payment,clearing and settlement systems in indonesia.pdf

8/10/2019 Payment,clearing and settlement systems in Indonesia.pdf

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PAYMENT, CLEARING AND SETTLEMENT

SYSTEMS IN INDONESIA


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CONTENT

LIST OF ABBREVIATIONS ........................................................................................ 7

INTRODUCTION ........................................................................................................ 1

1. Institutional aspects .................................................................................................................. 1

1.1. Legal and Regulatory Framework ............................................................................................ 1

1.1.1. Payment and Settlement System .................................................................................................. 2

1.1.2.Securities Settlement System ........................................................................................................ 3

1.1.3.Other form of rules and regulations ............................................................................................ 4

1.2. Roles of Bank Indonesia ........................................................................................................... 4

1.2.1.Regulator and overseer of payment systems ............................................................................ 4

1.2.2.Provision of Settlement Account ................................................................................................. 5

1.2.3.Operator of Interbank Payment Systems and Securities Settlement System.................. 5

1.2.4.Facilitator of Development in Payment Systems .................................................................... 5

1.3. The role of other private and public sector bodies ................................................................ 6

1.3.1.BAPEPAM-LK ................................................................................................................................. 6

1.3.2.Providers for payment services .................................................................................................... 6

1.3.3. Providers for Clearing, Guarantee, Settlement, and Depository Services of Securities

Transactions .................................................................................................................................... 8

1.4. Recent developments ................................................................................................................. 8

1.4.1.The Indonesian act on funds transfer.......................................................................................... 8

1.4.2.Self Regulatory Organization (SRO) .......................................................................................... 8

2. Payment media ........................................................................................................................ 9

2.1. Cash .............................................................................................................................................. 9


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2.2.Non-cash ..................................................................................................................................... 9

2.2.1. Credit funds transfer....................................................................................................................... 9

2.2.2.Cheque and bilyet giro ................................................................................................................... 9

2.2.3.Direct debit ...................................................................................................................................... 10

2.2.4.Card-based ....................................................................................................................................... 10

2.2.5.Electronic Money (e-money) ..................................................................................................... 11

2.2.6.Non cash terminals ........................................................................................................................ 11

2.3. Recent developments .............................................................................................................. 12

2.3.1.National standard of chip card specification for Indonesia ATM/debit cards............. 12

2.3.2.Interoperability of e-money ........................................................................................................ 13

2.3.3.National Payment Gateway (NPG) .......................................................................................... 13

3. Payments and settlement systems.......................................................................................... 14

3.1.Overview ................................................................................................................................... 14

3.2.Large value Payment System .................................................................................................. 16

3.2.1.Institutional framework................................................................................................................ 16

3.2.2.Participation .................................................................................................................................... 17

3.2.3.Types of transactions .................................................................................................................... 18

3.2.4.Operating hours .............................................................................................................................. 18

3.2.5.Sources of liquidity ....................................................................................................................... 19

3.2.6.Management of credit risk of FLI ............................................................................................. 20

3.2.7.Settlement mechanism and management of risk.................................................................. 20

3.2.8.Technical aspect ............................................................................................................................. 21

3.2.9.Pricing policy .................................................................................................................................. 22


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3.3. Interbank Retail Payments Systems....................................................................................... 22

3.3.1.SKNBI for interbank retail payments ....................................................................................... 22

3.3.2.Shared ATM networks/switching services ............................................................................. 25

3.3.3.EFT POS networks/switching services .................................................................................... 26

3.4. Bank Indonesia Government Electronic Banking (BIG-eB).............................................. 26

3.5. Major ongoing and future projects......................................................................................... 27

3.5.1.Enhancements in Indonesia LVPS: 2nd Generation BI-RTGS System......................... 27

4. Post-trade processing, clearing and securities settlement in Indonesia ................................. 30

4.1.General Overview ..................................................................................................................... 30

4.2.Post Trade Processing Systems............................................................................................... 30

4.2.1.Trading and Confirmation ........................................................................................................... 30

4.2.2.Trade Repository ............................................................................................................................. 32

4.3. Central Counterparties and Clearing System........................................................................ 32

4.3.1. Clearing System ............................................................................................................................. 32

4.4. Securities settlement systems ................................................................................................. 33

4.4.1. Settlement system for the government securities and instruments of Bank Indonesia

open market operations ............................................................................................................. 33

4.4.2.Settlement system for securities issued by the private sector............................................ 34

4.5. Recent development................................................................................................................. 35

4.5.1.Enhancements in BI-SSSS: 2nd Generation BI-SSSS ........................................................ 35


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LISTOFABBREVIATIONS

ABS Automatic Bidding System

ASPI Asosiasi Sistem Pembayaran Indonesia (Indonesia Payment Systems

Association)

ASBANDA Asosiasi Bank Daerah (association of regional/provincial banks)

ATM Automated Teller Machine

BAPEPAM-LK Badan Pengawas Pasar Modal dan Lembaga Keuangan (Indonesia Capital

Market and Non Bank Financial Institution Supervisory Agency)

BEI Bursa Efek Indonesia (Indonesia Stock Exchange/IDX)

BI Bank Indonesia

BidCC Bidding System Central ComputerBIG-eB Bank Indonesia-Government Electronic Banking

BI-RTGS Bank Indonesia-Real Time Gross Settlement

BIS Bank for International Settlement

BI-SSSS Bank Indonesia-Scripless Securities Settlement System

C-BEST Central Depository and Book Entry Settlement System

CCP Central Counterparty

CP SIPS Core Principles for Systemically Important Payment System

CSD Central Securities Depository

DVP Delivery Versus Payment

EFT POS Electronic Funds Transfer at Point of SaleFAFO First Available First Out

FIFO First In First Out

FLI Fasilitas Likuiditas Intrahari (intraday collateralized liquidity facility)

FOP Free of Payment

FSAP Financial Sector Assessment Programme

FTS Failure to Settle

HIMBARA Himpunan Bank Pemerintah (association of state-owned banks)

IC Integrated Circuit

KPEI Kliring penjamin Efek Indonesia (Indonesia Clearing and Guarantee)

KSEI Kustodian Sentral Efek Indonesia (Indonesia Central Securities Depository)

LPEI Lembaga Penjamin Ekspor Indonesia (Indonesia Export Financing

Institution)

LVPS Large Value Payment System

MoF Ministry of Finance

NPG National Payment Gateway


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NSICCS National Standard of Chip Card Specification

OMO Open Market Operation

OTC Over the Counter

PBI Peraturan Bank Indonesia (Bank Indonesia Regulation)

PERBANAS Persatuan Bank Swasta Nasional (association of private national banks)

PIN Personal Identification Number

PVP Payment Versus Payment

SBI Sertifikat Bank Indonesia (Bank Indonesia certificate/the central bank bills)

SBN Surat Berharga Negara (the government securities)

SBSN Surat Berharga Syariah Negara (the government sharia securities)

SCC BI-SSSS Central Computer

SEBI Surat Edaran Bank Indonesia (Bank Indonesia Circular Letter)

SRO Self Regulatory Organization

SSS Securities Settlement System

SSTS Scripless Securities Transfer SystemST BI-SSSS Terminal

STP Straight Through Processing

SUN Surat Utang Negara (the government conventional securities)

SWIPS System Wide Important Payment System

TSA Treasury Single Account

VPN Virtual Private Network


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INTRODUCTION

Indonesia Rupiah (IDR) payment services in Indonesia are provided by the central bank,

commercial banks and non-bank institutions. With respect to payment systems, the central bankprovides Bank Indonesia Real Time Gross Settlement (BI-RTGS) system and Bank Indonesia

National Clearing System (Sistem Kliring Nasional Bank Indonesia (SKNBI), in Bahasa). Fortransferring and settling transactions of domestic securities, there are 2 (two) securities settlement

systems in the country handling such services; one is operated by Bank Indonesia and the other isoperated by Indonesia Central Securities Depository Corporation (i.e. PT. Kustodian Sentral Efek

Indonesia (PT. KSEI)).

BI-RTGS system was put into operation in 2000 to make settlements of the large value interbank

credit funds transfers1, monetary operations conducted by Bank Indonesia, and net figures from

the retail interbank payment systems in the country. Participants of BI-RTGS system are mostlythe commercial banks and a few selected non-bank institutions. Further developments in BI-RTGSsystem, known as the 2

nd generation BI-RTGS system, will incorporate offsetting features of

bilateral and multilateral netting with the purpose of economizing on the use of liquidity forsettlement.

