 205 million internet users last year. With a smartphone in their hands and purchasing power in their pockets, they have helped Indonesia cement its reputation as the region’s e-commerce hotspot.

“The middle-class group is the engine of growth,” the Finance Ministry stated in its 2023 Macroeconomic Framework and Fiscal Policy Principles report.

The burgeoning spending power, however, does not come with proper financial and digital literacy.

Indonesia’s digital literacy index score only rose slightly to 3.49 in 2021 from 3.46 a year before, being stuck at the medium level, according to a survey by Katadata Insight Center and the Communication and Information Technology Ministry.

“In this digital economy era that is moving so fast, our digital literacy is still relatively low,” said Tulus Abadi, the chairman of the Indonesian Consumers Foundation (YLKI). “It’s ironic.”

Meanwhile, Indonesia’s financial literacy index score only stood at 49.68% last year, even though its financial inclusion rate was already at 85.10%, according to data from financial services authority OJK.

This means, the nation’s financial system has actually been quite inclusive, with the presence of affordable, useful financial products and services. But, many people still lack the knowledge and skills required to make informed financial decisions; to make effective use of the available products and services. No wonder there were still 100 million adults with no bank account in Indonesia, or about 7% of the global unbanked population of 1.4 billion people, according to the World Bank data.

“We are striving to narrow the gap [between the financial inclusion and literacy],” said Friderica Widyasari Dewi, OJK’s head of consumer education and protection. “It’s good to see a high score in financial inclusion, but the wide gap with financial literacy score can lead to problems.”

Problems have indeed emerged. As the growth of e-commerce is faster than that of financial and digital literacy, many Indonesians have developed a strong habit of online spending without getting used to digital payments. People still feel more comfortable to pay for goods at the time of delivery.

There are several harms associated with being cash reliant, according to a 2021 study by Savanta: ComRes and the UK’s Financial Conduct Authority. The first one is the difficulty in accessing cash when its availability declines. The second one is people’s further disengagement and lack of trust towards digital alternatives. Then, the last one, people may face increased costs in finding retailers that accept cash and higher risks of fraud or scams.

In the bigger picture, Indonesians’ love of cash may hinder efforts to boost the country’s development and economic growth in the long run.

“The growth in ownership and usage of [bank] accounts could have positive impacts in the form of lower poverty rates, higher consumption, and more spending on education, health, and income-generating opportunities,” the World Bank stated in its 2021 Global Findex Database report. “Financial inclusion can support well-being by helping people feel secure in their financial future.”

Bank Indonesia, as the country’s monetary and banking authority, has taken various steps to push for a cashless society, including through its “national noncash movement”, “2025 payment system blueprint”, as well as “central bank digital currency roadmap”.

Nevertheless, looking at the current situation, all that just seems like meaningless jargons, particularly for the cash-reliant Indonesians.


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