Expanding your business into Indonesia presents major growth opportunities. Indonesia's e-commerce market is expected to grow from about $52.9 billion in 2023 to over $86.8 billion by 2028 and customising your strategy for Indonesian customers will help your business make the most of this market.

Below, we'll examine what you should consider when you enter Indonesia's payment system:

• Prioritising digital wallets
  
• Adapting to regional preferences
  
• Investing in payment fraud prevention
  

The state of the market

Digital payments are on the rise in Indonesia, especially in urban areas such as Jakarta, but customers in many remote regions still rely on cash. E-commerce has heavily influenced digital payment adoption, with digital wallets and QR code payments gaining popularity in recent years. But the country's heavy reliance on cash cannot be overlooked. Indonesia is an archipelago, which poses logistical challenges to widespread adoption of new payment methods – both in infrastructure and payment cohesion. Acknowledging the rise of QR code payments, Bank Indonesia introduced a standard QR code system known as the Quick Response Code Indonesia Standard (QRIS). This enables interlinkage between different QR code–based payments platforms and helps broaden the acceptance of QR code payments.

Indonesia's payment systems have regulations in place that help secure transactions in Indonesian rupiah (IDR) for businesses and customers. Bank Indonesia and Otoritas Jasa Keuangan, the country's financial services authority, frequently update these regulations to reflect the country's developing financial methods and international standards.

Payment methods

Customers in Indonesia use a variety of payment methods, ranging from traditional cash payments to modern digital methods.

Current usage

Historically, Indonesia's unique geography has made cash transactions a staple, with a 2022 McKinsey report stating that cash accounted for 51% of point-of-sale (POS) transaction value.

About 78% of Indonesians in a 2022 survey said they planned to use cashless payment methods, highlighting the growing acceptance of contactless transactions. This trend is further influenced by the rise of e-commerce and local digital wallets like GoPay, LinkAja and OVO – these enable smartphone users to make payments via near-field communication (NFC).

Digital wallet transactions made up 39% of e-commerce payments in 2022 and 28% of POS transactions. The QRIS has also accelerated the adoption of QR code payments, with digital wallets like GoPay allowing users to pay through businesses' QR codes.

While mobile payments and QR codes are becoming more common, digital payments are primarily used for retail and food purchases, with 28% of digital transactions in Indonesia coming from retail and 20% coming from food orders.

Popular B2C payment methods in Indonesia

• Digital wallets (e.g. GoPay)
  
• Credit and debit cards
  
• QR codes
  
• Buy now, pay later (BNPL)
  

Popular B2B payment methods in Indonesia

• Credit cards
  
• Bank transfers
  

Emerging trends

Indonesia ranked seventh in the world for cryptocurrency adoption in the 2023 Global Crypto Adoption Index. Interest is concentrated in Jakarta, Bali and other tech hubs, where startups like Pintu and Tokocrypto have helped create burgeoning crypto communities.

Ease and friction of entry

Before you accept payments in Indonesia, ensure you understand taxes, chargebacks, cross-border payments and payment security. Here's a quick rundown.

Taxes

The value-added tax (VAT) rate in Indonesia is 11% for most goods and services. While customers pay this tax directly on all purchases, businesses are responsible for collecting and remitting this amount to the government. Non-compliance with tax remittances is taken seriously and businesses can face legal consequences for evasion or discrepancies.

Chargebacks and disputes

As in many markets, the chargeback process in Indonesia allows customers to dispute transactions they believe are incorrect or fraudulent. Banks and financial institutions facilitate this process, typically setting the window during which a customer can dispute a submission at 60–120 days from the transaction date. Electronic payment gateways must establish clear mechanisms for handling transaction complaints, including setting maximum timelines for dispute resolution and instituting processes to address customers' grievances quickly.

International payments

It's important to understand how cross-border transactions work if you plan to accept payments from tourists or foreign businesses outside of Indonesia. Here's what to consider.

• Multi-currency features
  Many Indonesian businesses that cater to international clients, especially in tourist areas such as Bali, list prices for their goods and services in multiple currencies. Digital platforms will sometimes give customers the option to view prices in their home currencies, although the final payment is processed in IDR.

• Currency conversion
  Accepting international payments via credit card or bank transfer often requires currency conversion. Banks typically add a markup to the interbank rate – the rate at which banks exchange currencies with each other – leading to differences in the rates offered to customers. Payment processors typically charge 1%–3% of the transaction amount for currency conversions. Providers like Stripe can simplify this process for businesses that accept payments in multiple countries.

• Payment methods from other markets
  Accepting popular payment methods from other countries like China's WeChat Pay and Alipay can improve the checkout experience for international tourists.

Security and privacy

Indonesia's approach to payment security, compliance and regulation helps safeguard its financial sector. Here's an overview.

• Data protection laws
  The Ministry of Communication and Informatics' Regulation No. 20 of 2016 set the groundwork for data protection in digital payments, requiring that electronic system providers must ensure the confidentiality, integrity, authenticity and availability of personal data. It also mandated that providers gain consent before they collect and process personal data, echoing principles found in global data protection frameworks.