SKNBI launched in 2005 is a deferred multilateral net settlement system for retail interbank creditfunds transfers and payments by check and other debit instruments. Since the end of 2010 SKNBI

has been linking 109 local clearing houses throughout the country, 39 of which are operated by

Bank Indonesia head and regional offices and the remaining by branches of appointed commercial

banks.

Commercial banks are the basis in providing payment services to the public. Commercial banks

provide payment services through their own intra-bank on-line funds transfer network and

interbank payment switching services2

in the country.

Non-bank institutions which provide payment services can generally be divided into institutions

authorized to conduct payment services by law, or licensed by Bank Indonesia. They provide the

alternative services for people not yet covered by banking services. In the end of 2006, Bank

Indonesia issued the regulation on money remittance services covering remittance servicesconducted by non-bank institutions so as to assure the implementation of consumer protection

principles and to fulfill recommendation from international agencies with regard to the anti money

laundering concern.

1. Institutional aspects

1.1. Legal and Regulatory Framework

1 i.e. settlement of payment obligations from financial markets in the country and time-critical

interbank credit funds transfers.2Switching services are companies that provide the routing and clearing of data among banks in

the interconnected ATM network.


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Bank Indonesia has legal power to play the role as regulator, operator, and overseer of

payment systems in Indonesia.

1.1.1. Payment and Settlement System

1.1.1.1

Bank Indonesia Act

Bank Indonesia Act (BI Act), the Act number 23 of 1999 on Bank Indonesia as lastly amended by

the Act number 6 of 2009 (hereinafter referred to as BI Act), is the main source of stipulationsregarding payment systems in Indonesia.

Under BI Act, Bank Indonesia has solitary objective to achieve and maintain the stability of IDR.

In regulating and safeguarding the smoothness of payment systems, Bank Indonesia is

authorized to operate, grant approval and license to operate payment systems services;

require operators of payment systems services to submit reports on their activities; and

determine the use of payment instrument.

With those authorities, Bank Indonesia plays strategic roles as operator, regulator, facilitator andoverseer of payment systems.

3

BI Act also provides the basis for Bank Indonesia to:

regulate and operate clearing system for interbank payments;

approve the operation of clearing systems for interbank funds transfers that is conducted by

parties other than Bank Indonesia;

conduct settlement services for interbank payments; and/or

approve the operation of settlement services for interbank payments that is conducted by

parties other than Bank Indonesia.

1.1.1.2 Other related Acts

Act 7 of 1992 on Banking, as amended by Act 10 of 1998 (hereinafter referred to as Banking Act),

sets out general stipulations on banking activities. Under Banking Act, there are 2 (two) types ofbanks, commercial banks and rural banks. Article 6.e of Banking Act stipulates that commercialbanks can conduct fund transfers, whether on its own behalf or on their customers. For rural

banks, there are some limitations regarding their participation in payment systems.

3BI Act provides authority for BI to regulate, operate and oversee payment systems in Indonesia.


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Act 8 of 2010 on the Prevention and Eradication of the Crime of Money Laundering aims at

minimizing the relevant financial crime involving great amounts of assets (currently the

requirement is above 100 million by reducing the possibility of money laundering activities, withthe final goals to safeguard national economic stability and state security. Under this act, operators

of card-based payment instruments, e-money and money remittance are defined as provider of

financial servicesand must meet the requirements regarding anti-money laundering.

Act 37 of 2004 on Bankruptcy and Suspension of Obligation for Payment of Debts provides the

legal basis for the exclusion of zero hour rules for payment transactions. This Act states thefinality of settlement in the case of bankruptcy or liquidation in Article 24 paragraph (3) by

regulating that funds transfer made before the pronouncement of bankruptcy shall be completed.

Article 10 of Act 24 of 2004 on Deposit Insurance Agency and its elucidation states that customersfunds which are going to be transferred out of the bank, but are still under such banks

bookkeeping, shall be deemed as customers deposits. And likewise, incoming transfers for

customers received by the bank but not yet credited to respective customers accounts, shall also

be deemed as customers deposits.

Act 21 of 2008 on Sharia Banking stipulates sharia banking activities. Similar to Banking Act, theSharia Banking Act divides sharia banks into 2 (two) types, namely sharia commercial banks and

sharia rural banks. Conducting sharia-based transfers, whether on its own behalf or their

customers, is viewed as one of the business activities of sharia commercial banks in the ShariaBanking Act. As for sharia rural banks, similar limitations are also put in place as the ones applied

to rural banks under Banking Act.

Act 11 of 2008 on Electronic Transaction and Information serves as the legal basis for the validity

of electronic signature and for the acceptance of electronic information/documents as a lawful

means of evidence. This Act facilitates the industry to take advantage of the latest technology indeveloping new payment mechanism.

1.1.2. Securities Settlement System

1.1.2.1 Capital market act

Act 8 of 1995 on Capital Market (Capital Market Act) is the main legislation that regulatesoperations of securities exchange, clearing and guarantee for settlement of exchange traded

securities, as well as central securities depository. Under Capital Market Act, the clearing,

guarantee, settlement, depository services are conducted by Indonesia Clearing and Guarantee

Corporation (PT Kliring Penjaminan Efek Indonesia (PT. KPEI)) and PT. KSEI. These institutionsobtain licenses from Indonesia Capital Market and Non Bank Financial Institution Supervisory

Agency (Badan Pengawas Pasar Modal dan Lembaga Keuangan (BAPEPAM-LK)) before

conducting their services. By the end of 2010, BAPEPAM-LK had only licensed PT. KSEI asIndonesia central securities depository (CSD), and PT. KPEI as the central counterparty (CCP).

1.1.2.2 Government securities acts


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Act 24 of 2002 on Government Securities stipulates the issuance of government securities and

gives mandate to Bank Indonesia as the auction agent and registrar of the government securities.

Similarly, Act 19 of 2008 on Government Sharia Securities provides stipulations regarding the

issuance of the government sharia securities and gives mandate to Bank Indonesia as the auction

agent and registrar of the government sharia securities.

BI Act stipulates that in the event that the government intends to issue the government securities,

the government shall hold prior consultations with Bank Indonesia. BI Act also authorizes BankIndonesia to implement monetary policies and operations, including issuance of Bank Indonesia

Certificate as a monetary instrument.

These 3 (three) pieces of legislations provide the legal framework for Bank Indonesia to regulate

and operate Bank Indonesia Scripless Securities Settlement System (BI-SSSS).

1.1.3. Other form of rules and regulations

To complement regulations issued by Bank Indonesia and other relevant authorities, the interbankpayments activities in Indonesia are also regulated by rules formulated by the relevant industries or

participants themselves. These rules are generally issued in the form of bye-laws or other similar

club rules, and basically cover more detailed and specific aspects of particular payment activities.These are usually the area which are not covered by authorities regulations and mostly related

with common procedures of certain parts of day-to-day activities. \

1.2. Roles of Bank Indonesia

As payments and settlement systems support functioning monetary and financial systems as well

as economic activities and development, Bank Indonesia has taken a leading function indeveloping Indonesia payments and settlement systems to reach the higher stage of both safety and

efficiency. Under BI Act, Bank Indonesia has solitary objective to achieve and maintain thestability of Rupiah (IDR). One of 3 (three) tasks that Bank Indonesia assumes to meet such an

objective is to regulate and safeguard smoothness of payment systems in the country. In doing

such a task, Bank Indonesia plays the roles as the regulator, overseer, facilitator, and operator.

1.2.1. Regulator and overseer of payment systems

As the regulator, Bank Indonesia issues the regulations with the purpose of achieving higher stage

of safety and efficieny in the payment systems as well as promoting the consumer protection in the

payment industry. Bank Indonesia plays the role as the overseer in order to control risks in thepayment systems and to promote efficiency in the payment systems.

According to BI Act, Bank Indonesia has the power to issue regulations, including the BankIndonesia Regulation (Peraturan Bank Indonesia/PBI) and Bank Indonesia Circular Letter (Surat

Edaran Bank Indonesia/SEBI). These regulations, covering the system of making transfers (i.e BI-

RTGS and SKNBI), payment instruments (i.e. Card-based Payment Instruments and Electronic


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Money) and other transfer mechanism (i.e. Money Remittance), are incorporated in the State

Gazette.

