How Indonesia is creating financial inclusion through digital wallets

Today is another exhausting day for Ibu Nurhayati ("Ibu" is used to address or refer to an older woman in Indonesian) as she navigates hurdles in settling her monthly bills. Her son, employed in Jakarta, just sent his first paycheck through bank transfer. Located on a remote island and without any means of convenient withdrawal, getting the money is a struggle for Ibu Nurhayati.

Juggling a couple of responsibilities, Ibu Nurhayati heads from her village to the larger town to reach the nearest bank branch. This ritual unfolds every month, costing both time and money that Ibu Nurhayati could better spend on her living costs or running her small business.

The tale of Ibu Nurhayati is mirrored by countless people in Indonesia. It is a nation of over 273 million people spread across an archipelago of more than 17,000 islands. The World Bank calculated in 2014 that almost 49% of the adult population is unbanked or underbanked — a huge economic problem for genuine development.

The Indonesian Financial Services Authority says bank branches and ATMs are mostly located in Java (62.55% of the total), while the remaining are across the country from Sumatra to Papua.

Ibu Nurhayati's story is the reality of millions of other ordinary people in Indonesia.

The country's geography requires a distinct approach that creates an embryo for financial technology innovation that is both inclusive and prudent to produce daily financial services to the population.

Access to finance and realizing the economic potential that that could unlock has become a priority for the the Indonesian government in its economic strategizing.

Financial technology can play a crucial role. Fintech (such as digital wallets) is helping people access finance by equipping them for their daily transactions. Digital wallets bring ease of access through smartphones and have changed the way people receive and transfer money.

Digital wallets can serve the population beyond the traditional markets, providing financial access for many new people. The Central Bank of Indonesia, as the supervision body for the national payment systems, has predicted that digital wallets can effectively reach the unbanked and underbanked. The government's national strategy for financial inclusion found that many groups can now participate in the economy thanks to such solutions.

Equipped with technological agility, a holistic policy landscape, and a forward-looking regulatory framework, the growth and impact of digital wallets in Indonesia are immense. A survey conducted by the National Board for Financial Inclusion in 2021 showed a trend among the population in using digital wallets as primary access points for finance.

Gone are the days of traveling great distances or enduring the hurdles of opening a bank account. Now, armed with just a cellphone and internet access, a world of financial possibilities is available for many Indonesians. And these digital wallets are a catalyst for enhanced financial literacy.

DANA, a digital payment and financial services platform, surveyed its Micro, Small, and Medium Enterprise (MSME) merchants. This survey revealed that our digital wallets significantly impact MSMEs by shifting their payments from cash to cashless. The cost of cash handling, where 1 out of 3 merchants experience frequent miscalculations, has been drastically reduced.

The survey reveals a change in basic assumptions among individuals and businesses and shows that the growth of fintech is changing individual financial experiences. Digital wallets bring convenience through streamlined services, foster financial inclusion by reaching unbanked and underbanked populations, and enhance accessibility through secure, user-friendly apps. The consumer experience is evolving with faster transactions, personalized solutions, and increased transparency. All of this is empowering individuals to have greater control over their finances.

A three-pronged challenge remains: addressing the gap in access in rural areas, empowering the underbanked in accessing financial services, and equipping the revolution in digital financial services. This requires forward-looking policies and regulations for digital wallets. Such a trajectory will propel economic growth in Indonesia thanks to the wider adoption of digital wallets.

In looking toward Indonesia’s 100^th independence anniversary, leaders envision the archipelago as a developed economy, hoping for it to be among the world’s five largest. A new formula driven by financial technology embedded in digital wallets will make a huge contribution toward the vision.

While many discourses around financial inclusion and literacy are stuck at the macroeconomic level, the right approach will involve grassroots digital wallet adoption.

There is no single formula that can be applied to a specific country, but lessons can be learned from countries like Indonesia and companies like DANA.