Every country has its own payment system, including in Indonesia. The payment system is important in transaction activities. If there are no transactions, then the buying and selling process will not run. So, what is the meaning of the payment system?

The success of a payment system will determine the level of development of the banking and financial system in a country. Therefore, in this article, we will discuss starting from the definition of payment systems, components, objectives, functions, principles, to examples of payment systems in Indonesia.

Definition of Payment System

The definition of a payment system is a system with the scope of a set of rules, institutions and mechanisms used to transfer funds to fulfill an obligation arising from an economic activity.

Meanwhile, according to Bank Indonesia, the definition of a payment system is an activity of transferring funds from one party to another and is a system that includes various payment system components such as types of payment instruments, clearing and settlement. In practice, not only payment system service support providers such as banks and financial institutions, but also individuals or individuals can be involved in the payment system.

Payment transactions are made using cash and non-cash instruments. This instrument depends on the preferences of the people themselves. However, currently non-cash payment systems are starting to be widely used along with the development of information technology, making various choices of non-cash payment instruments available.

Payment System Purpose

The main purpose of a payment system is to allow money to move from one party to another. Payment systems are designed to facilitate economic activity. In this case, money functions as a medium of exchange in purchasing goods and services. If compared, money is the same as blood that flows in the body, while the implementation of the payment system is a circulation system.

Payment System Functions

Payment system with smartphones and edc machines

 

The function of the payment system is increasing day by day along with technological developments and increasing transaction volume. The functions and understanding of the payment system include:

1. Supporters of financial stability

The first understanding of the payment system relates to its role as an important element in supporting financial stability. This is because the banking and financial systems are closely related to the payment system.

If there is a disruption in the payment system, it will have an impact on the stability of the financial and banking systems. This can lead to failures in the payment system which will reduce public trust.

2. Channels control the economy

The second understanding of the payment system is as a channel or channel in controlling the economy, especially through monetary policy. This monetary policy can affect the liquidity of the economy if the payment system is smooth.

3. Instruments supporting economic efficiency

Furthermore, the notion of a payment system is also closely related to its position as an instrument in supporting economic efficiency. Financial planning in business will be disrupted if there is instability in the payment or transaction process. In the end, this can lead to a decline in a country's economic productivity.

Also read: Open Banking E-commerce Payment System, Form of BRIAPI Breakthrough

 

Payment System Principles

The definition of a payment system is also related to financial principles as its basis. Based on The Committee on Payment and Settlement System. CPSS, there are ten principles of the financial system, namely:

  1. Must have a strong legal basis. In Indonesia itself, the payment system is regulated in the constitution, namely Law of the Republic of Indonesia number 23 of 1998 concerning Bank Indonesia and Law of the Republic of Indonesia number 3 of 2011 concerning Fund Transfers.
  2. Have procedures and rules so that users understand and are able to deal with financial risks. This is because in the transaction process there are various risks, such as the user being unable to fulfill his obligations when the credit is due, insufficient funds, legal uncertainty, and other risks.
  3. Have clear procedures, especially those related to credit and liquidity risk, as in the example in point two above.
  4. The definition of a payment system also includes the settlement of transaction processes on the same day or at least the end of the day.
  5. Specifically for multilateral netting, the system is able to complete daily settlements quickly when users cannot complete obligations in one of the largest settlements.
  6. Settlement should use existing assets at the central bank. If the assets are outside the central bank, then the assets must have no or minimal liquidity risk and small credit.
  7. Guarantees a high level of operational confidence and security. This is because misuse often occurs which ends up harming the participants. In addition, the payment system must also have emergency handling in completing daily transaction processes quickly.
  8. Providing tools or instruments in the transaction process that are practical for users and efficient for the economy.
  9. Have transparency relating to criteria and goals for users. This allows for transparent and fair equality of access in the payment system.
  10. Must have effective, accountable or accountable, and transparent arrangements in this payment system.

Payment System Components

In practice, the payment system requires an adequate component, as defined above in the payment system. These components are related to one another. These components include:

1. Organizer

There are institutions or agencies that offer payment services;

2. Infrastructure

There are physical facilities that encourage the implementation of the payment system. It can regulate the rights and obligations of individuals in carrying out transaction processes;

3. Regulators

To guarantee a legal transaction process, there must be a legal framework that can regulate payment systems, sanctions, rights and obligations, and other rules concerning users or transaction participants;

4. Policy

There is a clear general and operational policy framework in the development of the payment system.

5. User

Of course in terms of payment systems, users play an important role in the transaction process.

Payment System Benefits

Understanding the payment system and its application via QR code

The existence of a payment system is useful in supporting the creation of financial and banking stability in a country. This is because if the financial condition is stable, it will be easier for people to meet their needs, both clothing, food and shelter.

Of course, the state has also issued a policy regarding the development of the payment system. Currently, the evolution of the payment system in Indonesia continues to grow from year to year and now, you know two definitions of payment systems, namely cash and non-cash. So, what are the benefits of these two payment systems?

1. Benefits of the Cash Payment System

Even though the government and industry have promoted cashless transactions, cash is still used as a payment instrument, especially in small towns. However, if in the past cash was prioritized for large value transactions, now its role is starting to shift to transactions with smaller values.

One of the benefits of the cash payment system is avoiding the possibility of carrying out debt. Payment in cash will complete the transaction right away without any additional fees.

In addition, the notion of a cash payment system also has latent benefits, namely saving expenses because users see the direct exchange of goods or services with cash. When using non-cash payment instruments, some users still experience difficulties in controlling expenses because they do not see directly how much physical money is being used.

2. Benefits of Non-Cash Payment Systems

Now, people have switched to using more non-cash payment instruments. The government also continues to encourage the community, industry, and MSMEs to start making cashless transactions.

