In a move that could have significant implications for businesses operating in Indonesia and the visitors there, President Joko Widodo has announced that the country will gradually phase out the use of Visa and Mastercard. President Widodo said that they are doing it after looking at the sanctions on Russia and amidst concerns over dependence on foreign payment systems.
The decision was announced on Monday, March 20, in Jakarta, where the president stated that the move was aimed at promoting the use of domestic payment systems and reducing the country’s reliance on foreign entities.
“We need to develop our own payment systems to be more independent and self-sufficient,” President Widodo said. “Be very careful. We must remember the sanctions imposed by the US on Russia. Visa and Mastercard could be a problem,” he further added.
Commenting on the initiative, Bank of Indonesia’s spokesperson, Erwin Haryono, said that the regulator was in conversation with local businesses and the progress is about 90%. He added that domestic cards will have many benefits, including lower fees. He also said, “Offshore settlements and dependence on foreign payment networks such as US Visa or Mastercard will no longer be necessary”.
The sanctions on Russia were imposed by the United States and other Western countries in response to the country’s conflict with Ukraine. As a result, many Russian banks and businesses have been cut off from the global financial system, including Visa and Mastercard.
Indonesia’s decision to phase out these payment systems is likely to be seen as a blow to the companies, which have significant market share in the country. Visa and Mastercard have been operating in Indonesia for many years, and are widely used by both consumers and businesses.
However, the move could also be seen as an opportunity for domestic payment systems to gain a larger foothold in the market. Indonesia has a number of homegrown payment systems, including GoPay, OVO, and DANA, which have been growing rapidly in popularity in recent years. The decision by Indonesia to phase out these payment systems is expected to have significant implications for the global payments industry, as Indonesia is a large and growing market.
Indonesia is not the first country to consider phasing out foreign payment systems. In recent years, countries like China and Russia have taken steps to develop their own payment systems and reduce their reliance on Visa and Mastercard.
India’s experience with foreign payment systems
The Reserve Bank of India prohibited Mastercard, Diners Club, and American Express from adding new customers in the country for nearly one year. The move came after the payment systems were found to have violated data storage rules that require all payment information to be stored on servers located in India.
The RBI had given the payment systems a deadline to comply with the data localisation norms, but the companies failed to do so. The RBI noted that it had repeatedly warned the companies about the need to comply with the rules.
The data localisation norms were introduced in India as part of the government’s efforts to protect the privacy of Indian citizens and ensure that their personal data is stored securely. The rules require all payment systems to store data on servers located within the country, rather than on servers located outside of India.
The ban on these payment systems was indicative of India’s desire to push for greater self-sufficiency in the technology sector and is seeking to reduce its dependence on foreign companies for critical services.
The rise and rise of RuPay
India rolled out its own domestic payment system, RuPay, as the country sought to reduce its reliance on international payment systems such as Visa and Mastercard.
RuPay is a card payment system similar to Visa and Mastercard. It is operated by the National Payments Corporation of India (NPCI), a non-profit organization that was established by the Reserve Bank of India and the Indian Banks’ Association.
The move to promote the use of RuPay is seen as part of the Indian government’s efforts to increase self-sufficiency and reduce dependence on foreign financial companies. It also aligns with India’s push towards a more cashless economy and its efforts to expand financial inclusion.
RuPay has already gained significant traction in India and some other countries like Bhutan, with over 600 million RuPay cards issued as of 2022. The payment system is accepted at over 3.6 million point-of-sale (POS) terminals and 1.5 million ATMs in the country.
The government also announced incentives for businesses to adopt RuPay, such as lower transaction fees compared to international payment systems. This was aimed to encourage more merchants to accept RuPay, which in turn would increase its adoption among consumers.
The promotion of RuPay has had significant implications for the payments industry in India, as it provides an alternative to international payment systems such as Visa and Mastercard. It will also support the government’s efforts to promote financial inclusion and a cashless economy.
In the case of Indonesia, it remains to be seen how quickly the phase-out of Visa and Mastercard takes place, and what the impact will be on businesses and travelers in the country. However, President Widodo stated that the government would work with banks and other stakeholders to ensure a smooth transition to the new payment systems.
“We will ensure that there is no disruption to businesses or travelers and that everyone has access to reliable and secure payment options. This is an important step for our country, and we are committed to making it a success”, he said.