1.2.2. Provision of Settlement Account

As stipulated in PBI, Bank Indonesia provides settlement account services for the commercialbanks, government, international monetary/financial institutions and other institutions. The

settlement account is basic current account. The settlement accounts must be in funds at all times

with no credit provided by BI. Institutions shall provide securities in the form of Sertifikat BankIndonesia (SBI) and the government securities as the collateral in order to obtain liquidity facilities

from Bank Indonesia. The goal of Bank Indonesia settlement account policy is to promote thenational payment system to a higher level of efficiency, safety, integrity, and robustness in the face

of financial crises. When opening the settlement account for an applicant, Bank Indonesiaconsiders, among other things: whether the applicant fits the definition of commercial bank in

related banking Acts, whether provision of settlement account to the applicant might jeopardize

the soundness and efficiency of the financial system, whether there is a legitimate business interest

that can be served by the settlement account, and whether provision of settlement account wouldadversely affect the reputation of Bank Indonesia.

1.2.3. Operator of Interbank Payment Systems and Securities Settlement System

Currently, Bank Indonesia is the main operator of clearing and settlement systems for interbank

payments in Indonesia. Bank Indonesia operates 2 (two) national core interbank payment systems,

i.e. BI-RTGS system as Indonesia systemically important payment system (SIPS) and processing

large-value interbank payments in the country, and SKNBI for retail interbank payments. SKNBIsettles the interbank payments on a deferred multilateral net basis. Since the implementation of

SKNBI, all retail interbank credit funds transfers settled through it are processed paperless

allowing Bank Indonesia to end the use of the paper-based credit note as the payment instrumentfor retail interbank credit funds transfers.

Bank Indonesia operates as well BI-SSSS for settlement and depository of securities issued by thegovernment and for settlement of instruments of OMO by Bank Indonesia.

1.2.4. Facilitator of Development in Payment Systems

As the facilitator, Bank Indonesia guides the development of the national payment systems and

supports the developments of payment systems operated by other players.

Bank Indonesia plays its role as the facilitator or catalyst mainly in the development of the retailand micro payments systems conducted by players of the retail and micro payments industry, suchas the standardization of payment cards (e.g. ATM/debit cards) and e-money issued by the

industry players and the development of aNational Payment Gateway(NPG) for the retail and micro

payments. Bank Indonesia could promote and coordinate with the relevant stakeholders toimplement the relevant initiatives. The general objective is to address specific problems regarding

retail/micro payment system, the solutions of which may be compromised but acceptable for the

relevant individual stakeholders, including Bank Indonesia itself. These solutions could also help


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their customers, especially merchants, with Point Of Sale (POS) devices to provide payment points

for merchants customers. Services provided by these payment points are limited to only bill

payments, and merchants cannot accept cash deposits or provide cash withdrawals. There are also2 big rural banks operating ATM located in their offices with the purpose of providing their

customers with 247 cash withdrawals as well as intra-bank funds transfers and billing payments.

Moreover some rural banks acting as the recipients provide international money remittanceservices for Indonesian migrant workers. Until 2010, there are 1,706 rural banks in Indonesia.

1.3.2.2.Non-bank institutions

The involvement of non-bank institutions in Indonesia payments system has been growing

consistently. Their involvements are in the forms of providing payment instruments (such as

issuing credit card, e-money and money transfers), remittance services, and switching services for

inter-bank payments and funds transfers.

With regard to the card-based payment instruments, there is 1 (one) non-bank financial institution

issuing credit card, and the non-bank institutions taking part in the card-based (credit card anddebit/ATM card) payment industry conduct their businesses as the principals

6, acquirers

7, and

operators8of switching, clearing and settlement services.

As for e-money, being the newer type of payment instruments in Indonesia, it is recorded that

there are 9 (nine) institutions issuing e-money at the end of 2010. 4 (four)9of them are non-bank

institutions, with 3 (three) of them telecommunication companies. Particularly for thesetelecommunication companies, it is believed that they will be the frontrunners in providing

payment services via mobile phones for population uncovered by banking services, as the number

of mobile phones users in the country is far greater than the number of bank accounts holders.

In relation to money remittance services, besides commercial banks, there are more than 60 non-bank money remitters providing domestic remittance services, which include Indonesia postalcompany (PT. Pos Indonesia) and Indonesia state-owned pawn-shop company (PT. Perum

Pegadaian). Money remittance is of great importance for Bank Indonesia as Indonesia has a great

number of migrant workers, who regularly remit money to their families in their hometown. Thenumber of these remittances has been growing steadily and it starts to play a worth-to-noted

contribution to the national economy. Justifiably, Bank Indonesia also holds great interest to

assure that consumer protection principles are being applied in the money remittance services.

Those were the rationales Bank Indonesia had issued the regulation on money remittance in 2006,which in turn triggered the increase in the number of money remitters being licensed or registered

in Bank Indonesia.

6American Express, Japan Credit Bureue (JCB) Nusantara, Mastercard Internasional Indonesia, Visa

Internasional (Asia-Pacific) Ltd, China Union Pay, PT. Artajasa Pembayaran Elektronis (ATM Bersama),

PT. Rintis Sejahtera (ATM Prima/ATM BCA), PT. Alto Network (ALTO)7PT. Finnet Indonesia8 Japan Credit Bureau (JCB) Nusantara, Mastercard Internasional Indonesia, Visa Internasional (Asia-

Pacific) Ltd, PT. Artajasa Pembayaran Elektronis (ATM Bersama), PT. Rintis Sejahtera (ATM Prima/ATMBCA), PT. Alto Network (ALTO)9PT. Telekomunikasi Indonesia, PT. Telekomunikasi Selular, PT. Indosat, PT. Skye Sab Indonesia


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1.3.3. Providers for Clearing, Guarantee, Settlement, and Depository Services of

Securities Transactions

1.3.3.1. Central securities depository (CSD)

There are 2 (two) CSDs in Indonesia, i.e. PT. KSEI operating its depository and settlement system

called C-BEST and Bank Indonesia operating its depository and settlement system called BI-SSSS.PT. KSEI is established for the purpose of performing CSD functions by providing custodian

services as well as orderly, fair and efficient settlement services of securities transactions. PT.

KSEI makes rules on the central custodian services and settlement services, as well as the fees ofits services. The rules of PT. KSEI amendments thereof, will only become effective when

approved by BAPEPAM-LK.

1.4. Recent developments

1.4.1.

The Indonesian act on funds transfer

The Act covers wide aspects of payment systems, among others: the basic principles of funds

transfer activities, commencement of funds transfer activities, licensing requirement for non-bankinstitutions, oversight, and sanctions. The enactment of this Act will make the operation of

payment systems services in Indonesia more secure and efficient.

1.4.2. Self Regulatory Organization (SRO)

Payment System in Indonesia has undergone significant changes for current decade. Thesignificant changes include the move toward the increasing reliance on the use of newly developed

technologies to enable e-payment. This condition requires the central bank to be able to responsiveto the development of technology.

The establishment of Indonesian Payment systems SROin 2011 is one of Bank Indonesias policyto increase the role of industry in developing a payment system in accordance with market demand.

This SRO, which regulated the technical and micro policy for payment and settlement industry,

will be strategic partner of BI in managing and improving efficient, smooth and reliance payment

systems. This institution will become an independent and professional institution which representsthe various players in payment industry and has the ability to accommodate various changes and

progresses that occurred in this industry. Thus, BI can be more focused on macro regulation and

policy and SRO will have the authority to regulate themselves in term of technical aspects such as

standardization, code of conduct etc.


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2. Payment media

2.1. Cash

The Indonesia currency is Rupiah. Under Bank Indonesia Act, any activities involving money or

having a purpose of payment or any obligation which has to be fulfilled by money, if it isconducted in the territory of the Republic of Indonesia, shall be settled in Rupiah currency, except

otherwise prescribed by Bank Indonesia regulation.

Bank Indonesia has the sole right to issue bank notes and coins. Bank notes in circulation are in

denominations of IDR 1,000; 2,000; 5,000; 10,000; 20,000; 50,000; and 100,000, while coins

issued in circulation are in denominations of IDR 1; 50; 100; 200; 500; and 1,000. Bank notes and

coins in circulation reached IDR 318 trillion in the end of 2010, increasing 44.3% compared tobank notes and coins in circulation in 2007.

