CHAPTER 5 LESSON LEARNED AND CONCLUSION CHAPTER 5: LESSON LEARNED AND...
Transcript of CHAPTER 5 LESSON LEARNED AND CONCLUSION CHAPTER 5: LESSON LEARNED AND...
CHAPTER 5 LESSON LEARNED AND CONCLUSION
CHAPTER 5: LESSON LEARNED AND CONCLUSION
5.1. Lesson Learned
Back in 2002, BKM was just another company in Indonesia struggling to
survive and just tried to keep-up to fulfill its operational expenses. It was just only
from one project, the BKM – Telkom agreement for the Telkomsel Autorefill Service
had turned BKM into a profitable operation in the following year and subsequently in
the next years ahead, up until now (2008).
Getting a multi-years service contract for Telkomsel Autorefill was a result of
the passion in seeking and creating business opportunities of the Founder and CEO of
BKM, Rudi Y. Chatab. His creativity and leadership coupled with a strong
determination as an entrepreneur had enabled BKM to secure a long-term business
relationship that has been a routine source of revenue for BKM since 2003.
Arrangements were managed under many high uncertainties such as limited resources
and ability to execute to fulfill according to the BKM-Telkom contract. First, was
financial factor as source of revenue that was to be generated on per transaction basis,
BKM was expected to manage the EDCs as asset rather than selling it to Telkomsel,
and in 2002 BKM did not have sufficient fund nor the required asset for loan
collateral; BKM had to procure 1,800 EDCs with the total value of slightly over
US$1 million. Second, was the limited internal team that BKM had both for technical
application software development and operational, not to mention that BKM was just
51
52
a very small company compared to big giants like Telkom, Telkomsel as one of the
business units under Telkom Group, or BNI.
Being able to finally execute the deal following the BKM-Telkom contract
signing was another major achievement for BKM. The close relationship with local
IT solution provider – ICL (which until early 2003, was also one of the shareholder of
BKM), which at that time was desperate to close EDC deal with BNI, was another
factor for the successful delivery of the signed BKM-Telkom contract. A good
relationship between Rudi and the owner of ICL enabled the business arrangement
between BKM and ICL for electronic refill software application – for ICL to supply
EDC to BNI considering the Telkomsel Autorefill contract that BKM had with
Telkom. Then, it followed by BKM-BNI contract for Autorefill signed in Nov 4,
2003 (profit sharing arrangement) enabling BKM to use the EDC owned by BNI to
fulfill BKM – Telkom agreement for Telkomsel Autorefill service.
An analogy for BKM during 2002-2008 using Timmon’s model on crises and
symptoms during stages of venture growth, can be seen in Table 12: The Journey of
BKM during Venture Growth.
Table 1: The Journey of BKM during Venture Growth
Wonder Blunder Thunder Plunder Asunder
Crises and Symptoms
Uncertainty of survival
firms stumble and fall
Robust growth and Solid
management team
Robust cash flow Renew or decline
Stages of Venture Growth, Crucial Transitions and Core Management Mode
BKM in2002
BKM in2003‐2005
BKM in2006
BKM in2007
53
BKM was in Wonder mode in 2002 as the future of company was uncertain;
hence, the company was struggling to survive. By securing a contract with Telkom
for Telkomsel Autorefill service, then later the contract with BNI, BKM moved to
Thunder mode following 2003, and then continued to grow to 2005. During 2003 to
2006, BKM enjoyed a robust cash flow but unfortunately, the industry was changing
as PC-based electronic pre-paid balance top-up services was started to grow. In 2007,
BKM was aware that it needed to find new product and services if the company
would like to maintain or even increase their revenue stream in the future, or the
business will decline in near future.
Since June 2004, Telkomsel had launched about 500 M-KIOS service
locations as an alternative for its customer to do electronic balance top-up with GSM
USSD (Unstructured Supplementary Service Data) command that had been available
in every cellular handset, even on the most outdated types.
With M-KIOS, simPATI balance top-up is done over the air using a cellular
handset equipped with special SIM card for M-KIOS. Customers simply visit to the
location that has M-KIOS facility and pay some amount of money in line with
nominal value to top-up. The officer at M-KIOS location will do the over-the-air
process to top-up the given nominal to a cellular number informed by the customer.
In a few moments, the notification will be sent to that cellular number, informing that
the balance top-up has been successful and the balance will be added according to the
nominal value purchased. Available nominal values for M-KIOS service are Rp.
20,000 and Rp. 50,000 (In 2004, about US$ 2.15 and US$ 5.38 respectively). The
plan was to extend the M-KIOS to 6,000 locations in Indonesia, and more later.
54
M-KIOS enhanced the range of Telkomsel service for simPATI Autorefill that
previously had been available through banks’ ATMs, refill from Telkomsel post-paid
product, mobile banking and a few more mechanisms.
Telkomsel has also started to introduce another service called T-Cash, which
was allowing pre-paid users to have an account at Telkomsel and could top-up their
pre-paid balance from the T-Cash account. This is a direct threat for the continuity of
BKM business in providing Autorefill service for Telkomsel.
5.2. Conclusion
BKM had initiated and orchestrated all the business relationships towards the
successful launch and operation of the Telkomsel Autorefill service. The project was
initiated back in March 2002 when BKM showed the capability to deliver the
voucher-less business to Telkom B2B Project. Then, the two together presented the
proposal to Telkomsel Marketing Director, Mr. Woerjanto, which then agreed to
proceed to five years contract. After long process, a back-to-back contract agreement
between BKM to Telkom, and Telkom to Telkomsel was signed on November 25,
2002. At that time, Telkom was eager to work on any new business development on
non-telephony applications, outside their normal traditional telephony services.
Through indirect business relationship, whereby BKM’s proposal sealed with Telkom
brand, BKM secured the project over Telkom domination (Telkom had majority
ownership share in Telkomsel, 65%). Telkom provided the entire electronic refill
55
application hosting and hardware infrastructure for running the data center operation
for Telkomsel Autorefill service.
1.2.1. Case Part (A)
Long before BKM conducted the proposal presentation to Telkom (before
2002), Telkomsel and BNI, there were discussions between BKM and ICL. The
discussion was on ICL’s experience in providing voucher-less application on EDC
terminals to Excelcomindo (XL), the third largest cellular operator.