• Payments service provider protocols
  Bank Indonesia oversees payments service providers, requiring them to obtain licences and undergo periodic evaluations. Regulations require these providers to maintain robust systems, clear operational guidelines and strong risk management processes.

• E-money regulations
  Indonesia established regulations for e-money issuers amid the rise of digital payments services like GoPay and OVO. As per the updated regulations, e-money issuers must maintain a minimum capital, follow fund management practices and have clear consumer protection mechanisms.

• E-commerce regulations
  Regulation No. 31, issued by the Ministry of Trade, increased responsibility for e-commerce platforms. It prohibits social media platforms and online marketplaces from competing with businesses and restricts interconnection between electronic systems that are used for e-commerce and those that aren't.

• Anti-Money Laundering (AML) frameworks
  Indonesia is a member of the Asia/Pacific Group on Money Laundering and follows international standards for preventing illegal financial activities. The Indonesian Financial Transaction Reports and Analysis Center (PPATK) monitors and investigates suspicious transactions and the field is backed by an AML framework from Bank Indonesia.

• Cybersecurity measures
  Indonesia's National Cyber and Crypto Agency works to strengthen national cybersecurity and protect the financial sector from increasingly sophisticated cyberthreats. The organisation imposes regular audits, penetration testing and cybersecurity training to meet its goals.

• Interbank network guidelines
  Bank Indonesia introduced the National Payment Gateway to integrate payment channels and promote cashless transactions. One of its key features is ensuring transaction data remains within the country, enhancing data security and national economic sovereignty.

Key success factors

The payment system in Indonesia presents challenges for both businesses and customers. These challenges are driven by socioeconomic factors, technology and regulations and businesses that address these issues head-on can set themselves up for success. Here's how.

• Varied payment options
  Despite Indonesia's growing banking industry, about 98 million adults remained unbanked in 2022 – 48% of the adult population. Since a large proportion of customers don't fully engage with formal financial systems, the holistic adoption of digital payments is more difficult. Continuing to accept cash for in-person payments and offering a diverse range of digital payment options for online payments will give customers the best chance of finding a payment method that works for them.

• Localised payment interfaces
  Fewer barriers at checkout can result in fewer abandoned baskets and higher conversion rates for e-commerce businesses. Translating your checkout pages into Indonesian and accepting local payment methods like GoPay and LinkAja can improve the checkout experience for Indonesian customers.

• Thoroughly verified customer identities
  The PPATK reported an increase in fraud-related reports from about 9,800 in 2019 to 23,000 in 2021. Authenticating customer identities – such as by using two-factor authentication and card verification value (CVV) checks – protects companies against fraudulent transactions.

• Strong fraud prevention measures
  As the digital payment space expands, so do the threats associated with it. Cybercrime losses in Indonesia could reach $6.5 billion by 2028. Using fraud detection and prevention tools, including 3D Secure authentication and machine learning software for online payments, can help minimise fraudulent transactions and chargebacks for your business.

Key takeaways

Indonesia's mix of traditional and digital payment methods presents a complex payment space for businesses that want to start accepting payments there. Creating the best possible payment experience for customers in Indonesia requires a well-rounded vision that incorporates local payment preferences, cultural considerations and robust payment fraud prevention measures. Here's a brief summary, along with specific tips for accepting payments in Indonesia.

Prioritise digital wallets

• Accept a variety of mobile payments
  Digital wallet and QR code payments are popular across Indonesia. Customising your payment options to local preferences by embracing these digital options can make the payment process easier for customers.

• Refine payment pages for mobile
  In addition to offering mobile payment methods at checkout, assure that your payment interfaces work well on mobile devices so customers don't encounter any roadblocks.

• Use the QRIS
  The QRIS allows businesses to accept payments from different digital wallet providers using a single QR code. Using the QRIS eases the payment process for businesses and customers.

Adapt to regional preferences

• Cater to local payment methods
  Indonesian customers are used to paying with local digital wallets for in-person and online transactions. Choose a payment gateway that can accept Indonesian wallets like GoPay, LinkAja and OVO.

• Translate payment pages
  Payment interfaces that communicate in Indonesian, the national language, improve the user experience by signalling a familiarity with consumer preferences and eliminating the need for translation.

• Offer localised customer support
  Prioritise the swift resolution of payment queries by establishing reliable customer support channels that are available in Indonesian and on Indonesian time.

Invest in payment fraud prevention

• Implement authentication measures
  Businesses can instill confidence in the security of their transactions by implementing multifactor authentication, requiring customers to enter multiple forms of identification before a transaction is processed.

• Protect customer data at every stage
  Keeping customer payment data safe can build trust in your company and help your business avoid financial and reputational damage. Ensure your business complies with the data protection regulations of the Ministry of Communication and Informatics and with the Payment Card Industry Data Security Standard (PCI DSS).

• Secure online payments
  Integrate 3D Secure authentication and machine learning–based fraud detection tools into your online payment security system to help mitigate credit card fraud and other types of e-commerce fraud.