2.2. Non-cash

Non-cash payments in Indonesia are mostly provided by the banking system. Commercial banksoffer a variety of accounts (e.g. saving, checking and time deposit accounts) to their customers,

while rural banks may only offer saving and time deposit accounts. Most commercial banks

provide their customers with ATM services allowing their customers to access directly their saving

accounts at anytime along with the provision of cheque and bilyet giro for checking accounts.Payments using cards (credit and debit/ATM cards) as well as e-money have been gaining larger

popularity.

2.2.1.

Credit funds transfer

Banks provide credit funds transfer services in their offices and via their delivery channels (ATM,

internet and mobile banking). For inter-bank funds transfers ordered by banks customers, they can

be processed via shared ATM networks/payments switching services, SKNBI and BI-RTGS

system. There is a threshold for inter-bank credit funds transfers processed through SKNBI, i.e. upto maximum of IDR100 millions that can be processed via SKNBI. Any amounts of interbank

credit funds transfers can be processed through BI-RTGS system. There is a limit of total IDR25

millions per day per account of banks customers for inter-bank credit funds transfers processed

via the shared ATM networks.

2.2.2.

Cheque and bilyet giro

It is a common banking practice for commercial banks to provide their customers with cheque and

bilyet giro facilities. Although use of those debit payment instruments tends to decrease recentlydue to rapidly growing use of others means of payments, there are customers of banks keeping on

to use them. Cheque and bilyet giro are usually used for payments of regular purchases of goods

and services among businesses and for bill payments.


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To maintain confidence of the society in using cheque and bilyet giro, Bank Indonesia issued a

strict rule with regard to dishonored10

use of cheques and bilyet giro. If three small amount

cheques and bilyet giros are dishonored within six months, or one cheque or bilyet giro aboveamount of IDR 500 millions is dishonored, the customer is blacklisted and prohibited from

holding cheque at any banks for a period of one year.

2.2.3. Direct debit

Usage of direct debit is still limited as intra-bank payments. With the lack of an interbank giro(direct debit) system, utility companies do not yet have alternative for collection of their bill

payments. The available alternative is to make direct debit arrangements with many commercialbanks for collection of their bill payments.

2.2.4. Debit Note

Debit Note is a document submitted by a bank or BI for the purpose of collection from another

bank with maximum amount IDR 10 millions.

2.2.5. Card-based

Card-based payments, with both credit and debit/ATM cards, have been increasingly used in the

local market.

2.2.4.1. Credit card

Major international credit card brands such as VISA, Mastercard, Amex and JCB are widely

accepted for payments goods and services purchases in the country. There is 1 (one) domesticcommercial bank, i.e. Bank Central Asia (BCA), issuing a proprietary credit card called BCA card.

Credit card issuance by commercial banks and non-bank financial institutions must be certified by

respective brand-owners (the principals) and licensed by Bank Indonesia.

Use of credit cards have grown very fast: during 3 years, credit card has grown 51.79 % whereas

in 2007 attaining 129.29 million transactions, in 2010 achieving 180.55 million transactions. Onthe other hand total value in the last 3 year also upsurges to 119.44 % from IDR 72.60 billions in2007 up to IDR 147.22 billions in 2010. There are about 13.22 million cards in circulation in

201011

.

2.2.4.2.

Debit/ATM (cash) card

In the last 5 years, debit/ATM card payments have been growing significantly from 1,103.23million transactions in 2007 to 1,641.40 million transactions in 2010, increasing 48.8%.

10i.e. payments using check or bilyet giro that do not cover with sufficient balance of funds in account of

banks customers paying with those debit payment instruments11 Data until November 2010


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Nevertheless, compared to Indonesian population, use of debit/ATM cards is still insignificant,

averaging at 6 transactions per person per year in 2010. There are 3 (three) domestic shared ATM

networks (ATM Bersama, ATM Prima/ATM BCA and Alto) and two international shared ATMnetworks (Cirrus of Mastercard and Plus of Visa International) existing at the moment. The

domestic shared ATM networks are not yet linked to each other forcing some banks to become

members of more than one networks. ATM cards are used not only for withdrawals and accountbalance inquiries, but also for intra and interbank funds transfers as well as utilities payments suchas payments for telephones/mobile phones bills, credit card bills, electricity bills, tax bills, etc.

Debit card payments at point of sale (EFT POS) have been becoming more popular, mostly in big

cities. Some domestic banks have issued debit cards with the brands of Maestro of Mastercard and

Visa Electron of Visa International. The other banks issue proprietary debit cards with a current

large number of POS devices at merchants sites. The lack of business agreements among thevarious parties seems a major obstacle to achieve a one POS terminal per merchant vision. There

are currently 46 commercial banks offering debit cards to their customers. In 2010, there are about

51.8 million cards in circulation.

2.2.6. Electronic Money (e-money)

E-money in Indonesia is categorized into two types. One is the chip-based in which the value of

money is stored in an integrated circuit (IC) chip embedded in devices such as plastic cards, and

the other is the server-based in which the value is stored centrally in servers of the providers of e-money services.

There are currently 9 (nine) e-money issuers, i.e. 5 (five) commercial banks and 4 (four) non-bankinstitutions. Such a newer payment instrument offers the society a cashless payment, especially

micro payments, such as for transportation, gasoline purchases, purchasing goods at convenient

stores and vending machines, as well as payments for toll and parking charges. Under a BankIndonesia regulation, the maximum value that can be stored in e-money is IDR 1 million for

unregistered e-money and IDR 5 millions for registered e-money. Moreover, the total value of

payments in one calendar month shall not exceed IDR 20 millions.

2.2.7. Non cash terminals

2.2.6.1. Automated teller machine (ATM)

ATM is one of delivery channels allowing banks customers to perform routine banking

transactions without having to visit banks offices. Initially, ATM was used only for cash

withdrawal and balance inquiry. Since operation of ATM switching services, ATM provides aswell inter-bank funds transfers and bill payments services. As per December 2010, there were

approximately 30 thousand ATMs in Indonesia which has the significant increase of 37% from

2007.

2.2.6.2. Electronic funds transfer at point of sale (EFT POS)


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Payments via EFT POS have been growing steadily in line with the increased acceptance of

merchants for such an electronic payment. EFT POS is the delivery channel allowing ATM/debit

card holders to pay merchants for their purchase of goods and services through online fundstransfers from cardholders account to merchants account.

2.2.6.3.

Phone banking

Phone banking offers services such as orders for funds transfers, account balance enquiries and

billing payments over telephones. With regard to security purpose of using such a delivery channel,

operators of banks providing phone banking services will ask their customers for uniqueinformation of the customers as a means of the authentication.

2.2.6.4. Mobile/SMS banking

Due to rapid growth in mobile phones industry, banks customers in these days are able to manage

their payment activities through their mobile phones. The features are similar tothose in phonebanking such as account balance inquiries, billing payments and orders for funds transfers overmobile phones. For the security purpose, banks customers are required to register their mobile

phone number to the banks prior to the provision of electronic payments via such a delivery

channel. Moreover, banks customers use unique information of personal identification number(PIN) for the authentication.

2.2.6.5. Internet banking

Similar to phone and mobile banking, the use of internet banking have been boosting electronic

payment activities as well. Through internet banking, banks customers are able to conduct

account balance enquiries, orders for funds transfers and billing payments and to some extent theinternet banking services provide the customers with services for deposit placements, applications

for banks loans, etc.

A number of banks have also launched internet payment services that enable their customers to

pay for their internet-through purchases of goods and services.

2.3. Recent developments

2.3.1. National standard of chip card specification for Indonesia ATM/debit cards

With regard to more secure used of ATM/debit cards for electronic payments, Bank Indonesia and

the ATM/debit card payments industry had agreed to implement use of chip in ATM/debit cardsissued in Indonesia, and in the early of 2009 issued the national standard of chip card specification

(NSICCS) for ATM/debit cards. Use of the standard chip will support technical interoperability

among ATM/debit cards in the country, and, thus, facilitate implementation of interlinking theinfrastructures (i.e. ATM and POS networks) of the issuers of ATM/debit cards and the providers

of shared ATM/POS networks.