Indo ArtaCipta Lestari
(2a-1)To sell
back-endsoftware
applicationfor Autorefill
in EDC
(1a) To establish agreementto provide Telkomsel Autorefill
service with EDC
TelkomselDealers
Telkomsel simPATI customers
Has 65%share
ownership
BKM’sShareholders
(2a.2) to provide & operatebackend software application
Data CenterOperation
(2a-3) Provides & operateshosting & hardware
infrastructure
(2a-4) To install & operate EDC
with standard debit/credit& Telkomsel Autorefill
applications
(2a-5) To operateInformation exchange,
back-end software application with Telkomsel voucher system
Managing
Voucher-based Voucher-less(Autorefill)
(1b) To establish agreement to provideTelkomsel Autorefill
service with EDC
(3b) To arrange 30% of EDC
transaction fee
(3a) To arrange transaction fee = Rp. 1,250
per electronic voucher
Administrative (agreement)
(3c) to arrange 70% ofEDC transaction fee(paid thru Telkom)
established
Operation with Autorefill
Existing (prior to Autorefill)new setup
Operation (financial)
Figure 1: Illustration on Business Arrangements and Operational Relationships to
Provide Telkomsel Autorefill Service, Case Part A
56
To fulfill the BKM-Telkom contract for Telkomsel Autorefill service, BKM
needed to find financing alternatives to procure 1,800 EDC for Telkomsel Autorefill
Service. It could be a new capital injection from shareholders, apply a loan from a
bank / partners, setup revenue sharing with some to-be partners, etc. See Figure 7:
Illustration on Business Arrangements and Operational Relationships to Provide
Telkomsel Autorefill Service, Case Part A.
See Figure 8: Summary of Case Part (A) - Q1-Q4 2002 for the summary of situation
of each party in Case Part (A).
Case Part (A): Q1-Q4 2002 Challenges in pursuing the Telkomsel Autorefill Opportunity
•Telkom– Telkom was a state-owned
Telecommunication company– Telkom was Telkomsel major
shareholder (65%)
•Telkomsel– Telkomsel was market leader in Cellular
Telecommunication Industry– Needed to maintain strategic position
as market leader– One of the initiative was to provide
electronic-refill service for its growing pre-paid customers
• Indo Arta Cipta Lestari (ICL)– ICL was an IT Solution Provider– In early 2002, was in discussion with
BKM to propose electronic refill service to Telkomsel
– Had implemented electronic refill service before for Telkomsel’s competitor: Excelcomindo
•Bumi Kita Makmur (BKM)– In 2002, BKM was a small company, financially
weak, and desperately looking for a sustainable business
• Before, got a few short-term projects as a result from strategic partnership with Telkom.
– In early 2002• Saw the opportunity to provide electronic refill
service (balance top-up) for Telkomsel to manage business relationshipswi
needed financing to procure 1,800 EDCs f
– Then, th multiple parties:• Telkom (through a bi-parties agreement)
– Telkom was very important ‘vehicle’ for BKM to get the Telkomsel electronic refill business
– Telkom to participate to provide hosting and hardware infrastructure
• IT solution provider: ICL– ICL was to provide electronic refill application on
EDC, and back-end software application to BKM for Telkomsel electronic autorefill service
– If Telkomsel decided to go with BKM solution, BKM
or Telkomsel Autorefill Service• Ask for new capital injection from shareholders,?• Apply loan from a bank / partner(s)?• Revenue sharing arrangement with partner(s)?
Figure 2: Summary of Case Part (A) - Q1-Q4 2002
57
1.2.2. Case Part (B)
In part (B) of the case, following the signing of BKM-Telkom for Telkomsel
Autorefill contract, ICL needed to secure EDC sale to BNI Card Center (early 2003).
BKM could easily ask ICL to simply implement the system but realizing that due to
lack of fund to procure 1,800 EDCs, ICL would not do much.
In second quarter of 2003, after having done some thorough discussions,
BKM and ICL agreed to proceed to propose to BNI Card Center, and BKM would
show the Telkomsel Autorefill project as the trigger to speed up the EDC
procurement process to ICL. Then, in just less than two months, while BKM and BNI
working on the project plan, ICL had been granted the purchase order for installation
at 1,800 merchants (translated to 1,800 EDC terminals) for Telkomsel Autorefill
project.
In early 2003, right following the signing of Telkomsel Autorefill contract,
BKM then proved the system up and running by implementing a few terminals in
Jakarta Greater area (called Jabodetabek area; Jabodetabek is an abbreviation of
collection of cities namely Jakarta, Bogor, Depok, Tangerang and Bekasi). The
system was just provided as-is, directly adapted from existing functionalities
developed by ICL engineering team with some modifications on both EDC terminal
application and back end system adjusted with Telkomsel business model. However,
it took a few months to make it run smoothly, following some feedbacks from
Telkomsel. Figure 9: Illustration on Business Arrangements and Operational
Relationships to Provide Telkomsel Autorefill Service, Case Part B shows an
58
illustration summary on overall business arrangements as well as operational
relationships among all parties involved.
Case Part (B): After Nov 25, 2002
Indo ArtaCipta Lestari
CV. SMS
(2a-1)Sells back-end
softwareapplicationfor Autorefill
in EDC
(4) Sells EDC withTelkomsel Autorefill application
establishes
(1a) Establishes agreementto provide Telkomsel Autorefill
service with EDC
TelkomselDealers
Telkomsel simPATI customers
Has 65%share
ownership
BKM’sShareholders
(6b) Informationexchange,
EDC with backendsoftware application
Data CenterOperation
(2a-3) Provides & operateshosting & hardware
infrastructure
(2a.2) Provides & operatesbackend software application
established (2a-4) Installs & operates EDC
with standard debit/credit& Telkomsel Autorefill
applications
(2a-5)Information exchange,
back-end software application with Telkomsel voucher system
Manage
Voucher-based Voucher-less(Autorefill)
(3b) 30% of EDC transaction fee
(7) 40% of BKM portion of EDC transaction fee
(3a-2, 6a) Uses EDC
(10) 100% ofPC transaction fee
(3a) Transaction fee = Rp. 1,250per electronic voucher
(1b) Establishes agreement to provideTelkomsel Autorefill
service with EDC
Operation with Autorefillnew setupExisting (prior to Autorefill)
Operation (financial)
Administrative (agreement)
(9) Provide PC withTelkomsel Autorefill
application
Establishes agreement to provideTelkomsel Autorefill service with EDC(5)
(8) Establishes contract addendumto provide Telkomsel Autorefill
service with PC
(3c) 70% ofEDC transaction fee(paid thru Telkom)
Figure 3: Illustration on Business Arrangements and Operational Relationships to Provide Telkomsel Autorefill Service, Case Part B
In August 2003, nine months after contract signed with Telkom, BKM had
started to deploy EDC terminal with three stages, 400 units, 800 units and 400 units
in less than 18 months. (initially before the BKM-BNI contract was signed, the EDC
was on loan by ICL to BKM to fulfill Telkomsel Autorefill contact). Then, after
BKM-BNI contract, EDC was officially provided by BNI Card Center.
