The e-commerce business ecosystem in Indonesia has grown significantly in recent years. According to NielsenIQ, the number of Indonesian consumers using e-commerce reached 32 million in 2021. This is a jump of 88% compared to the 2020 figure of only 17 million people. One factor driving this increase is the changes in consumers’ habits of using a variety of payment methods.
According to the Ministry of Finance, Indonesia’s e-commerce transaction value is the highest in Southeast Asia, amounting to USD 70 billion in 2021. This is in line with the rise of digital consumers who prefer to use online payment methods.
What are online payments?
Online payments, or digital payments, are payments made online over the internet for purchases of goods and services (either online or offline). Online payment systems usually facilitate payments from the source of funds (such as a bank) to the recipient or destination of the payment (e-commerce sites, booking websites, and so on).
Here are the top three favorite payment methods in Indonesia, according to SurveySensum: digital wallets (e-wallet), interbank transfers (including virtual accounts), and cash on delivery or COD. Other than these, the other popular payment methods in Indonesia are payments through retail outlets (minimarkets), direct debit, and credit cards.
Meanwhile, according to our internal data, the 7 main payment methods most often used by Indonesians over the past year are: Virtual Accounts, payments through retail outlets (over-the-counter payments), QR codes, e-wallets, credit cards, PayLater, and Direct Debit.
Looking at the data, Virtual Account is overwhelmingly the top online payment method in Indonesia–with the proportion of users exceeding 80%. This is followed by other popular online payment methods such as over-the-counter payment, QRIS.
Why are these payment methods in such high demand? What are the advantages and benefits of using these online payment methods? Read on to find out more!
7 Most popular payment methods in Indonesia
1. Virtual Account
Virtual accounts are temporary accounts that are used to transact on behalf of a real physical account.
For each transaction, the customer will get an account ID, commonly known as a VA number. Each customer is given a unique virtual account, the nature of which can be adjusted according to their needs.
From the customer’s point of view, most people choose to use a virtual account because it is more convenient and there’s no need to register the sender’s account number. This is in contrast to interbank transfers, which require us as customers to register the destination account number before making transactions.
From the seller/merchant’s point of view, a virtual account also has the advantage of eliminating manual validation. Since each virtual account is unique, businesses can set the payment amount and the type of use of each virtual account to automate the identification process. With virtual accounts, merchants don’t have to validate buyers’ proof of payments every time.
2. Over-the-counter payments (OTC)
To use this payment method, customers carry out transactions through the clerks or cashiers at retail outlets (such as Indomaret or Alfamart) after performing the checkout process on e-commerce or shopping websites beforehand.
This over-the-counter payment method helps online businesses reach new customer segments–particularly traditional buyers who have not adapted to digital payment methods and customers in rural areas where banks and financial services are rare.
In Indonesia, retail chains (usually minimarkets) capture the opportunity to serve the unbanked population. More than 20,000 stores owned by Indomaret and Alfamart across Indonesia now act as over-the-counter payment collection points for online shoppers.
3. QRIS
Starting January 1, 2020, Bank Indonesia requires all non-cash payment service providers to use QRIS (Quick Response [QR] Code Indonesian Standard). QRIS let business owners offer a wide range of top payment methods including bank transfers and e-wallets such as Ovo, Dana, GoPay, ShopeePay, and more.
There are two ways to make payments via QRIS:
- By scanning the QR code directly in stores and outlets
- By uploading a photo or file containing the QR code image. The payment system will automatically detect the QR code and proceed with your payment process.
As such, this payment method can help digitally transform payments both in physical stores, as well as in online stores and marketplaces.
Business owners can offer QRIS as a payment method easily through Xendit. Through our web-based dashboard and mobile application, business owners can generate both static and dynamic QR codes, to be scanned or uploaded by their customers.