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2.3.2. Interoperability of e-money

In order to increase efficiency in operations of e-money services, since 2009 Bank Indonesia hasbeen facilitating the initiative to promote interoperability of e-money services provided by various

providers. The industry will set up the interoperability schemes for both the chip-based and server-

based e-money.

2.3.3. National Payment Gateway (NPG)

Currently Bank Indonesia and the payments system industry have been working together to set out

a NPG for Indonesia. Basically, NPG is needed to improve efficiency of the payments system

industry as a whole. However, the immediate milestone chosen to be set is the existence of NPGfor retail and micro payments.

Focus on retail and micro payments is derived from the existing condition of various front enddelivery channels (e.g ATMs and POS devices) offered by the industry players and no

convergence in using a common (shared) infrastructure for switching retail and micro payments(e.g. card-based, internet and mobile payments). Through NPG, reduction in duplicativeinvestments on the delivery channels (i.e. ATMs and POS devices) and efficient operation of

switching services for retail and micro payments in the country can be achieved. Moreover, it will

provide the high efficient, convenient, swift and safe retail payments system for consumers of allbanks and non-banks providing retail and micro payments services all over the country.

NPG will require interoperability of delivery channels and instruments of retail and micropayments in the country, common and scalable standards for payments messaging exchange,

protocol as well as system/network security and reliability, and financial and operational risk

management tools.


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3. Payments and settlement systems

3.1. Overview

There are 2 (two) payments and settlement systems in the country: interbank large-value payments

system and retail and micro payments system. In the retail and micro payments system, most retailand micro payments services are provided by commercial banks through some payment

instruments: cheque and bilyet giro, electronic payment instruments and banker acceptance (bank

draft).

Interbank payments with cheques and bilyet giros are processed through SKNBI. SKNBI is a

deferred multilateral net settlement system, in which settlement of net figures from SKNBI isconducted at the designated time in the same day through BI-RTGS system. For card-based

payment instruments (credit and debit/ATM cards), settlement for the interbank level is also

conducted on multilateral net basis using the central bank money (through BI-RTGS system) or

commercial bank money (through the accounts at commercial banks appointed as the settlement

banks).

For large-value and time-critical interbank payments, settlement of those payments in BI-RTGS

system is performed on a gross basis. Until nowadays, BI-RTGS transactions account for around

90% of total value of the interbank payments in the country.

Table 1: Interbank payments system in Indonesia

Types of payment

Payment systems Settlement

NameMethod ofsettlement

Centralbank money

Commercialbank money

Interbank large-value creditfunds transfer

BI-RTGS Gross V -

Interbank retail credit fundstransfer

SKNBI Net V -

Interbank paper-based debit

payments with theinstruments of cheques,

bilyet giro and other debitnotes

SKNBI Net V -

Shared ATM network

(domestic)

ATMBersama

Net V -

PRIMA/ATM BCA

Net - V


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Types of payment

Payment systems Settlement

NameMethod of

settlement

Central

bank money

Commercial

bank money

ALTO Net - V

ATM Link Net V

Shared ATM network(international)

Cirrus Net - V

Plus Net - V

Shared debit-card network(domestic)

DebitPRIMA

Net - V

Shared debit-card network

(international)

Maestro Net - V

VISA

Electron

Net - V

Propriatery debit-card

network (domestic)

Debit BCA Overbooking V

Credit card

Visa Net - V

Mastercard Net - VJCB Net - V

BCA Net - V

Propriatery credit-cardnetwork (domestic)

BCA - - V

Electronic Money internalsystem of

the issuers

- - -

Remittance (domestic) internal

system of

the

operators(i.e. postal

co., telco.

cos andothers)

- - -

Remittance (international) internalsystem of

the

operators

(i.e.Western

Union andMoneyGram)

- - -

Funds legs of securitiestransactions on IDX or OTC

PT. KSEIand its

settlement

banks

Net or Gross - V


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LARGE VALUE PAYMENT SYSTEM

The implementation of BI-RTGS system since year 2000 started as a response to the growing

awareness of the need for sound risk management in settlement of large-value funds transfers in

Indonesia. BI-RTGS system operated by Bank Indonesia offers a powerful mechanism for limitingsettlement and systemic risks in settlement process of Indonesian Rupiah (IDR) interbank large-

value funds transfers through its settlement mechanism taking place on a gross basis and in real

time. .

With regard to Bank Indonesias functions in the monetary policy implementation, BI-RTGS

system has enabled Bank Indonesia to monitor, in real time, the liquidity condition of allcommercial banks in the country. Accordingly, it makes Bank Indonesia open-market operations

in the domestic inter-bank money market much more effective.

BI-RTGS system can provide:

delivery-versus-payment (DVP) settlement mechanism which has been implemented since

2004 via its DVP link to BI-SSSS; and payment-versus-payment (PVP) settlement mechanism which has been in operation since

early 2010 via its PVP link to USD RTGS system in Hong Kong (that is, USD CHATS),

which could in turn contribute to the reduction of settlement risk in settlement of both transactionsof securities held with BI-SSSS and domestic interbank USD/IDR FX trades which is the largestdomestic FX market.

According to the results of the financial sector assessment programme (FSAP) on BI-RTGSsystem conducted in October 2009 by the assessors from the International Monetary Funds (IMF)

and World Bank (WB), there are 6 (six) core principles12

which are already observed, and 3 (three)

core principles

13

which are broadly observed.

The average daily value of BI-RTGS transactions in 2010 is around IDR 218 trillions(approximately USD 23.9 billion), with daily volume averaging at 56 thousand transactions.

3.2.1. Institutional framework

BI-RTGS system is fully operated, governed and overseen by Bank Indonesia. BI-RTGS System is

an electronic fund transfer system for IDR in which the settlements are performed in a real-time

per individual transaction basis. The BI-RTGS system consists of three main components, whichare the RTGS Central Computer (RCC) in Bank Indonesia, RTGS Terminal (RT) in participants,

and communication network. RT consists of central department and subsidiary department. Theoperating rules of BI-RTGS System cover areas such as general duties and responsibilities of theparticipants, minimum requirements, and backup requirements.

As the regulator of payments and settlement systems in Indonesia, Bank Indonesia has set a well-founded legal basis for implementation of BI-RTGS, which is in accordance with core principles

12CP II, CP III, CP IV, CP VI, CP VII, and CP VIII 13CP I, CP IX and CP X


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for systemically important payment system (CP SIPS) of Bank for International Settlements (BIS)

and in the forms of PBI and SEBI. The regulation prescribes general provisions with regard to the

legal basis, the rules and procedures, management of risks in the operation of BI-RTG system, thefinality of settlement, the security and reliability of BI-RTGS system, efficiency in the operation of

BI-RTGS, the participation, good governance in the operation of BI-RTGS, the oversight of BI-

RTGS system, and the sanctions. The technical rules for implementation of Bank IndonesiaRegulation are set out in:

- circular letter concerning principles for the operation and oversight of BI-RTGS system (i.e.the circular letter issued by Bank Indonesia as the regulator of of payments and settlement

systems in Indonesia);

- circular letter concerning the operation of BI-RTGS system (i.e. the circular letter issued by

Bank Indonesia as BI-RTGS operator);

- circular letter concerning processing of payments in BI-RTGS system as concerns for

protection for customers of BI-RTGS participating banks; and

- circular letter concerning the usage fees for BI-RTGS system.

In order to ensure the uniformity for inter-bank funds transfers practices among BI-RTGS

participating banks, the participating banks have developed a set of BI-RTGS Bye-laws. Theparticipating banks, when making inter-bank funds transfers through BI-RTGS system, have to

conform to the Bye Laws. The Bye-Laws was created by all banking associations consisting of

HIMBARA (Himpunan Bank Pemerintah or association of state-owned banks), PERBANAS(Persatuan Bank Swasta Nasional or association of private national banks), association of foreign

banks, association of joint venture banks and ASBANDA (Asosiasi Bank Daerah or association of

regional/provincial banks). As the follow up to the Bye Laws, the banking associations have

formed a Committee (i.e. the Bye-Laws Committee) to resolve disputes and/or problems that mayarise between BI-RTGS participating banks with respect to interbank funds transfers settled

through BI-RTGS system, and/or to resolve non-compliance actions of any bank. The Bye-Lawsspecifies as well certain codes of conduct of interbank funds transfers settled through BI-RTGSsystem for the purpose of avoiding gridlock. Furthermore, the committee is also responsible to

make, repeal and/or amend the Bye-Laws.