59
In early 2004, following slightly after one year of operation, BKM saw the
opportunity to provide the Autorefill service with a software application to be
installed at PC instead of EDC (communicated with the back-end software
application through public network – Internet). As long as dealer outlet has an
internet connection dial-up or constant connection, they can use PC application to
top-up Telkomsel airtime.
Timeline of key events
2002
Case Part (A) Case Part (B)
2004March Nov 25 Nov 4
Signing ofBKM – TelkomAgreement for
Telkomsel Autorefill(Revenue Sharing)
Signing ofBKM – BNI
Agreement forTelkomsel Autorefill(Revenue Sharing)
Signing ofTelkom – Telkomsel
Agreement forTelkomsel Autorefill(Revenue Sharing)
BKM,Telkom B2B ProjectPresented Autorefill
Business Plan to Telkomsel
Jatis Presented Mobile BankingBusiness Plan to Telkomsel
August
BKM Started to ProvideEDC-based
Telkomsel AutorefillImplementation
(1,200 unitsin less than a year)
Early2nd Qtr
BNI Card CenterStarted Assessing
to Expand EDC Services
ICL Started to ApproachBNI Card Center
to Sell EDC with Standard Debit/Credit Applications
In May – July 2003,BKM ApproachedBNI Card Center
Offering to PackageTelkomsel Autorefillinto Standard EDC
Debit/Credit Applicationswith Revenue Sharing
In Q1 2003, BKM Setup and OperatedSmall Scale Autorefill Systemwith 14 EDCs in 14 Locations
1st
Qtr
How BKM be able to Fund theEDC Procurement?
- Ask Shareholders to Inject Capital? - Apply for a Loan?- Revenue Sharing?
2003 2005
Signing of addendumBKM – Telkom
to providePC-based
Telkomsel Autorefill
June August
BKM Started to Provide PC-basedTelkomsel Autorefill
BKM had Initial Discusision with ICLon Providing Autorefill Solution
that ICL had Implementedin Excelcomindo
In Early 2003,BKM on Intense Discussion
with ICL on ProvidingTelkomsel Autorefill Solution
BKM conductedOffline Autorefill System demonstration,
Draft contract preparation:BKM-Telkom, Telkom-Telkomsel
Figure 4: Timeline of Key Events for Providing Telkomsel Autorefill, 2002-2005
This demand was actually created by dealers, which had ‘call center’. This
meant providing many channels as the extension to grab end customer. Through those
selected channels, they could access call center through various type of access
60
communication such as SMS, handy talky and others. By implementing this method,
each terminal could easily make hundreds of transactions a day. The opportunity to
provide alternative for the EDC was triggered as a few locations had high number of
daily transactions, about 300-400 transactions per day. Then those dealers ask for
more flexible terminals to speed up the transaction process. Finally PC application
came across since that could easily handle lots of transaction at once, compare to
those EDC which only capable of doing transaction one by one.
A few owners of BKM then founded CV. SMS. The reason of doing so was
mainly to tap the opportunity due to identified high transaction volume on several
outlets. Then CV. SMS supplied 50 unit EDC terminals to cover those. An addendum
to existing BKM – Telkom agreement was agreed and signed in June 2004 for
providing PC as Autorefill terminal. Starting in August 2005, BKM applied the
similar business model for BNI and CV. SMS. CV. SMS then supplied 50 unit
terminals, meaning that each transaction would follow BNI revenue stream.
BKM then started to provide Autorefill service for Telkomsel with PC, in
addition to EDC already provided through BNI. Then, for certain locations, EDCs
were replaced by PCs equipped with smart card and reader supplied by BKM. The
EDCs (owned by BNI) were relocated to other locations. See Figure 10: Timeline of
Key Events for Providing Telkomsel Autorefill, 2002-2005 on sequence of important
events during 2002-2005.
See Figure 11: Summary of Case Part (B) - After November 25, 2002 for the
summary of situation of each party in Case Part (B).
61
In the beginning, there were only three kinds of electronic vouchers: with
nominal value of Rp. 50,000, Rp. 100,000 and Rp. 150,000 respectively. The lowest
nominal value was the most demanded one. Total business generated for BNI (net
income) from Telkomsel Autorefill service alone was about Rp. 3 billion in 2005 and
2006. It was a very significant achievement as those portions contributed to about
50% of total income for BNI Card Center.
Case Part (B): After Nov 25, 2002Challenges in Execution
• Bumi Kita Makmur (BKM)– Nov 25, 2002
• Signed Telkomsel Autorefill contract with Telkom collaborated with ICL
BKM signed TelkomselAutorefill contract with BNI
– BKM– August 2003: Started deployment of Telkomsel
Autorefill, with EDC (EDC was a ‘loan’ from ICL)– Nov 4, 2003:
– June 2004: signed addendum with Telkom to expand Telkomsel Autorefill EDC-based services to PC-based
– August 2005: started to provide PC-based Telkomsel Autorefill service
• Bank Negara Indonesia (BNI)– Early Q2 2003: looking to expand its EDC
services– Saw a bigger market opportunities if EDC
packaged with additional balance top-up application: Telkomsel Autorefill
– May-July 2003: Approached by BKM– Nov 4, 2003:Signed Telkomsel Autorefill
contract with BKM• To provide EDC to BKM for Telkomsel Autorefill
service
• Telkom– Nov 25, 2002:
• Signed Telkomsel Autorefill contract with BKM
• Signed Telkomsel Autorefill contract with Telkomsel
• Telkomsel– Nov 25, 2002:
• Signed Telkomsel Autorefill contract with Telkom
• Indo Arta Cipta Lestari (ICL)– Eearly Q2 2003: was pursuing to
close EDC sale for BNI, with standard debit/credit application
– Saw opportunity to speed-up EDC sale when approached by BKM to provide Telkomsel electronic refill application
– ICL Partnered with BKM– To provide EDC devices for BNI with
electronic refill application, in addition to standard debit/credit applications
– To provide back-end software application for BKM to manage electronic autorefill service
Figure 5: Summary of Case Part (B) - After November 25, 2002
62
5.3. Industries, Courses Fit for Lecture
1.3.1. Industries Fit
• Banking
• Telecommunication
• Payment
1.3.2. Courses Fit
The author sees that the students of the following management courses would
benefit from learning this case study.
