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Sharing Economy

Indonesian bank takes fight to Go-Jek with new payment app

CT-owned lender sees group's supermarkets as path to growth in crowded field

In Indonesia where credit card use remains limited, consumers can pay for transactions using apps that display scannable QR codes on their phones.(Photo by Akira Kodaka)

JAKARTA -- Bank Mega, a midsize bank owned by Indonesian conglomerate CT Corp., will release its own mobile payment service soon in a challenge to bigger players such as local ride-hailing startup Go-Jek.

The bank, which ranks 17th in Indonesia by assets, is awaiting approval from regulators and hopes to launch the service as early as this month. Bank Mega sees the CT group's extensive retail network as giving it an advantage over rivals, and it aims to move users into higher-value transactions.

It will enter a crowded market dominated by unicorn Go-Jek's Go-Pay, as well as Ovo, a digital wallet and payment service backed by Indonesian conglomerate Lippo Group.

State-owned banks have also recently combined their e-money and digital payment services to create a bigger competitor to Go-Pay and Ovo.

Bank Mega's decision to join the fray reflects the growing importance of mobile payment services in the everyday lives of Indonesians.

In a country where credit card use remains limited, consumers can pay for transactions using apps that display scannable QR codes on their phones. Indonesia's digital payments grew 280% in value last year, while transaction volume increased 210%.

Because the leading mobile payment services require users to top up their digital wallets before making purchases and often place limits on the amount stored, they are used mainly for small-value transactions such as paying for meals or drinks.

Bank Mega, on the other hand, wants "to change the paradigm" by letting users link its payment service to their bank accounts, debit cards and credit cards for larger transactions, said Guntur Triyudianto, the bank's operations and information technology director.

"You can use QR to do, let's say, 10 million rupiah or 20 million rupiah [$700 or $1,400] of transactions," Triyudianto added.

While Bank Mega's service will also have a digital wallet feature, with limits on the top-up amount, users will need to open a new account at the bank to make higher-price purchases. "This is also an acquisition tool" for new accounts, the director said.

Go-Pay and Ovo together hold a majority share of Indonesia's digital payment market, and both are expanding their networks.

Go-Pay is used to pay for the various services Go-Jek offers on its platform, from ride hailing and ordering food to calling massage therapists. The payment service expanded to offline stores last year. Ride transactions also are important to Ovo, which is partly owned by Singapore-based ride-hailing operator Grab. In addition, Ovo has a partnership with Tokopedia, Indonesia's leading e-commerce company.

"Banks still can catch up in the digital payment system by leveraging their current huge customer base to introduce their digital payment products," said Mulya Chandra, equity analyst at Morgan Stanley Sekuritas Indonesia. "What the banks need are more agile and dynamic tech platforms that enable them to compete with the convenience offered by fintechs."

Bank Mega will rely on the network of its parent company CT Corp., which owns nationwide supermarket chain Transmart, rebranded from Carrefour after acquiring a joint venture with the French retailer in 2013. The conglomerate also operates franchises of the restaurant chain Wendy's, as well as the ice cream shop Baskin-Robbins.

"For Bank Mega, we have some benefits with the ecosystem. By having the ecosystem we can give some privileges to our customers," Triyudianto said. Transmart does not accept Go-Pay and Ovo payments, according to Triyudianto.

Go-Pay and Ovo have both expanded rapidly on the back of heavy cash-back promotions. But the flip side of these incentives is that they encourage consumers to switch between digital payment methods depending on which one offers the best promotion where they are shopping.

"When there's no more discount, they will no longer use the QR," Triyudianto said. Bank Mega's exclusivity within the CT Corp. group will help in this regard, he added. The customers can "go to Transmart and we can dictate [customer behavior]."

Morgan Stanley's Chandra said: "Cash promos are just tools to acquire customers, but we believe it's the service quality that retains the customers."

A Morgan Stanley survey showed "respondents' top motivation for using digital payment products is actually the ease of use, rather than promotional discounts," the analyst added.

Triyudianto said the bank was willing to offer discounts "in our ecosystem," but ultimately did not want to enter the cash-draining competition being waged between the incumbents in the digital payment market.

"We don't want to burn money," he said. "We are [focused on the] bottom line. Not like them, they are top line because they want to sell the company."

Nikkei staff writer Ismi Damayanti contributed to this article.

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