The committee has also issued a Bye-Law for PVP settlement of IDR-legs of domestic interbank

USD/IDR FX trades settled through USD/IDR PVP settlement mechanism of BI-RTGS system. It

is the uniform custom of practices for BI-RTGS participating banks settling their interbank

USD/IDR FX transactions through USD/IDR PVP settlement mechanism of BI-RTGS system.

3.2.2. Participation

All commercial banks required to hold current account with Bank Indonesia are BI-RTGS

participants. There are 5 (five) non-bank institutions which are also BI-RTGS participants, i.e.Indonesia Postal Company (PT. POS), Indonesia Central Securities Depository Corporation (PT.

KSEI), Indonesia Export Financing Institution (LPEI), and 2 (two) domestic interbank ATM


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switching/network providers14

, since their services requires settlement services at the inter-bank

level, and Bank Indonesia considers that the final settlement of their payment services have to take

place in the central bank money

There are 2 (two) types of the participant, i.e. the direct participants which have BI-RTGS terminal

at their premises and the in-direct participants which do not have BI-RTGS terminal at their bank.Both types are required to have the current/settlement account held at BI-RTGS Central Computer.

As of April 2009, there are 154 banks and non-bank institutions participating in BI-RTGS.

3.2.3. Types of transactions

BI-RTGS system handles all IDR large-value payments including:

- for settlement of interbank IDR money market transactions;

- for settlement of payment-legs of transactions of IDR denominated securities held with BI-SSSS;

-for settlement of IDR-legs of domestic interbank FX against IDR trades;

- for settlement of Bank Indonesia monetary operations;

- payments of large and time critical government transactions; as well as

- funds transfers of large and time critical transactions of commercial banks customers.

BI-RTGS system also settles the net figures from SKNBI and the clearing results from a domestic

inter-bank ATM switching15in the country.

BI-RTGS system applies FIFO with Priority principle. The priorities range from 01 to 99. All

inter-bank funds transfers, either purely inter-bank funds transfers including for settlement of all

inter-bank financial markets transactions or of commercial banks customers, are assigned with

the priority level 99, which is defined as the normal payment, while the priority payments arepayments between the participating banks and Bank Indonesia for, such as, settlement of the net

figures from SKNBI, commercial banks cash withdrawals, settlement of Bank Indonesia

monetary operations, as well as payments of the government transactions in which accounts of thegovernment are held with Bank Indonesia accounting system.

3.2.4. Operating hours

BI-RTGS System operates in daily basis for working days and several non working days with

limited services. The operating hours are as follow:

Table 2: Operating hours of BI-RTGS system

14PT Artajasa operating called ATM Bersama ATM switching whose members are 72 commercial banks

including 4 stated owned commercial banks, and PT Finnet Indonesia operating called ATM Link ATMnetwork whose members are only 4 stated owned commercial banks15It is ATM Bersama operated by PT. Artajasa


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No. Activities Window Time

(Western Indonesia Time)

1 BI-RTGS Central Computer opens 06:30

2 Window times of settlement of BI-RTGS transactions

a.

Funds transfers for SKNBI pre-fundsb. Funds transfers for topping up SKNBI pre-funds

c. Funds transfers for commercial banks cash

withdrawals

d. Funds transfers from commercial banks fortransferring tax payments collected from tax payers to

the government account held with BI accounting

system

e. Customers interbank funds transfersf. Interbank funds transfers

g. USD/IDR PVPs settlement of IDR-legs

h.

Settlement of net figures of SKNBIi. Settlement of BI monetary operations

06:3008:00

08.1516.00

06:3011:00

06:3016:30

06:3016:30

06:3017:00

06:3016:30

11.0017.00

06.3017.00

3 Cut-Off Warning 17:00

4 Interbank Cover Position Transactions 17:0018:00

5 Pre Cut-Off Time 18:00

6 Cover Position Transactions with Bank Indonesia 18:0018:30

8 Cut-Off Time 19:00

3.2.5. Sources of liquidity

The main sources of liquidity in BI-RTGS system during the operating hours are:

- opening balances of BI-RTGS participants;

- funds received from other BI-RTGS participants during the operating hours; and

- intra-day collateralized liquidity facility from Bank Indonesia (called FLI16

).

16It is called in Bahasa Fasilitas Likuiditas Intrahari


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3.2.6. Management of credit risk of FLI

FLI is an intra-day liquidity funding provided by BI-RTGS operator in order to smooth settlementof BI-RTGS transactions. It is required that BI-RTGS participating banks that need FLI must

provide suitable collateral as being liquid should a default happens. Such suitable collateral can be

in the forms of SBI or SBN, in which the value of such collateral is marked to market on a dailybasis, and the haircut is applied.

The use of FLI is charged according to hours of the use of FLI and based on the business daysmorning rate of the inter-bank overnight money market.

If FLI can not be repaid by the end of BI-RTGS operating day, FLI will be transformed into Bank

Indonesia overnight lending facility which is charged at Bank Indonesia lending rate.

3.2.7. Settlement mechanism and management of risk

BI-RTGS system settles all payments on a gross basis and in real time, subject to availability ofcovering funds of the paying-participating banks, during the settlement hours. BI-RTGS system

accepts the future-dated payment instructions for settlement on the designated value date.

In BI-RTGS system, the payment orders are temporarily held in the centrally located queue if

covering funds of the paying-participating banks are insufficient, and processed on the basis of the

FIFO rule subject to the assigned priorities upon availability of the covering funds (i.e. no

queued payments of a particular priority will be settled until all those of a higher priority havebeen settled).

BI-RTGS provides its participants and users of BI-RTGS operator with the queue maintenance

facility for:

- reordering sequences of queued payments within a priority level;

- changing priority codes of queued payments; and

- Cancelling payments in queue.

Assigned users of BI-RTGS operator can perform the queue maintenance for both priority

payments as well as (normal) inter-bank funds transfers in queue. BI-RTGS participating banks

can only reorder sequences of their outgoing (normal) inter-bank funds transfers in queue or cancelthem. Should BI-RTGS participating banks need to perform queue maintenance intervene on their

priority payments, i.e. cancelling their cash withdrawals, they can contact BI-RTGS operator to

perform requested queue maintenance on their priority payments.

Moreover, BI-RTGS system has a feature to detect and resolve grid locked payments in queue.

The gridlock resolution, which applies FAFO offsetting/optimization algorithm while keeps on


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respect the priority payments17

, can be performed automatically or upon command by authorized

users of BI-RTGS operator.

In addition, BI-RTGS system provides its participants with the parameterized facility to monitor

the payments in queue, both the outgoing funds transfers in queue and the incoming payments in

queue. However, in order to prevent a moral hazard problem (i.e. not providing BI-RTGSparticipating banks with incentives to deliberately delay the submission of funds transfer

instructions to the system in order to economize on the use of their own liquidity by relying on the

incoming funds transfers from other participants, which in turn could lead to gridlock withmultiple participants holding back their payments until they receive payments from others), BI-

RTGS only provides its participating banks with the facility for monitoring their outgoing funds

transfers in queue.

In a SEBI regarding Principles for the Operation and Oversight of BI-RTGS system, BI-RTGS

participants are encouraged to follow the graduated payment schedule in order to prevent an

accumulation of the payments submitted to BI-RTGS system closing to the end of BI-RTGS

operating hours. The graduated payment schedule specifies a certain percentage of the paymentsvolume submitted within certain time intervals during BI-RTGS operating hours.

3.2.8. Technical aspect

The technical aspects of BI-RTGS Systems are as follow:

Technical item Description

Connection between the system

and participant

CPU to CPU connection

Message format Proprietary message format

Application Layer Proprietary

Presentation and layers Message oriented proprietary

Transmission layers SNA (LU6.2)

Network layers SNA

Data-link layers SDLC

Physical layers Leased line

Back up system at primary site Hot standby

Back up system at back site Hot standby

Time it takes to switch over from

the production system to the

2 hours

17With the exception that settlement of the normal funds transfer(s) in queue increases the liquidity position

of the participant(s), thus making the participant(s) better off and increasing its/their ability to settle their

priority payment(s) in queue


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Membership in SKNBI is for branch and sub-branch offices of commercial banks. There are 2

(two) types of connectivity for SKNBI members, i.e. the on-line connectivity and the off-line

connectivity, with regard to types of the participants clearing terminal connectivity to SKNBIcentral computer. For the on-line participants they send their data of outgoing transfers to SKNBI

central computer directly, while for the off-line participants they send their outgoing transfers to

SKNBI central computer through the local clearing house.