• Entrepreneurship
• Internet Business Strategy and Implementation (e-business)
5.4. Updates for lecture note, 2003-2008
1.4.1. Bank Indonesia, Regulator of Banks and Financial Institutions
Fund transfers are seen as a simple process, where money is transferred from
one account to another held at a different bank, either domestically or abroad.
However, the process of funds being transferred to a beneficiary account is a complex
procedure organized into one system called the payment system. This payment
system mechanism regulates how the funds can be transferred quickly and securely.
63
The payment system (Bank Indonesia, 2008) covers the legal and regulatory
framework, institutions and mechanisms used to transfer funds in order to settle
liabilities arising from economic activities. What, then, are the components of the
payment system? There must be payment instruments and a clearing mechanism that
includes settlement. Of course, other components are involved, such as the
institutions participating in the operation of the payment system. These include
banks, non-bank financial institutions; non-bank funds transfer providers, switching
companies and even the central bank. Central bank in Indonesia is Bank Indonesia
(Bank Indonesia, 2008).
Bank Indonesia is the sole institution authorized to issue and distribute Rupiah
(Rp.) currency and to withdraw the currency from circulation whenever deemed
needed. Bank Indonesia is also authorized to arrange and operate inter-bank clearing
system both in Rupiah and in foreign currency. Bank Indonesia directly functions in
guaranteeing a smooth payment system. An efficient, fast, secure and reliable
payment system is the most important factor in creating a healthy banking system,
which in turn will support economic activities.
A new chapter in the history of Bank Indonesia as an independent central
bank was initiated when a new Central Bank Act, the UU No. 23/1999 on Bank
Indonesia, was enacted on May 17, 1999. The Act confers Bank Indonesia the status
and position as an independent state institution, which is free from interference, by
either the Government or any other external parties.
64
As an independent state institution, Bank Indonesia is fully autonomous in
formulating and implementing each of its task and authority as stipulated in the Act.
External parties are strictly prohibited from interfering with Bank Indonesia's
implementation of its tasks, and Bank Indonesia has the right to refuse or disregard
any attempt of interference in any form by any party.
In order to further assure its independence, the Act confers Bank Indonesia a
special position within the civil structure of the Republic of Indonesia. As an
independent state institution, the position of Bank Indonesia is not similar with other
state high offices. In addition, the position of Bank Indonesia is not the same as that
of other Government Departments, meaning Bank Indonesia exists outside of the
Government.
Such unique status and position are necessary so that Bank Indonesia can
implement its role and function as monetary authority more effectively and
efficiently.
1.4.2. Banks in Indonesia
Banks must run business based on prudential principles. The functions of
banks in Indonesia are as financial intermediary that take deposits from surplus units
and channel financing to deficit units. According to Indonesian banking law,
Indonesian banking institutions are typically classified into commercial and rural
banks. Commercial banks differ with rural banks in the sense that the latter do not
involve directly in payment system and have restricted operational area. In term of
65
operational definition, bank in Indonesia are classified into non-syariah and syariah-
based principles commercial banks (Worldbank, 2003).
Since the start of the Megawati Government in 2001, the IMF supported
program has been on track. This is a stark contrast with the last year of the Gus Dur
government, which went by without a regular review. As already noted,
macroeconomic policies did particularly well, and structural reforms also accelerated,
albeit some with considerable delay compared to the original timetable.
In April 2008, there were 128 commercial banks in Indonesia with 10,072
total number of bank offices, including branches (Bank Indonesia, 2008). The
commercial banks consisted of 5 state banks and 123 private national banks. Private
national banks consisted of 26 Regional Government banks (locally called as BPD,
Bank Pembangunan Daerah), 94 Private National banks and three Islamic
Commercial banks. Out of 94 Private National banks, 24 banks had Islamic Banking
Unit. Then, there were 28 foreign banks & joint banks. In addition there were 1,930
very small banks namely Rural Credit Bank (locally called as BPR, Bank Perkreditan
Rakyat) that provide S&L (Saving & Loan) to limited area where they operate,
mostly only have 1 or just a few branches. Rural Credit banks consisted of 1,812
Rural Credit banks and 118 Islamic Rural credit banks. See Figure 12: Banking
Institutions in Indonesia, April 2008 (Source: Bank Indonesia) for the summary of
banking institution in Indonesia as of April 2008. Major Private national bank such as
BCA had over 8 million customers, while the rural credit banks had only a few
hundreds to a few thousands customers. Also as in Q4 2006, Indonesia had about 210
finance companies (Indonesian Financial Services Association, 2008).
66
Figure 6: Banking Institutions in Indonesia, April 2008 (Source: Bank Indonesia)
1.4.3. Electronic Banking Delivery Channels
Bank’s branches had served as traditional bank’s delivery channel for years.
Banking electronic delivery channels (e-channels) have been very popular in the
society, especially ATM (Automated Teller Machine) since introduced publicly with
extensive customer education on June 28, 1997 (BCA, 2008) by one of the major
private bank: BCA (Bank Central Asia). It was communicated consistently to public
through its weekly television program called Gebyar BCA, socializing bank’s product
and services to the public that delivered through entertainment (song performance,
then followed by e.g. commercial on how to use ATM, introduction of new BCA
products and services, light interview with consumers, etc). Then there was Internet
banking (where consumer can access non-cash banking services securely at anytime,
anywhere as long as there is a connection to the Internet) has been around for years,
starting with a few banks in late 1990s. Other banking e-channel is Kiosk, which is an
67
ATM without dispensing capability (Kiosk has all the features that ATM has, except
dispensing cash).
Another banking e-channel, which is installed in merchant, is Electronic Draft
Capture (EDC); it enables consumers to do shopping and paying the merchandise
electronically using debit or credit card. In short, EDC can be defined as ‘the use of a
point-of-sale device to authorize and settle credit card transactions’. For debit card,
consumer’s account at the bank is usually debited at the point of paying the
transaction. EDC devices are usually installed at merchants site (the point of sale).
