Lower mer­chant dis­count rate to ben­e­fit cus­tomers

The Jakarta Post - - BUSINESS - Winny Tang

BI to lower mer­chant dis­count rate through new pay­ment net­work New mea­sure will help banks to slash trans­ac­tion costs, be­come more ef­fi­cient

Bank In­done­sia (BI) is de­ter­mined to speed up the im­ple­men­ta­tion of a newly in­tro­duced in­ter­con­nected pay­ment net­work as a way to re­duce costs in­curred in elec­tronic pay­ments and pro­mote non-cash trans­ac­tions, which are seen as more ef­fi­cient than cash-based ones.

Through the new net­work, dubbed the Na­tional Pay­ment Gate­way (NPG), BI has set a lower mer­chant dis­count rate (MDR), the rate charged by a bank to a mer­chant for pro­vid­ing debit or credit card pay­ment ser­vices us­ing elec­tronic data cap­ture (EDC) ma­chines.

Some mer­chants of­ten pass on those costs to cus­tomers although this is un­ac­cept­able ac­cord­ing to BI reg­u­la­tions.

The cen­tral bank set an MDR of 1 per­cent for “off us” trans­ac­tions, when the bank that is­sues the card is not the owner of the ATM or EDC ma­chine used by the card­holder.

The ex­ist­ing av­er­age MDR of­fus fee ranges from 1.6 per­cent to 3 per­cent.

“We hope that a lower [of­fus] MDR will make trans­ac­tions cheaper for peo­ple,” BI se­nior deputy gov­er­nor Mirza Aditya­sawara said re­cently.

As for “on us” trans­ac­tions, when the bank that is­sues the card also owns the ATM or EDC ma­chine, BI has set a rate of 0.15 per­cent, which is lower than the reg­u­lar range of be­tween 0.5 per­cent and 0.7 per­cent, although some banks waive all such charges.

Mary­ono, chair­man of the As­so­ci­a­tion of State-Owned Banks (Him­bara), said his group was ready to im­ple­ment the NPG de­spite the fear of de­clin­ing fee-based in­come from elec­tronic trans­ac­tions as a re­sult of lower MDR fees.

He said trans­ac­tions us­ing deb- it cards would rise sig­nif­i­cantly when MDR fees were low­ered, boost­ing banks’ in­come.

Bank Cen­tral Asia (BCA) di­rec­tor San­toso Liem said re­tail­ers should not be wor­ried about the MDR charged by banks for on-us trans­ac­tions as they were fairly low.

“Let’s say a mer­chant books sales of Rp 10 mil­lion [US$738] a day, they will only need to pay Rp 15,000 when the MDR fee is 0.15 per­cent,” he said.

San­toso said the MDR fee of Rp 15,000 charged to mer­chants could be sim­i­lar to, or even much lower than, the cost of han­dling cash trans­ac­tions, such as when they de­posit their daily rev­enues in the bank.

Banks will be able to slash those trans­ac­tion costs by the help of a shared in­fra­struc­ture within the newly launched in­ter­con­nected pay­ment net­work. The cost of the in­ter­bank net­work has con­trib­uted to over­all ex­penses lead­ing to higher lend­ing rates in In­done­sia com­pared with its peers in South­east Asia.

In the first phase, BI will only reg­u­late the MDR in ATM or debit card trans­ac­tions be­fore turn­ing to credit cards.

“The roadmap [for reg­u­la­tion on the MDR in­curred in cred­it­card trans­ac­tions] is not ready yet be­cause the sys­tem is en­tirely dif­fer­ent,” said Eni V. Pang­gabean, BI ex­ec­u­tive di­rec­tor of pay­ment sys­tem pol­icy and su­per­vi­sion.

BI also ex­pects that the new shared pay­ment net­work will help peo­ple be­come more ac­cus­tomed to non-cash trans­ac­tions as a ma­jor part of the pop­u­la­tion in South­east Asia’s largest econ­omy still prefers cash-based trans­ac­tions, which ac­counted for 86 per­cent of trans­ac­tions in 2015.

Only 8 per­cent of the coun­try’s pop­u­la­tion of 250 mil­lion were debit-card hold­ers in 2015, while credit-card hold­ers amounted to only 1 per­cent, ac­cord­ing to BI data.

“This is why it’s very im­por­tant to con­tinue push­ing non-cash pay­ments as they can re­duce the ‘shadow econ­omy,’ mit­i­gate il­le­gal ac­tiv­i­ties and mod­ern­ize the fi­nan­cial in­fra­struc­ture,” Eni said, the shadow econ­omy refers to il­licit eco­nomic ac­tiv­i­ties or trans­ac­tions.

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