Indonesia Legal Update: BI Regulations On Payment Systems.

Indonesia’s central bank, Bank Indonesia (“BI”), has issued several regulations that reform the legal framework for payment systems in Indonesia.

BI Regulation No. 22/23/PBI/2020 concerning Payment Systems (“BI Reg 22/2020”), issued on July 1, 2021, is an umbrella regulation that reclassifies payment system providers into:

1. Payment System Providers (Penyedia Jasa Pembayaran or “PJP”), which are bank or non-bank entities that provide services to facilitate payment transactions for service users; and
2. Payment System Infrastructure Providers (Penyelenggara Infrastruktur Sistem Pembayaran or “PIP”), which provide infrastructure to conduct the transfer of funds for the interest of members.

Following these changes, the central bank issued BI Regulation No. 23/6/PBI/2021 concerning Payment System Providers (“BI Reg 23/2021”) as an implementing regulation specifically in regard to PJP.

The key provisions of BI Reg 23/2021 are as follows:

Main Business Activity

Article 2 of BI Reg 23/2021 provides that the main activities of PJP include the provision of information on sources of funds; payment initiation and acquiring services; administering sources of funds; and remittance services.

PJP License

BI further stipulates the type of license required for the specific business activities of PJP, along with the minimum paid-up capital and other requirements for each license. Note that BI may amend the minimum required paid-up capital to support national economic and financial policy, maintain national efficiency, safeguard the interests of the public, maintain growth in the industry, and/or support fair business competition

Type of License	Scope of Activities	Specific Requirements
License Category 1	Provision of information on source of funds;Payment initiation and/or acquiring services;Administering source of funds; andRemittance services.	Must be in the form of a Limited Liability Company (Perseroan Terbatas or “PT”);Minimum paid-up capital of Rp15 billion.
License Category 2	Provision of information on source of funds; andPayment initiation and/or acquiring services.	Must be in the form of a PT;Minimum paid-up capital of Rp5 billion.
License Category 3	Remittance services; and/orOther activities as determined      by BI.	Must be in the form of a PT or any other Indonesian legal entity (i.e., cooperative) in accordance with the regulations on transfer of funds;Minimum paid-up capital of:Rp500 million for PJP that does not provide a payment system that can be used by other PJP;Rp1 billion for PJP that provides a payment system that can be used by other PJP.

BI Reg 23/2021 also sets out other requirements for a non-bank PJP, including:

1. At least one member of the PJP’s board of directors is domiciled in Indonesia.
2. All the directors, commissioners, and shareholders must satisfy the institutional requirements on integrity and clean records in conducting their duties.
3. The shareholding structure meets the following requirements:
   1. a minimum of 15% of shares are owned by Indonesian parties, calculated in accordance with (i) valid and updated proof of share ownership, and (ii) direct and indirect ownership of shares by the ultimate shareholder;
   2. a minimum of 51% of shares with voting rights are owned by Indonesian parties;
   3. Indonesian parties hold any prerogative right to:
      1. nominate a majority of the members of the board of director and board of commissioners; and
      2. veto any decision or agreement taken in the general meeting of shareholders that will have a significant impact on the company.

BI will take a maximum 220 working days from the submission of the license application to process such application. The validity period of each license will be determined by BI in accordance with the PJP’s license category, business activities and source of funds it processes.

Classification of PJP

BI Reg 23/2021 also classifies PJP into:

1. Systemic Payment System Providers (Penyelenggara Sistem Pembayaran Sistemik);
2. Critical Payment System Providers (Penyedia Sistem Pembayaran Kritikal); and
3. General Payment System Providers (Penyedia Sistem Pembayaran Umum).

BI will determine which classification the relevant PJP shall fall into based on the PJP’s size, connectivity, complexity and irreplaceability. This classification may affect the relevant PJP’s duty to fulfill certain obligations related to capital, risk management and information system, among other things.

Risk-Based Classification and Approval for Activity/Product Development, Cooperation

PJP must report or obtain BI approval for the following:

1. Development of activities, i.e., adding activities in the same PJP license category;
2. Development of products, i.e., adding or developing new features, adding new types of access to source of funds in the form of instruments or channels, replacing the platform or system, moving infrastructure and other product developments in implementing the Payment System; and/or
3. Cooperating with other PJP, PIP or Supporting Providers. (Supporting Providers are parties that cooperate with PJP and PIP to support the implementation of Payment System activities.)

Such developments and cooperation are divided by risk classification, as follows:

Risk Classification	Development/Cooperation	Report to / Approval from BI
Low Risk	1. Development of activities/products that affect the pre- and/or post-transaction phase and only includes enhancement of the current system/infrastructure.2. Cooperation with Indonesian parties without development of activities/products.	PJP must report to BI
License Category 2	1. Development of activities/products that affects:a. initiation, authorization, clearance and/or final settlement phase in the form of enhancement of the current system/ infrastructure;b. pre- and/or post-transaction phase in the form of development of transaction security features, cross-border development, and/or usage of new system/infrastructure.2. Development of activities/products alongside cooperation that affects the pre- and/or post- transaction phase and the provision of information technology solutions and/or technical services by other parties that impact the PJP’s business sustainability; or3. Cooperation with Indonesian parties without development of activities/products.	PJP must obtain approval from BI
License Category 3	1. Development of activities/products that affects the initiation, authorization, clearance and/or final settlement phase in the form of changing the transaction security features, cross-border activities/product development, and/or the use of a new system/infrastructure; or2. Development of activities/products alongside cooperation that affects initiation, authorization, clearance and/or final settlement phase and the provision of information technology solutions and/or technical services by other parties that impact the PJP’s business sustainability.	PJP must obtain approval from BI

Any PJP must first self-assess the risk classification of its development and/or cooperation plan, which will then be further assessed by BI upon submission.

Transitional Provisions

Any payment system provider licenses issued before July 1, 2021, i.e., the effective date of BI Reg 23/2021, must be converted to a PJP License according to BI Reg 23/2021. This conversion will be based on BI’s evaluation of the license, which will be conducted within:

1. 2 years as of the enactment of BI Reg 23/2021 for license holders that state their commitment to fulfill PJP License requirements; or
2. 3 years as of the enactment of BI Reg 23/2021 for license holders that have fulfilled PJP License requirements.

BI will not enforce the shareholder structure or control requirements on payment system providers that already held a business license prior to the enactment of BI Reg 23/2021, as long as there are no changes to the shareholder composition or shareholder control by foreign parties after the enactment of BI Reg 23/2021, with the exception of such changes made under the policy of or as a supervisory follow-up by BI. (4 March 2022).

For Further Information, please contact: 

Ira A. Eddymurthy, Soewito Suhardiman Eddymurthy Kardono 

iraeddymurthy@ssek.com