EDC device mostly installed in retail industry and supermarkets (55%), and installed
in services bureau (21.18%). The rest distributed at another merchants like
restaurants, non self-service shops, transportation companies, insurances, gas stations
and other companies (Hartoyo, Achsani, 2006).
EDC is typically provided by the Bank, whether directly (managed as bank’s
asset) or outsourced (an outsourcing company provides EDC, software application, as
well as operation and maintenance for the bank). Merchant is typically charged by the
bank (commission fee), known practically as MDR (Merchant Discount Rate). This
fee varies depending on negotiation between merchant and the bank, usually between
2-2.7% from nominal value of generated transaction (Hartoyo, Achsani, 2006). Part
of the fee typically goes for interchange fee (e.g. Visa / Master) about 1.6-1.8% (case
writer estimates based on experience), and then the rest of fee would be for the bank.
In the case of the bank outsourced the EDC operation to an outsourcing company (see
Exhibit 10: Technology Perspective – Acquirer, Switch and Issuer and Exhibit 11:
Technology Perspective - Processing an EDC-Based Transaction), then the bank
68
would need to share the rest of the fee with the outsourcing company (from 40%:60%
to 60%:40% depending on negotiation). This is also based on case writer estimates,
based on experience.
1.4.4. Bank Negara Indonesia (BNI)
BNI is one of Indonesian state bank established in 1946. BNI is the oldest
commercial bank in the history of Republic of Indonesia (Bank Negara Indonesia,
2003). In 2003, with over 900 branches offices in Indonesia, Bank BNI served
customers in Indonesia and overseas (It was a full licensed banking operation in five
overseas locations namely Singapore, Hongkong, Tokyo, London, and New York.
Total assets, equity to asset ratio were Rp. 131.49 trillion (US$ 15.54B) and 7.62%
(Bank Indonesia, 2003) respectively. Net operating income was Rp. 315.51 billion
(US$361.96M).
According to the company profile, the government banking recapitalization
program that was launched after the economic crisis in 1999 provided Bank BNI with
additional capital of Rp. 61.2 trillion (US$8.62B). In the same year, Bank BNI
received ISO 9002 certification, recognition of the quality standards of its credit
processes conducted through the Joint Processing Unit. See Exhibit 20: BNI Selected
Financial Data, 2002-2006.
Following the recapitalization program, Bank BNI conducted a thorough
operational restructuring. Bank BNI began the implementation of both prudent
banking and good corporate governance practices.
69
In 2002, the recognition of Bank BNI performance and service quality
standards was reflected through number of Awards obtained. Awards included ‘The
Top 200 Emerging Market Companies’ from Business Week magazine, ‘4th rank IB
200 Indonesian Stock 2002 (Performance in Indonesia Capital Market/JSX) from
Indonesian Bisnis magazine, ‘The Indonesian Most Admired Companies (IMAC)’
award from Tempo magazine and Frontier Marketing Research and Consultant.
According to the company profile, in 2004 Bank BNI continued to carry out
improvement in order to regain public trust and to improve its performance. The
change was highlighted with the formulation of a blue-print of Bank BNI’s
restructuring program (also known as Navigation Map), covering the phases of
stabilization, recovery and transformation into a dynamic and highly-regarded
organization. The Bank also introduced a new logo, while the nickname ‘Bank BNI’
was shortened into ‘BNI’.
In 2005, BNI managed to complete two restructuring phases and entered the
final transformation phase, which was to be conducted gradually during a period of
15 years. The period was set in compliance with the Central Bank’s concept for
future Indonesian Banking Architecture (Arsitektur Perbankan Indonesia – API).
BNI’s performance and services received more recognition at both national and
international levels, through a number of awards obtained throughout the year 2005.
1.4.5. The Cellular Telecommunication in Indonesia
Communication among society in Indonesia using mobile terminal (cellular
phone) has been ubiquitous in most of the cities for the last few years especially since
70
payment mechanism through pre-paid voucher was introduced in early 2000 in which
users do not have to pre-register to use the facility anymore, it created a very
significant increase in number of subscribers/customers. Prior to that, subscribers
were only allowed to use the facility only thru post-paid, meaning that they can use
the facility and would be invoiced later for the usage. The proportion of Post-Paid to
Pre-paid was about [10%:90%]. We can see the numbers of pre-paid subscribers was
far beyond the number of post-paid subscribers.
According to 2002 Indonesia information technology and communication
report, the total cellular subscriber in Indonesia in 2001 was estimated at 7.4 million
(Saifullah, Basir, Saraswati, Santoso, Ruswendi, Supriatna, Darwadi, 2002). Pre-paid
product has started to penetrate the Indonesian market since 1988; the basic reasoning
was that customer would be able to better control their usage compared to Post-paid
product.
In 2002, the market share of GSM cellular subscribers was over 11.38 million,
divided into 2 main products: Post-paid and Pre-paid. Telkomsel was the market
leader, covering 52.8% with the total number of subscribers about 6.01 million, 85%
of the total was Pre-paid or about 5.09 million subscribers. With the similar
composition applied to the whole market, it means 85% of GSM cellular’s
subscribers were 9.68 million.
Along with advancement of data service from cellular telecommunication
operators such as GPRS (a data service in GSM network), banks can utilize this new
network infrastructure for operating their e-banking channels, e.g. to migrate current
71
fixed-line dial-up or leased-line ATMs, EDCs and Kiosks network to a wireless-
based network.
In early year 2006, the total number of subscribers was already more than 40
million, which cover all type of networks, both in GSM & CDMA. Table 13: Number
of Cellular Telephone Subscribers in Indonesia in 2006 shows the data as of March
2006 (detik.com, 2008).