SKNBI participants in year 2009 consisted of 2,193 offices of the commercial banks in Indonesia.

3.3.1.3. Types of transactions

SKNBI has 2 (two) clearing processes, i.e.:

- the multilateral netting for the interbank debit payments (i.e. the debit clearing); and

- the multilateral netting for the interbank credit funds transfers (i.e. the credit clearing).

The debit clearing is conducted in each local clearing house along with the exchange of thepaper-based debit instruments (i.e. cheques, bilyet giros, and debit notes

18), and SKNBI provides

the inter-city clearing services for the debit clearing. The credit clearing runs the multilateral

netting for the paperless interbank credit funds transfers on a nationwide basis.

From 2002-2010, the debit instruments (i.e. cheques, bilyet giros and debit notes) accounted forthe biggest share of the SKNBI volume (58%), while the electronic credit funds transfers

accounted for 42% of the SKNBI volume. Bilyet giro has the biggest share of the debit

instruments used and processed in SKNBI amounting to 47%, followed by checks (11%).

All these documents had to be expressed in Rupiah currency with 100% face value and had to

have matured by the time of clearing.

3.3.1.4. Operating hours

SKNBI operates in normal working days and several holidays with limited services.

Window Time of SKNBI


(Western Indonesia Time)1 SKNBI Central Computer opens 6:30

2 Window times of processes in SKNBI

A. Clearing for electronic interbank credit funds transfers

18Debit Note is a document submitted by a bank for the purpose of collection from another bank, in which

since 1998, its value for the inter-bank debit payments has been limited to IDR10 millions.


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(Western Indonesia Time)

Morning

Submission of prefund

Submission of toping up of prefund

Submission of electronic interbank credit funds

transfers

Early warning of the national net positions

Settlement (interfacing the net positions to BI-

RTGS for posting to the participating banks

settlement account held at BI-RTGS system)

Afternoon

Submission of electronic interbank credit funds

transfers Submission of toping up of prefund


Settlement (interfacing the net positions to BI-RTGS for posting to the participating banks


06:30 - 08:00

08:15 - 12:00

08:15 - 11:30

08:15 - 11:45

12:00 - 12:30

12:45 - 15:30

08.15 - 16.00

12:45 - 15:45

16:00 - 16:30

B. Clearing for paper-based debit payments

Submission of prefund

Submission of electronic interbank debit transfers


Submission of topping up of prefund

Settlement (interfacing the net positions to BI-

RTGS for posting to the participating banks


06.30 - 08.00

08:15 - 15:00

08:15 - 15:10

08.15 - 15.30

16.30 - 17:00

5 Cut Off 20:00

3.3.1.5. Settlement


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Prior to the settlement, SKNBI generates electronically the early national net positions of all

SKNBI participating banks, in which each SKNBI participating bank can view via its SKNBI

member terminal the national net positions of both its debit and credit clearing results and eachSKNBI member (i.e. each branch/sub-branch office) of the participating banks obtain the report of

its local debit clearing. Settlement of the net positions on a nationwide basis of both debit and

credit clearing is performed at the pre-determined hours by interfacing data of the national netpositions of all SKNBI participating banks (also as BI-RTGS participating banks) to BI-RTGSsystem for posting to SKNBI/BI-RTGS participating banks settlement account held at BI-RTGS

system.

3.3.1.6. Risks and risk management measures

According to Core Principle V of BIS CP-SIPS, in a payment system settling the inter-bank

payments on a multilateral net basis, if the participant is unable to settle, the consequences for thesystems other participants are potentially complex and can create unexpected credit or liquidity

risks. Accordingly, in order to mitigate the risks in such a system to take place including for

preventing the settlement institution from the credit risk due to failure of the participant(s) to settle,the Core Principle V requires the systems to have a failure-to-settle (FTS) arrangement such as

requiring more financial resources than are needed to complete settlement under normal conditions.

Such additional resources can be deposited by the participants with the settlement institution.Those deposits have the advantage that they can be readily available to complete the settlement

quickly, which can be especially important in adverse circumstances when the prompt action may

need to be taken.

Since its implementation, SKNBI applies a FTS mechanism in the form of pre-funds. Before

participating in SKNBI in each business day, all SKNBI participating banks are required to

provide the pre-funds for each debit clearing and credit clearing. For the debit clearing, besides the

pre-funds in the form of cash (called cash prefunds), SKNBI participating banks can use theircentral bank bills, government securities or/and other securities determined by Bank Indonesia for

their pre-funds (called collateral prefunds). The pre-funds can be topped up/added which can beperformed by each SKNBI participating bank at the pre-determined hours before the settlement to

BI-RTGS system.

3.3.2. Shared ATM networks/switching services

Most commercial banks in Indonesia operate their own ATM network which connect to one, twoor three domestic interbank (shared) ATM networks and one or two international ATM networks.

The three domestic shared and two international ATM networks are:

- ATM Bersama which is operated by PT. Artajasa Pembayaran Elektronis and provides the

switching services (i.e. for cutomers interbank credit funds transfers, billing payments andcash withdrawals) for ATMs of 70 commercial banks and 2 rural banks. All transactions

performed through ATMs of the participating banks are effective immediately (i.e. debiting

and crediting accounts of the participating banks customers take place in real time), and the

multilateral net settlement of the inter-bank positions is done through BI-RTGS system;


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- ATM Prima (ATM BCA) which is operated by PT. Rintis Sejahtera (a subsidiary of the

biggest private domestic bank, i.e. Bank Central Asia (BCA)) and provides the switchingservices for ATMs of 33 commercial banks. All transactions done through ATMs of the

participating banks are also effective immediately at the customer level, and settlement of the

interbank multilateral net positions takes place through the participating banks account held at

the appointed commercial bank (i.e. BCA);- ALTO which is operated by PT. Daya Network Lestari and provides the switching services for

ATMs of 14 commercial banksand 1 rural bank. All transactions performed through ATMs ofthe participating banks are effective immediately at the customer level, and settlement of the

interbank multilateral net positions uses the commercial bank money (through the participating

banks account held at Standard Chartered Bank in Indonesia);

- Cirrus, an international ATM network of Mastercard having member of 13 commercial bank

and PT Artajasa;

- Plus, an international ATM network of Visa International which has member of 26 commercial

banks.

Not all of the shared ATM networks are yet interlinked. For transaction using the ATM Network,when cardholder performs a transaction at an ATM of another bank in the same network, ATM

Network switches the transaction to the issuing bank for authorization, which involves verificationof the PIN, checking that sufficient funds are available and authentication of the transaction. The

issuing bank then sends its response back via ATM Network which switches it to the ATM being

used and the transaction is completed. If a cardholder performs a transaction at his own banks

ATM, the transaction does not require any switching, as the issuing bank is able to directlyapprove the transaction.

For Cirrus and Plus, the transactions are respectively cleared by Mastercard and Visa on a similarprinciple as Indonesia ATM network. When currency conversions are necessary, the London

Interbank Rate is used. Settlement for these transactions is conducted through the respective cardschemes bank.

3.3.3. EFT POS networks/switching services

EFT POS transactions acquired on EFT POS Network terminals is routed for processing. The

routing arrangements will vary depending on the card type used in transaction:

- For debit cards issued in Indonesia, EFT POS networks dispatches the transaction for

authorization to the issuing bank. The issuing bank verifies the PIN, checks the availability offunds, verifies that the transaction is not fraudulent, debits the cardholders account and

informs the merchants of the successful transaction, who in turn delivers the goods/services tothe cardholder.

- For maestrocards and visa, those EFT POS network routes the transaction to the card processor.The card processor on behalf of the issuing bank, check the payment limit, verifies thattransaction is not fraudulent and authorizes the merchant to deliver the good/services.

