Bank Indonesia Releases National Payment Gateway Regulation

Long awaited electronic payment system finally sees the light of day

By Gilang Ardana
Monday, July 24, 2017

Bank Indonesia (BI) has issued Regulation Number 19/8/PBI/2017 on the National Payment Gateway (NPG), a long-expected move that is certain to fuel controversy among foreign investors. Click here for an unofficial English translation of the regulation. The long-expected move came into force on June 21 and has a one-year transition period.

The NPG is an electronic payment transaction system using instruments such as ATM cards, electronic money and credit cards, allowing customers to carry out non-cash transactions from any bank in Indonesia.

A requirement that all electronic payments must be process solely through the NPG by “switching agency” companies that are at least 80 percent domestically owned has raised significant concerns among foreign investors. There is a worry that the NPG gateway may not be secure and fast enough to handle all transactions and that the 80 percent requirement is discriminatory. The NPG was an issue in recent trade talks held between Indonesia and the United States in Washington and the release of the regulation came as a surprise to some.

The regulation defines the NPG as a system that consists of standard, switching and services that integrate all payment instruments and channels nationally. It obliges the processing of every domestic payment transaction through the NPG, which the central bank hopes will see interoperability with national payment systems, including switching interconnection, interconnection and interoperability of payment channels (such as ATM, EDC, agents and payment gateways), as well as the interoperability of payment instruments.

Requirements and obligations of parties to the NPG

There are two parties defined as the key entities of the NPG: NPG operators, which consists of standard agencies, switching agencies and services agencies; and parties connected to the NPG, which consist of issuers, payment gateway operators and other parties designated by BI. The regulation states that all parties connected to the NPG must be members of at least two switching agencies, except for instruments that are interoperable without the services of any switching agency.

Requirements for NPG operators:

Standard agency

This is an entity whose functions are to set, develop and manage standards for interconnection and interoperability of payment instruments, payment channels, switching and security. The regulation mentions that the standard agency should be an Indonesian legal entity that is also a representative of the national payment system industry. This agency should have the competency to set, develop and manage standards in implementing interconnection and interoperability from various payment instruments and channels and the operation of the agency should be approved by BI. To protect the public interest, the regulation states that the standards which are set, developed and managed by the standard agency will be owned by Bank Indonesia.

Switching agency

This is an entity whose function is to process payment transaction data domestically for interconnection and interoperability. The regulation obliges the switching agency to be at least 80 percent owned by an Indonesian or an Indonesian legal entity and have minimum capital of Rp 50 billion. Any changing of the share composition should be approved by BI. The operations of the switching agency should be approved by BI and it should conduct interconnection with at least two other switching agencies.

Service agency

This is an entity whose function is to ensure the security of transactions and consumer data and risk management and mitigation. The service agency also conducts reconciliation, clearing and settlement. The service agency should be an Indonesia limited liability company (PT). Its shares should be owned by switching agencies and a bank with minimum capital of Rp 3 trillion (category BUKU 4) with the majority of the shares owned by an Indonesian or an Indonesian legal entity.

NPG operations

Under this regulation, all domestic payment transactions should be processed through the NPG. It obliges the switching and service agencies to process settlements through Bank Indonesia. The parties involved in the NPG should also comply with the National Branding and Price Scheme policy set by BI.

To read the full unofficial English text of the regulation, click here


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