Table 2: Number of Cellular Telephone Subscribers in Indonesia in 2006
Mobile Operator Product # of Subscribers
(x000) MarketShare
A. GSM (Global System for Mobile Telecommunication)
Telkomsel KartuHalo, Simpati, Kartu As 24,940 49.76%
Indosat Matrix, Mentari, IM3 13,600 27.14%
Excelcomindo Explore, Bebas, Jempol 7,091 14.15%
GSM Total 45,631 91.05%
B. CDMA (Code Division Multiple Access)
Indosat StarOne 2 0.00%
Bakrie Telecom Esia 509 1.02%
Telkom Flexi 2,825 5.64%
Mobile-8 Fren 1,150 2.29%
CDMA Total 4,486.000 8.95%
ALL TOTAL 50,117 100%
During the Indo Wireless 2006 seminar held during March 7-9, 2006, which
was officially opened by Dr. Sofyan A. Jalil, the Indonesian former Ministry of
Communication & Information, it was mentioned by one of the speakers that the total
number of total subscribers would be reaching to 60+ million in 2007. In fact, it was
already 63.4 million in December 2006, and grew 51% to be 96.41 million
72
subscribers in December 2007 (Skm, 2008). One of the reasons was due to new 3G
licenses given by the government to three major GSM operators (Telkomsel –
products: post-paid kartuHALO, pre-paid simPATI, pre-paid Kartu As;
Excelcomindo – products: post-paid Xplor, pre-paid Bebas, pre-paid Jempol; and
Indosat – products: post-paid Matrix, pre-paid Mentari, pre-paid IM3) plus two
existing smaller operators. Another reason, the operators kept expanding their
network infrastructure to increase the network coverage throughout Indonesia’s
region and did extensive promotion to cover lower segment of the market, which had
lower in Average Revenue Per User/month (ARPU) (Wikipedia, 2008) but with
majority of share in term of number of users.
1.4.6. Telkom
According to Telkom 2007 Annual Report, Telkom provided information and
telecommunications (“InfoComm“) services. Telkom was the largest full-service and
network provider in Indonesia by providing fixed wireline and fixed wireless
telephone, mobile cellular, data and internet, network and interconnection services
directly or through associate companies.
As of December 31, 2007, Telkom served 63.0 million customers, consisting of 8.7
million fixed wireline telephone subscribers, 6.4 million fixed wireless telephone
subscribers and 47.9 million mobile telephone subscribers. Telkom’s customer base
grew 29.9% in 2007.
As of December 31, 2007, Telkom’s shares were owned by the Government of the
Republic of Indonesia (“Government”) (51.82%) and the general public (48.18%).
73
Telkom’s shares were listed on the Indonesia Stock Exchange (“IDX”), New York
Stock Exchange (“NYSE”), London Stock Exchange (“LSE”) and Tokyo Stock
Exchange (without listing). Telkom’s share prices at the IDX by the end of December
2007 increased 0.5% to Rp.10,150 from Rp.10,100 in the same period of 2006.
Telkom’s market capitalization by the end of 2007 reached Rp.204,624 billion or
10.3% of the market capitalization of IDX.
1.4.7. Telkomsel
Telkomsel provides GSM cellular services in Indonesia, through its own
nationwide dual band 900/1800 MHz GSM network, and internationally, through 268
international roaming partner in 155 countries (end of 2006). In September 2006,
Telkomsel became the first operator in Indonesia to launch 3G services.
The company provides its subscribers with the choice between two pre-paid
cards-simPATI and kartuAs, or the post-paid kartuHALO service, as well as a variety
of value-added services and programs.
Telkomsel has the largest network coverage of any of the cellular operators in
Indonesia, providing network coverage to over 90% of Indonesia's population and is
the only operator in Indonesia that covers all of the country's provinces and
counties, and all sub-counties ("kecamatan") in Sumatra, Java, and Bali/Nusra. The
company offers GSM Dual Band (900 & 1800), GPRS, Wi-Fi, EDGE, and
3G Technology.
74
Telkomsel has always been the market leader. In 2003, it had 9.5 million
subscribers, with ARPU Rp. 136,000 (US$16.07). Gross operation revenue was Rp.
11.15 trillion (US$ 1.31B), EBITDA Rp. 8.03 trillion (US$948.61M), Net Income
was Rp. 4.24 trillion (US$500.89M) with additional new subscribers 3.57 million
since previous year.
Table 3: Number of Cellular Telephone Subscribers in Indonesia as of March 2008
(Forsel Magazine, 2008)
# of subscribers(x000)
Market Share
Telkomsel 51,000 48.11%
Indosat 26,000 24.53%
Excelcomindo 15,000 14.15%
Hutchison 2,000 1.89%
GSM Total 94,000 88.68%
Bakri Telecom 3,300 3.11%
Telkom 6,500 6.13%
Mobile-8 1,500 1.42%
Indosat 700 0.66%
CDMA Total 12,000 11.32%
ALL TOTAL 106,000 100%
B. CDMA
A. GSM
Telkomsel had more than 44 million subscribers at the end of Q3 2007
(Telkomsel, 2007). Gross operation revenue was Rp. 31.68 trillion (US$3.36B),
EBITDA Rp. 18.52 trillion (US$1.97B), Net Income was Rp. 9.71 trillion
75
(US$1.03B) with additional new subscribers 8.9 million for the last 9 months. See
Exhibit 18: Telkomsel Selected Financial Data, 1997-2006 and Exhibit 19: Telkomsel
Selected Operation Data, 2001-2007 for updated financial report summary as well as
operation data.
In December 2007, according to Dr. Mohammad Nuh, Indonesian current
Ministry of Communication & Information, the number of total subscribers had
reached 96.41 million; market share leader was still Telkomsel (50+ million),
followed by Indosat (25+ million), Excelcomindo (15+ million), and then other
smaller operators which have only a few hundreds to a few million subscribers.
Recent data as published by Forsel magazine is shown in Table 14: Number of
Cellular Telephone Subscribers in Indonesia as of March 2008 (Forsel Magazine,
2008).
1.4.8. Payment System in Indonesia
There has been very rapid and sophisticated advancement in payment
instruments. In the early days of payment instruments, the barter system was a
common practice in ancient times. Gradually, people became accustomed to the use
of specific units representing a value of payment, more commonly known as money.
Now, money is one of the most widely used payment instruments in society.
In 2003 (Bank Indonesia, 2003), there was an increased activity in the use of
card-based payment instruments, namely, credit cards, debit cards, and ATM cards.
Such an increase was due to, among others, the widening network of ATM service,
76
resulted from the rise in the number of both machines and banks becoming the
member of switching ATM. Out of the three kinds of card-based payment instrument,
ATM was the one with the highest activity, representing as much as Rp. 342.9 trillion
(US$40.51B) (Bank Indonesia, 2003). In the meantime, transaction value of credit
cards and debit cards reached Rp. 25.0 trillion (US$2.95B) and Rp. 9.8 trillion
(US$1.16B) respectively. This is because ATM is card-based payment instrument
that has the most similar function as money, such that it allows ATM to have the
potential increased activities in comparison with the other card-based payment
instruments. See Exhibit 29: Indonesia Payment System, 2007.
