Survey highlights risks to Indonesian consumers in using digital financial services

  • Only 22% of Indonesians are financially literate and 8% aware of DFS
  • The survey covered 1,414 DFS users across 15 provinces in Indonesia


Survey highlights risks to Indonesian consumers in using digital financial services


INDONESIA is moving forward in leaps and bounds in terms of financial inclusion. The rapid growth of the government’s Digital Financial Services (DFS) in the form of Laku Pandai branchless banking and Layanan Keuangan Digital (LKD) e-money are examples of this progress.

“Cumulatively, there are close to 290,000 agents and 3.2 million accounts in formal financial institutions including Laku Pandai and LKD.

“However, the rapid proliferation of Laku Pandai and LKD services especially among unserved and undeserved segments can make them vulnerable to risks. This is especially the case as only 22% of Indonesians are financially literate and only 8% are aware about digital financial services,” said MicroSave representative Ghiyazuddin Mohammad in a press conference recently.

The implementation of DFS in Indonesia has to include consideration of the risks for users. With this in mind, MicroSave, an international financial inclusion consulting firm and AKSI conducted a national survey.

AKSI is a joint initiative between MicroSave and LPEM UI to further the cause of financial inclusion in Indonesia. AKSI’s objective is to provide research-based policy recommendation to policy makers, private sector players, and other relevant stakeholders who are involved in Indonesian financial inclusion.

The aim is to provide Indonesian DFS stakeholders with evidence-based research recommendations related to customer risks in DFS.

“Once stakeholders are aware of the risks, it will help them make informed decisions to mitigate these risks,” says Ghiyazuddin.

The survey covered 1,414 DFS users across 15 provinces in Indonesia. The respondents comprised both Laku Pandai users (886) and LKD users (528) covering nine major DFS providers.

A further 1,011 active and 403 inactive Laku Pandai and LKD users were interviewed to obtain deeper insights on emerging risks and customer protection issues in Indonesian DFS.

This survey found out overall awareness about DFS providers among Laku Pandai and LKD users is low. Bank Rakyat Indonesia (BRI), a Laku Pandai provider led with 40% in terms of user awareness followed by Mandiri, a LKD provider with 21%. Much of the awareness in these cases also has to do with the strong parent brands.

Awareness about transaction charges remains low at 27% for Laku Pandai and 15% for LKD.

“This ignorance is leading to rampant overcharging by agents who usually charge a ‘thank you’ fee for most transaction especially for cash-in which is actually free,” Ghiyazuddin adds.

Seventy-nine percent of respondents saw agents as the main source of information on transaction charges, thereby exposing them to the risk of being overcharged. Ninety-one percent of respondents who needed help with transactions, provided agents with confidential information, making them vulnerable to exploitation.

Ghiyazuddin points out that according to the survey, main reason for account inactivity was lack of product relevance (42%) and the level of service by agents (21%). There is also a need to provide instant activation of accounts. At the moment, it takes an average 1.05 days for a DFS account to be activated.

In terms of the handling of complaints and the grievance redressal mechanism, only 7% of the respondents said that they had queries with transaction failures, product and charges related queries being the most prominent. For 81.75% of the respondents, agents remain the key channel for complaint resolution.

In terms of costs, call centre remains the most expensive channel for complaint resolution with an average cost of 3,667 rupiah (US$0.27) per complaint.

Respondents also said that that biggest factor that could affect their trust and credibility in an agent is transaction delay (11.3%), while transaction denials come in second place (7%) with system failure being given as the main reason, mobile network issues (4.7%), and agent denial (2%) in turning down transaction requests.

“In this case, respondents suggest that service providers make efforts to protect user accounts,” Ghiyazuddin adds.

The other main findings are that most of DFS users have existing savings accounts. Ninety-percent saved with commercial banks and Ghiyazuddin says there is clearly a need to target unbanked customers and offer products or services that meet the needs of customers.

Recommendations for policy makers and service providers

Ghiyazuddin says that while Indonesia is aims to reach its 75% financial inclusion target by 2019 with DFS being used as one alternative channel, both regulator and service providers need to ensure the safety and security of DFS channels and customer protection.

For policy makers, both Bank Indonesia (BI) and Indonesia’s Financial Service Authority (OJK) have conducted comprehensive financial literacy programmes. To improve user awareness, there is a need to have specific financial literacy programmes focusing on DFS.

“Regulators can collaborate with industry stakeholders to conduct diverse and innovative programmes based on behavioural insights using games or interactive tools,” Ghiyazuddin says.

Regulators should advocate utilising digital identity or e-KTP infrastructure for financial inclusion initiatives since it will provides stronger due diligence and a faster sign-up experience.

Respondents also suggested that regulators set up a training centre for agents in order to improve their overall quality.

To reduce the dependence on agents for information on products or charges, service providers need to invest and make effective use of marketing collaterals as well as send notifications and reminders on security, charges, or service disruptions.

In order to provide better customer service, providers should ensure diverse customer service or complaint resolution channels. More specifically, these channels will either not charge or charge a minimum and have separate hotlines for DFS users and agents.

Feedback from policy makers

Bank Indonesia director Of Transformation Office, Electronication and Financial Inclusion development Pungky P Wibowo and Indonesian’s Financial Service Authority director of Financial Inclusion Development Eko Ariantoro shared their feedback on the research.

“We are very thankful for the insights of this research. However, Indonesia is still in the early stages of building the digital financial services ecosystem and it will keep growing. We are in a situation where we have to provide services, set the regulations to protect customers, and at the same time, we also have to compromise with KYC.

“Give us some time as regulators to build the best solution. And please work together with us,” Punky says.

“We have to make sure that the policy is conducive in order to conduct services in the market. We are still in the process and we understand the backbone of DFS. But, everything will take time,” Eko concluded.


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