Facebook has been working on its payment services for a while. In the last quarterly earnings call, CEO and founder Mark Zuckerberg said that commerce and payments will be important for its platforms and apps, including Messenger, WhatsApp, and Instagram. Zuckerberg also promised small business entrepreneurs access to sophisticated tools that only big companies have today.
These tools are now expected to be launched in a number of countries, and Indonesia might be one of them. Reuters reported on Monday that Facebook is preparing to apply for regulatory approval to launch a mobile payment service in partnership with three local fintech firms: GoPay, Ovo, and LinkAja.
Ovo’s president Karaniya Dharmasaputra said that the firm is always open for collaboration, including with Facebook, when it helps to increase non-cash transactions and financial inclusion in Indonesia. “When it comes to partnerships, we have several principles that must be followed,” he told KrASIA. “It should promote national interests and support the growth of the e-money ecosystem in the country. The partnership also has to get a license from Bank Indonesia and comply with all applicable laws, including tax regulations and user data protection.”
In August last year, Facebook reportedly approached the Indonesian government to bring WhatsApp Pay to the country but the topic cooled down since then. WhatsApp Pay was piloted in India in 2018 with one million users, and has now grown to 10 million. The platform is designed to run on the Unified Payments Interface developed by the National Payments Corporation of India (NPCI), allowing people to transfer money to their contacts on the app, as easily as sending a photo.
Meanwhile, Facebook Pay offers a more comprehensive service. Its users can send money, shop for goods, or donate to fundraisers on the Facebook apps, including WhatsApp and Instagram. The solution is built on existing financial infrastructure and partnerships, and facilitates payments from various mobile wallets.
In the US, Facebook Pay currently partners with several payment processors, such as PayPal and Stripe. The service will likely seek a similar collaboration in Indonesia, which would be in line with BI regulations limiting foreign holdings in e-money issuance companies to 49%, with local investors holding the remaining 51%. The regulation aims to increase the competitiveness and role of local payment players in the ecosystem. Facebook’s payment platform won’t be a threat.
It also makes economic sense for Facebook to bring its payment solution to Indonesia. The social network has around 136 million users in the country, which could easily migrate to the new service. The high number of approximately 60 million unbanked adults with smartphones also presents a huge opportunity. While e-commerce is already expected to grow strongly in Indonesia, the presence of Facebook Pay may provide an additional boost.
Concerns about personal data
According to people familiar with the matter, Bank Indonesia has had a few doubts about the service, due to Facebook’s poor history of handling personal data. Current regulations regarding the protection of consumer data require banking service providers to always get sufficient consent from clients, to store the data safely, and treat it confidentially.
However, the regulations are not specifically tailored to payment activities within social networks, which is something the central bank would need to consider, according to Aldi Adrian Hartanto, vice president of investments at MDI Ventures. “Regulators certainly have to formulate and impose amendments or new regulations to protect Indonesian users from Facebook Pay, before allowing them to roll it out,” he told KrASIA.
Nevertheless, for Hartanto, the presence of Facebook’s payment service will be beneficial for Indonesia’s digital industry overall. “As many Indonesians are using at least one app of the Facebook ecosystem, it will drive social commerce and digital payment penetration.”
Game-changer for financial industry
It could also be beneficial for the advertising business. Facebook will be able to collect data on payment methods, transaction dates, billing, shipping as well as contact details, which is valuable to increase ad relevance across all apps. Also, local partners will be able to tap into the social network’s enormous user base in Indonesia, making alliances lucrative for all parties.
Hartanto believes that Facebook Pay will be a game-changer for how Indonesian consumers are using digital financial services. “Facebook apps are huge in Indonesia, but our banking penetration remains lower than 50%, so we’ll finally get the best distribution channel,” he said. “It’s the right entry point to roll out more digital financial products.”
If Facebook Pay obtains the BI license, it will be the second foreign payment platform after WeChat Pay. The latter received green light from the regulator in January, after forming a partnership with Bank CIMB Niaga, which technically “acquires” the WeChat transactions and processes them. WeChat Pay can only be used by Chinese tourists visiting Indonesia.
With additional reporting from Cindy Silviana.