Payment instruments later advanced from cash-based instruments to non-cash
payment instruments, such as the paper-based instruments of cheques and bilyet giro
(non-negotiable bank clearing payment orders). Following this, payments took a
further step forward to the use of paperless instruments, such as electronic funds
transfers and card-based instruments (ATM cards, credit cards, debit cards and pre-
paid cards). See Exhibit 26: Card in Circulation in Indonesia, 2006-2007, and Exhibit
27: Credit Card Transactions in Indonesia, 2006-2007 as well as Exhibit 28: Debit
Card Transactions in Indonesia, 2006-2007.
As stated earlier, ‘An efficient, fast, secure and reliable payment system is the
most important factor in creating a healthy banking system, which in turn will support
economic activities.’ For this reason, Bank Indonesia continually develops the
national payment system (SPN, Sistem Pembayaran Nasional) that can create a
comprehensive and integrated payment system, which is effective, efficient, safe, and
77
reliable and bears low risk. Thus, Bank Indonesia is expected to fulfill public needs of
transaction, either small or large transaction, using different medium of payments,
such as electronic-based medium, cards, papers, notes and others. Bank Indonesia
also provides DVP (Delivery versus Payment) facility, which is used in the inter-
currency settlement. Aside from fulfilling the national scale needs, the payment
system that Bank Indonesia performed also needs to be integrated with other
countries' system of payments, especially to lower the settlement risk across different
currencies.
In serving the public, Bank Indonesia continuously strives to increase an
efficient system of payment, to strengthen its monitoring system and to further create
a consumer protection for the system of payment in Indonesia, SPN. The SPN
development programme among others include the Jakarta Electronic Clearing
System, T+0 Clearing Scheduling, Bank Indonesia's Inter-bank Electronic
Transaction and Information Service System (BI-LINE), Real Time Gross Settlement
System (RTGS) and U.S. Dollar Fund Transfer System in Indonesia.
Among more than 222.19 million residents in Indonesia (Biro Pusat Statistik,
2007), the existing 96 million subscribers contributed to ARPU value of Rp. 80
thousands/month (US$ 8.7 at the exchange rate of Rp. 9,200 per one US$). Current
number of subscribers is significant for potential additional services instead of voice
communication, such as building business relationship with banks to enable data
services on electronic banking. For electronic banking, it is especially related to
payment services like mobile banking for balance inquiry, transfer (intra-bank, inter-
78
bank), top-up (refill), bill payment (credit card, school tuition fee, utilities: electricity,
water), etc as long as it is a non-cash transaction.
Nowadays, EDC does not only accept credit card, but also debit card whether
it is a magnetic-stripe based plastic card or the Europay MasterCard Visa (EMV)-
based chip plastic smart card. The transaction, whether it is initiated from a magnetic-
stripe card or a chip card, is called card-based initiated transaction (See Exhibit 25:
Infrastructure for Card Based Payment Instruments, 2006-2007). Recent
advancement in technology gives the option to either swipe a card to a Point-of-sale
device (contact) or just touches a card within certain proximity (contactless) such as
Visa PayWave and MasterCard PayPass.
1.4.9. Micropayment in Banking Industry
In May 17-18 2006, Bank Indonesia has conducted an international two days
seminar discussing on “Towards Less Cash Society”. Both domestic & international
speakers that were considered expert in their fields came to share their views. They
were coming from different perspectives and industries such as government, payment
regulators, academia, private companies, payment system providers, cellular
operators, and merchants (Bank Indonesia, 2006).
According to speakers, the success on less cash society would be very much
dependent on the availability of established laws and regulations in the country as
well as security of doing the electronic transactions. This would convince the society
in using variety of non-cash payment instruments conveniently. All parties including
79
government, the central bank, private institutions and banks were collectively
responsible to promote the activities of less cash society.
Recently, micropayment as one of the payment mechanism towards less cash
society has been started to be introduced to Indonesian market. Micropayments are
means for transferring very small amounts of money, in situations where collecting
such small amounts of money with the usual payment system impractical, or very
expensive, in terms of the amount of money being collected. "Micropayment"
originally meant 1/1000th of a US dollar, meaning a payment system that could
efficiently handle payments at least as small as a mill, but now is often defined to
mean payments too small to be affordably processed by credit card or other electronic
transaction processing mechanism. The use of micropayments may be called micro
commerce.
According to Bank Indonesia regulation, for micropayment related service,
the maximum nominal valued that can be stored in the ‘electronic wallet’ is Rp.
1,000,000 (US$106.17-- using Bank Indonesia’s mid rate December 2007).
In Kontan Article (Prabowo, Daniel, 2008), It is said that Bank Central Asia
(BCA) has already had micropayment product called Flazz BCA, officially launched
recently in June 2008. Their promotion says ‘This is your new form of money’.
Participating merchants include Indomaret (mini markets chain), Alfamart (mini
markets chain), Carrefour (super markets chain), Hypermart (super markets chain),
McDonald’s (fast food restaurants chain), KFC (restaurants chain), Pizza Hut
(restaurant chain), Baskin Robbins (ice creams chain), Disc Tarra (musical stores
chain), Gasoline Gas Stations, etc. Current target market focus is in Jakarta Greater
80
area. Distribution of Flazz BCA has already achieved 40,000 cards. One million cards
are targeted to be distributed until the end of 2008. New card is sold at Rp. 25,000
(US$2.65) with minimum top-up value of Rp 100,000 (US$10.62). Maximum top-up
value is set at Rp. 1,000,000 (US$106.17) following the rule set by Bank Indonesia.
Top-up can be done through thousands of ATM BCA, currently only available in
Jakarta greater area. There is a plan to provide top-up service through cellular phone,
as part of BCA mobile banking service.
Flazz BCA is a contactless payment card; there is no need to swipe the card
into the EDC machine as customers used to do with their magnetic-stripe-based debit
or credit card. Customer can just touch the Flazz BCA card to the contactless reader
attached to EDC when making a payment.