4. e-Wallets
e-Wallet has grown in popularity in recent years as the unbanked population in Indonesia remains high. According to Indonesia’s Financial Services Authority or Otoritas Jasa Keuangan (OJK), 36% of Indonesia’s population are unbanked. This number is significantly high even when compared to neighboring countries such as Malaysia and Thailand which have 8% and 18% unbanked populations respectively.
e-Wallet tried to provide what banks couldn’t: an easier registration process where customers can easily register using only their phone numbers to access its basic features, such as making payments in various online and offline merchants.
e-Wallets work like a “wallet”, in that you can keep your money in your account and make cashless transactions through your smartphone. Its easy and fast operation makes e-Wallet one of the most popular online payment methods for customers.
Top e-Wallets in Indonesia include OVO, Dana, ShopeePay, GoPay, LinkAja, Doku, and more.
While it is not as heavily regulated as banks, the e-Wallet industry is regulated by Indonesian government agencies–the central bank Bank Indonesia (BI) and Financial Services Authority – Otoritas Jasa Keuangan (OJK). These government agencies’ license and regulate legitimate e-Wallet providers to ensure safety and security of transactions.
5. Credit Cards
Credit Card is an online payment method that lets you borrow from a bank to pay for your purchases, with the agreement that you will repay it by your bill’s due date. When payments are not made by the due date, you will incur interest charges.
This payment method is popular because of its practicality and additional facilities provided to users, such as reward points, additional discounts, and other membership activities.
Almost all online stores have an option to pay with credit cards. One of the main reasons is the wide-reaching availability of credit cards, both local and international. By accepting credit cards, business owners can also expand their business overseas, without worrying about geographical limitation.
While credit cards are widely used in developed markets such as the United States, where credit cards ownership is at 75.5% and the UK with 65%, Indonesia’s credit card penetration is considerably low at around 2%. Credit card ownership is a luxury in the country due to its complicated processes.
Most credit cards’ application processes require applicants to fill up long forms and provide salary slips to prove the applicants’ financial capacity. While such processes are necessary, it systematically excludes a large part of the Indonesian population, who mostly work without formal employment. Hence, credit card penetration is relatively low in Indonesia.
6. PayLater
PayLater, or Buy Now Pay Later (BNPL), is a payment option where consumers can choose to buy now and pay later in installments.
Depending on the PayLater partner, consumers can choose from various payment plans. End-users can make a one-time payment due in 30 days, or choose installment based payment options of up to 12 months.
Once the customer chooses their payment plan, the loan repayment is only between the customer and the PayLater partner. The full amount will be settled to merchants immediately. There are no risks for merchants as PayLater partners usually already have a mechanism to account for credit and chargeback risks.
For merchants, there are many benefits of using PayLater are:
- Credit based payment method can increase payment success rates as there is less likelihood of insufficient balance
- Offering an installment feature helps to increase purchasing power and allows more customers to check out with bigger basket sizes.
- Gaining access to a new group of customers who would not be able to afford big ticket items without installments.
- Enjoy significantly lower payment processing fees than credit cards and bank transfers.
7. Direct Debit
Direct Debit is a payment method where end users can register their debit cards or online bank login with a merchant or marketplace to pay for their purchases. After a one-time authorization, merchants can pull funds directly from an end user’s bank account.
For merchants, a main benefit of Direct Debit is that it helps reduce cart abandonment by addressing many reasons why buyers abandon their carts. Here are a few ways Direct Debit solves the common causes of abandoned carts:.
- No more unnecessary check-out steps
- No app hop-off (e.g. no need to move out of the checkout page into their mBanking app)
- Less likelihood of having an insufficient balance or credit since it’s linked to the customers’ bank account
- Avoid per transaction authorization issues since authorization only needs to be done once. For banks in Indonesia, OTPs are also not required for each transaction.
Get the most popular online payment methods on Xendit
With such a wide selection of online payment methods in Indonesia, it is important that business owners like yourself understand each payment method and how it works. Every customer has different preferences when it comes to their favorite payment methods, so businesses need to provide a wide range of payment methods to capture the market.
The good news is, it’s easy to offer a whole suite of payment methods without having to register and integrate with each payment provider one by one. By integrating with Xendit as your payment gateway, you can access the most popular payment methods in Indonesia through just one integration.
The activation process takes just a few minutes. Sign up now and try all of our services right away!