3.3. Bank Indonesia Government Electronic Banking (BIG-eB)


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Bank Indonesia Act stated duty of Bank Indonesia related to the government i.e. Bank Indonesia

holds government cash (treasury) and maintains government accounts. Based on the Act, Bank

Indonesia has a role as the Governments Banker providing banking services to the governmentcovering mechanisms of government receipts, expenditures and debt.

With regard to providing banking services to the government, Bank Indonesia implementedGovernment electronic banking application on December 2007 namely BIG-eB. BIG-eB is an

electronic banking system provided by Bank Indonesia to the government (Ministry of

Finance/MoF) to facilitate MoF in accessing information and perform transactions online andelectronically over government accounts in Bank Indonesia.

The objectives of implementing BIG-eB are to provide online and real-time information on

government accounts held at BI to support implementation of Treasury Single Account (TSA), tosupport prompt report generation and back office processing in MoF, to speed up settlement of

government transactions, to accommodate transaction interfaces between system in MoF and Bank

Indonesia, and to support coordination between fiscal policy in MoF and monetary policy in BI.

As an electronic banking, BIG-eB is an extension of core banking application in Bank Indonesia

called BI-SOSA19

which maintains and processes transactions of Bank Indonesia non-bankcustomer. Payment instructions from BIG-eB (for inquiry, report, financial transactions) are routed

to BI-SOSA for further processing, including interfaces with other systems e.g. BI-RTGS, SKNBI

and SWIFT.

3.4. Major ongoing and future projects

3.5.1. Enhancements in Indonesia LVPS: 2nd Generation BI-RTGS System

While current BI-RTGS system has achieved its objective of mitigating settlement risk byproviding its participants with a means of settling their large-value payments in real time with

finality, settlement of the funds transfers on such a gross basis settlement system imposes

relatively high liquidity requirements on the participants.

It has resulted in an increase in value of the funds transfers settled through BI-RTGS system sincenew financial products settled through BI-RTGS system increased, accompanied by more active

inter-bank financial markets, such as the bond market, as well as growth in the economic activities,.

Accordingly, it is more likely to lead to higher and higher liquidity requirements for settlement

in BI-RTGS system in upcoming years. According to statistics of the payments settled through BI-RTGS system from year 2004 until 2009, the average annually growth rate of volume and value of

the payments settled through BI-RTGS system reached by 17,6% and 15.6% respectively.

19Bank Indonesia Sentralisasi Otomasi Sistem Akunting (BI-SOSA) or Bank Indonesia Automated

Centralized Accounting System is an application for book keeping in Bank Indonesia that record

the general ledger of Bank Indonesia. However, it also record the balance of Government

accounts in Bank Indonesia as part of the book keeping function.


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In addressing such higher and higher liquidity needs for settlement in BI-RTGS system, It is

important to improve the efficiency in liquidity use and management of BI-RTGS system.

Moreover, since there have been new developments in large-value payments systems in some

economies 20 , such as incorporation of efficient use of liquidity features of net settlement

systems into RTGS systems in order to economize on use of liquidity for settlement in RTGSsystems, such developments become also one of the key drivers of enhancing settlement

arrangements in BI-RTGS system with the objectives:

- lowering liquidity requirements for settlement in 2nd

Generation BI-RTGS system, but

- keeping on achieving the settlement risk reduction benefits of RTGS systems in 2nd

generation BI-RTGS system.

Adoption of such liquidity saving mechanisms in BI-RTGS system will be undertaken by

incorporating offsetting mechanisms. The objective of liquidity saving mechanisms is to provide

2nd

Generation BI-RTGS system with a means for immediately releasing as many as the payments

in queue. There will be 2 (two) offsetting mechanisms to be adopted.

Firstly,bilateral offsetting will offset inter-bank funds transfers in queue of the pair of BI-RTGSparticipating banks. The offsetting will run continuously as long as there are the events to trigger

the bilateral offsetting. The events could be entering a new inter-bank normal funds transfer into

the system or an increase in balances of BI-RTGS participating banks.

Since 2nd

Generation BI-RTGS system still will apply FIFO with Priority principle, bilaterally

offsetting inter-bank normal funds transfers will not be settled in the case that priority

payment(s) is(are) queued. The only exception is that those offsetting inter-bank normal fundstransfers can be executed before if and only if this will allow those offsetting funds transfers to be

settled and the overall effect of this bilateral offsetting will be a liquidity increase for theparticipant/the pair of participants that can be used for settlement of priority payments in queue.

Secondly, multilateral offsetting mechanisms will offset inter-bank funds transfers in queue of

multiple BI-RTGS participating banks. Since 2nd

Generation BI-RTGS system still will applyFIFO with Priority principle, multilateral offsetting algorithms will respect priority levels and

sequences of payments in queue. The multilateral offsetting will run from time to time at short

intervals (or at pre-determined times). The multilateral offsetting will consist of more than one

algorithms (for instance all-or-nothing multilateral offsetting and partial multilateral offsetting)that will perform in sequence at the pre-determined times when the multilateral offsetting will run.

The multilateral offsetting will also offset payments in queue which cannot be processed or failed

to be processed with bilateral offsetting.

20 Through the incorporation of liquidity saving mechanisms into RTGS systems, i.e. offsettingmechanisms (bilaterally or/and multilaterally), which have been applied in: Euro area RTGS system

(TARGET 2), Japan BOJ-RTGS Next Generation, Canada RTGS system (LVTS), Switzerland RTGSsystem (SIC), Australia RTGS system (RITS), New Zealand RTGS system (ESAS), South Korea RTGS

system (BOK Wire), and Hong Kong RTGS system (CHATS)


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Both bilaterally and multilaterally offsetting payments will proceed for settlement as long as the

net balances steamed from the offsetting mechanisms could be covered with the debtors available

funds. The settlement will take place on a gross basis, and notification message of settlement foreach individual offsetting payment will be generated.

The other enhancement in 2

nd

Generation BI-RTGS system is to provide BI-RTGS participatingbanks, which are already SWIFT member and have SWIFT terminal at their premises (i.e. 66

commercial banks), with SWIFT access to the host computer of 2nd

Generation BI-RTGS system.

However for the small sized banks, which are not SWIFT members, there will be secure Virtual

Private Network (VPN) access to the host computer of 2nd

Generation BI-RTGS system. The user

interface at banks site to access 2nd

Generation BI-RTGS system, will be web-browser, and the

message format of BI-RTGS payments transmitted through the secure VPN is SWIFT messageformat.

Such advantages as using the worldwide communication network with standard financial message

formats are the key driver of providing SWIFT access in 2nd

generation BI-RTGS system.


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4. Post-trade processing, clearing and securities settlement in Indonesia

4.1. General Overview

Trading in Indonesian capital market could be performed through exchange or over the counter.

Trading through exchange is administered and managed by Indonesian Stock Exchange (IDX)with Jakarta Automated Trading Systems Next G (JATS). The clearing for securities transactions

in Indonesia is processed by PT. Kliring Penjaminan Efek Indonesia (KPEI). The central

securities depository for government securities is Bank Indonesia, while for corporate securities isPT. Kustodian Sentral Efek Indonesia (KSEI). In Indonesia, IDX is the sole trade repository for

all of securities transactions.

4.2. Post Trade Processing Systems

4.2.1. Trading and Confirmation

4.2.1.1.

Institutional Framework

IDX provide several systems for trading and trade confirmation such as JATS for equity trading,

Fixed Income Trading System (FITS) for fixed income debt securities. The trading of securities is

regulated by Capital Market Act, Government Securities Act, and Sharia Government SecuritiesAct.

4.2.1.2. Participation

All of exchange members could become direct participant in the systems. The exchange members

consists of securities companies that already obtain permission from BAPEPAMLK.

4.2.1.3. Type of Transactions

With the two systems, IDX could provide services for stock trading and bond trading throughexchange floor for regular market, cash market, negotiation market, and over the counter

transactions.

4.2.1.4. Operation of The Systems

All transactions in the Exchange are processed in JATS. Only the Exchange Members, who alsobecome the members of the Indonesian Clearing and Guarantee Corporation (KPEI), can input the

orders into the JATS. The Exchange Members are responsible for every transaction they make inthe Exchange.

Exchange Members have the responsibility to settle all the transactions they've made, as stated in

the Exchange Transaction List (DTB), including the transactions that occur because of (i) the

errors made by the supporting equipment or Remote Trading applications of the Exchange


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