Table 4: The Best Bank Service Excellence 2007-2008 (Selected Data on Electronic
Delivery Banking Services)
Banking Hall Equipment
Automated Teller
Machine
Phone Banking
SMS Banking Mobile Banking
Internet Banking
Mandiri 1 1 ‐ 1 10 3 3 Danamon 2 4 5 4 9 1 ‐ Bank Niaga 3 2 1 8 6 4 4 NISP 4 5 7 2 7 ‐ ‐ BII 5 7 3 ‐ ‐ ‐ ‐ BNI 6 3 ‐ 9 8 ‐ 7 BCA 7 6 ‐ 10 ‐ 7 2 Bank Bukopin 8 ‐ 10 ‐ 2 ‐ 5 PermataBank 9 8 6 5 1 5 1 Citibank 10 10 8 7 ‐ ‐ 9
Service Excellence 2007‐2008
Best Performance Rankelectronic delivery channels (2007)
81
On general banking update (see Table 15: The Best Bank Service Excellence
2007-2008 (Selected Data on Electronic Delivery Banking Services)), Infobank
Magazine, the leading bank monthly magazine in Indonesia published a special report
titled ‘The Best Bank Service Excellence 2007-2008’ in their April 2008 edition for
the recent published survey of the banking service excellence.
1.4.10. Micropayment in Cellular Telecommunication Industry
In Kontan article (Fauzie, 2008), Telkomsel had already supported the less
cash society service by introducing Telkomsel T-cash. T-cash service that was
launched in November 2007 can be considered as the pioneer in mobile-wallet
service in Indonesia. Telkomsel cellular customers has started to be able to use the
service in several merchants namely Indomaret (minimarket, about 1000 outlets), Fuji
Image Plaza (retail electronic store), ITB and ITS (campus in Bandung and Surabaya
cities respectively), Jonas Photo (photography-related service), and Pesan Delivery
(delivery service company). In July 2008, T-Cash has been used by more than 10,000
Telkomsel’s customers with average daily five transactions at Indomaret, about Rp.
20,000 (US$ 2.12 -- using Bank Indonesia’s mid rate December 2007) per
transaction. Since the launching of T-Cash, total amount transacted has achieved Rp.
100 million (US$10,616.84).
It is very easy to activate the T-cash service. The registration is done through
text message (SMS) by sending ‘REG TCash Name#Date-of-birth<ddmmyyy>#your-
mother maiden name’ to 2828. The cost for registering is Rp. 125/sms (US$12.48
cents). Then Telkomsel’s customer needs to top-up their T-cash wallet with Rp.
82
50,000 (US$5.31) as the minimum top-up value, to be done at merchant. Later it will
be enhanced so customer can top-up from their bank by account transfer, or mobile
banking service.
Telkomsel, working with BNI and Hongkong cellular operators (CSL and
Shinetown Mobile) has further enhanced the T-Cash service, to enable to do
remittance service (conveniences in doing fast and secure money transfer with
cheaper cost, across the countries) for Indonesian workers working overseas (those
workers are called as TKI, abbreviation of Tenaga Kerja Indonesia).
Telkom, Telkomsel’s parent company also has FlexiCash service. Registration
to use the service is initiated by calling Telkom’s Call Center, then registration
continued by sending a text message to 555. Following the successful registration, an
e-wallet account is created along with a new assigned Personal Identification Number
(PIN). Per SMS is charged between Rp. 500 (US$5.31 cents) – Rp. 2,000 (US$21.23
cents). Participating merchants include McDonald’s (fast food restaurant), game
online payment, Telkom hotspot (Telkom Wi-Fi service), Short-text advertising
payment in Jawa Pos (daily news paper), Harian Fajar (daily news paper), Kompas
Group (news paper, retail chain bookstore and office equipments, hotel), ticket
payment (airline, busway – a special bus with a dedicated lane in Jakarta), Blitz
(cinema).
Indosat, one of Telkomsel’s competitors has already launched digital cash
service called Dompetku (Indonesian word for ‘my wallet’). It is now in pilot stage
(early stage of public implementation). Merchants that have already participated are
Alfamart (mini market), Kopindosat (Indosat cooperative), Bank Danamon (bank),
83
and Asuransi Bintang (Insurance). Indosat customer can activate Dompetku service
by visiting and registering at Indosat outlets (called Galeri Indosat). Customer will
then receive notification and PIN through SMS. To make a purchase, customer shall
type BELI (Indonesian word for ‘buy’) on their cellular phone then send the text
message to 789. No fee applied at this moment. Bank Mandiri is currently the Partner
bank of Indosat, to provide top-up and withdrawal service. Bank Mandiri and Indosat
are also in the process of developing another micropayment-based service, based on
Near Field Communication (NFC) technology. This will enable processing a
transaction through a smart card integrated within a cellular phone.
Other cellular operators, Excelcomindo and the recent established Axis are
starting to prepare to launch their version of mobile wallet in the near future.
1.4.11. Micropayment in Other Industries
In Transportation Industry, Bank Mega cooperated with one of Toll-road
operators, PT. Citra Margatama Surabaya has recently launched CMS Tol Card
(Indonesian: Kartu Tol CMS). This card is currently valid in one city only, Surabaya.
Surabaya toll road is located near Juanda, Surabaya International Airport.
At this stage, it is still considered socialization stage with 1,000 cards has
been distributed. Until the end of August 2008, 20% discount is given to Toll-road
users who use this card to pay when they pass through the Surabaya toll-road.
Administration fee, which is set at Rp. 10,000 (US$ 1.07 -- using Bank Indonesia’s
mid rate 2007), is waived during the socialization period. Bank Mega provides the
top-up service starting from Rp. 20,000 (US$ 2.12) to Rp. 1,000,000 (US$106.17).
84
There is a plan to use the card for other toll-road later this year, in Hasanuddin
Airport, Makassar, located at Sulawesi Island in Indonesia.
Another private label cards for micropayment is Blitz Card for Blitz Cinemas
chain issued since March 2008 along with the opening of new shopping center –
Grand Indonesia in central of Jakarta. New card is sold at Rp. 50,000 (US$5.31), and
then customer gets Rp. 40,000 balance (US$4.25). Usage includes paying for your
cinema ticket, discount for merchandize and snacks. Top-up can be done through
ATMs: Bank Niaga, HSBC and BCA. Distribution until June 2008 has been 35,000
cards.
Other includes Indomaret Card for Indomaret mini markets chain that is
planned to be launched in September 2008. Micropayment cards are also issued by
several International superstores operated in Indonesia like Sogo, and Seibu.