According to the definition of a payment system in general, non-cash payment instruments are divided into three types, namely paper-based, card-based and electronic. Paper-based non-cash payments include checks, demand deposits, and debit and credit notes. While card-based, for example credit cards, debit cards, and electronic money such as BRIZZI. As for electronic-based payment instruments, such as e-wallets, QRIS, to transfers via mobile banking such as BRImo.

Payments with non-cash are clearly more beneficial in terms of practicality and ease of transactions anytime and anywhere, without the need to carry cash which can endanger security.

Also read: Virtual Account Payments for Faster and Safer Digital Transactions

 

There are various other benefits of a cashless payment system, namely:

1. Faster Transaction Process

The non-cash transaction process occurs quickly because of the integrated system. All types of transactions can be made both between banks and between platforms in a matter of seconds.

Currently, payment system integration between platforms and various providers can occur thanks to open banking. Open banking allows banking services to be integrated by various digital platforms using APIs. Thanks to BRIAPI, for example, now people can transact on any platform quickly using banking services from BRI.

For example, shopping at e-commerce sites like Shopee can now be completed in seconds. Shopee integrates BRIVA through BRIAPI to enable its users to pay using the virtual account transfer method.

2. Flexible

Flexibility in cashless payments is one of its main advantages. Because, you can make transactions anytime and anywhere. Thanks to open banking services such as BRIAPI, customers can access various banking services from various digital platforms.

You can enjoy the benefits of BRIAPI open banking services for various needs. Starting from withdrawing cash at ATMs via BRImo or similar digital platforms, paying for groceries via the QRIS method, to buying medicines online at K24Klik via the BRIVA method.

This is because these activities use open banking services as the medium, namely the Cardless Cash Withdrawal API, QRIS API, and BRIVA API—all owned by BRIAPI.

3. High Security Level

Similar to the cash payment system, the non-cash payment system also has its own security challenges. Cybersecurity is a major issue amidst the rise of cyber crime cases, such as hacking, phishing, and social engineering.

Thus, in contrast to the notion of a cash payment system whose risks are centered on the condition and circulation of physical money, non-cash payments focus on cyber security systems to ensure the security of digital transactions. This is so that user data does not leak to irresponsible parties while keeping customer finances safe.

For this reason, the non-cash transaction method is equipped with a two-factor authentication security system, such as a PIN, password and OTP code which can only be accessed by its users.

4. Tidy Financial History

Cash transactions make it easy to see and feel real transactions. But actually, non-cash transactions are more practical in managing finances and expenses.

Cash transactions must refer to paper or payment receipts. Meanwhile, if the transaction is non-cash, the transaction history is recorded neatly and automatically on the system. In BRImo mobile banking, for example, we can see the Personal Finance Management (PFM) menu which immediately displays our cash flow history.

Also read: Understanding the Acceleration of Digital Transformation Through BRIAPI Open Banking

 

Examples of Payment Systems in Indonesia

Payment by Cash System

When viewed based on the instrument, the payment system mechanism in Indonesia is divided into two, namely cash and non-cash payment systems. As you understand, the definition of a cash payment system is an exchange of money between the provider of goods or services and the buyer.

While the notion of a non-cash payment system, you use a non-cash payment instrument such as a card, server, internet, or check to complete the transaction process. In addition, the trend of digital payments through mobile banking is also increasingly being used by Indonesians.

To get a clearer picture of the meaning of a mobile banking-based payment system, you only need to download a bank application on your smartphone, such as BRImo from BRI. Through BRImo, you can access all information related to your account, from checking balances, transferring funds, to making payment transactions.

Another example of a payment system in Indonesia is payment by debit card. You only need to top up your balance through an ATM, then make transactions at stores that provide debit payment systems. In each transaction process, the bank will deduct your savings balance based on the amount of your transaction.

Also read: Development of FinTech in Indonesia and BRIAPI's role in it

 

BRIAPI-style Non-Cash Payment System, Towards Indonesia Cashless Society

Cashless payment in buying and selling transactions

The government is now continuing to promote that all people can be more cashless because they are considered more practical, fast and safe from the risk of crime and physical contact. In fact, MSMEs are also encouraged to go online and start marketing their products on marketplaces and connecting with digital platforms.

This is supported by the convenience of electronic payment systems which continue to be encouraged by innovation, one of which is through the Indonesian Payment System Blueprint which is targeted to be achieved in 2025. In the 2025 BSPI, it also regulates open banking to facilitate integration between platforms, retail payment systems, financial market infrastructure , data, as well as control licensing arrangements. This is the focus of developing a non-cash payment system in Indonesia.

Open banking such as BRIAPI, for example, helps BRI customers to be able to transact on any platform using integrated BRI banking services. Starting from shopping in e-commerce, paying education fees, to expediting payments for logistics companies' travel expenses—everyone can use BRI transaction services such as BRIVA, fund transfers, and direct debit.

Not only shopping online, transactions at merchants are now even easier and faster. No need to bother taking out a debit or credit card, you can tap an electronic money card such as BRIZZI at the cash register, or simply scan QRIS using the digital platform you have.

In fact, if your digital platform has been integrated with BRIAPI, your customers can top up BRIZZI or transact with QRIS directly in your application.

Closing

That is the most complete guide on the payment system in Indonesia. All information related to payment systems has been discussed, starting from the definition of payment systems, objectives, functions, principles, to examples.

In addition, the latest trend in the payment system in Indonesia is the use of non-cash instruments, aka cashless. This is to support the practicality of payments, increase transaction efficiency, to ensure the safety of consumers and merchants.


So, if you are increasingly confident about digitizing your business, consult all your needs with BRIAPI. BRIAPI's open banking products have proven to help hundreds of our partners succeed in doing business in the digital era. Start now!