The Impact of Pandemic COVID-19 On Digital Payment:
Case Study on Electronic Money in Indonesia
Triaji Pambudi, S.E.1*, Dr. Raden Aswin Rahadi, S.T., MBA1*
1 School of Business and Management, Institut Teknologi Bandung (ITB), Bandung, Indonesia
*Corresponding Author: [email protected], [email protected]
Accepted: 15 February 2021 | Published: 1 March 2021
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Abstract: This paper aims to determine the demand for e-money due to pandemic Covid-19 in Indonesia. The approach used is by analysing 12 papers related to the demand for e-money or electronic payment system due to pandemic, making synthesis from the collected papers and find the results for each related paper. This study aims to find the conceptual model for the demand for e-money due to Covid-19 in Indonesia. This study found that e-money can be affected by the money supply, electronic data capture, other non-cash payment (debit card and credit card), and the customer income. Due to the spread of covid-19, many people think that avoiding physical contact with cash and any payment methods could reduce the spread of Covid-19. In the future, the quantitative research process can be conducted in Indonesia to testify and improve this paper's conceptual model.
Keywords: E-money, Electronic Payment System, Demand for Money, Covid-19
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1. Introduction
The pandemic of Covid-19 that has hit around the world, including Indonesia is increasingly changing people’s behavior in consuming digital needs. Currently, people are frequently fond of online shopping start from daily necessities, household supplies, sports, and so on. This condition has changed the way people transaction, not only relying on digital payment methods with debit or credit cards but also e-money and digital wallet services (Ramdhani, 2020). The Financial Services Authority (OJK) ensures that the security of digital banking transactions is maintained during the Covid-19 pandemic. Banks are required to apply some strict rules to identify potential manipulation. The new normal period of the Covid-19 has prompted customers to switch from offline or offline transactions to online or online. This condition makes banks have to implement optimal digital services. OJK issued some regulations related to digital banking. Among them are bank soundness, risk management, and anti-fraud that banks must establish to detect possible misuse of digital transactions such as mobile banking (Antara, 2020).
Sales in e-commerce increased 26 percent from the average monthly sales in the second quarter of 2019. The sales value recorded by the e-commerce industry also reached USD 2.4 billion or equivalent to IDR 34.56 trillion (exchange rate of IDR 14,400 per USD). Daily transactions in e-commerce in April 2020 also recorded an increase to 4.8 million transactions, from 3.1 million transactions on average in the second quarter of 2019. New consumers increased 51 percent, and volume demand jumped five to 10 times during the pandemic. Changes in the pattern of people's behavior towards digital payments that are increasing internet access for Indonesian people reach 180 million users (Miftahudin, 2020).
Table 1: The Nominal Value of E-money and Growth in Indonesia
Dates Nominal Value of E-money (Million Rupiah)
Growth of Nominal Value of E-money (Percentage)
2019 Aug 12.878.103 -
Sept 13.820.413 7,32
Oct 16.370.715 18,45
Nov 16.080.701 -1,77
Dec 16.970.133 5,53
2020 Jan 15.872.433 -6,47
Feb 15.178.625 -4,37
March 15.036.070 -0,94
Apr 17.552.119 16,73
May 15.033.708 -14,35
June 14.955.261 -0,52
July 16.099.556 7,65
Source: Bank Indonesia, 2020
Based on table 1, nominal value of e-money from August 2019 to July 2020 is enhancement.
Non-cash payment instruments using e-money have the potential to shift the role of cash in payments that are retail or with small nominal transactions. From the growth side, nominal value of e-money transactions has instability. According to Pratiwi (2015), electronic money is a type of service that makes it easier for the customer, because it helps make transactions anywhere and anytime without carrying cash.
2. Literature Review
The review of the literature is divided into three major sections and provides them with definition. A conceptual framework mapping will be available to indicate the research position of this study.
Demand for Money
According to Jhingan (2004) in Bitrus (2011), demand for money arises from money's two important functions. The first is that money act as a medium of exchange and the second is that it is a store of value. The purpose of the theory of demand for money is to look at the variables that motivate people to hold part of their wealth in money instead of other assets. There are three approaches to the demand for money: The classical approach, the Keynesian approach, and the post-Keynesian approach. The classical approach did not explicitly formulate the demand for money theory, but they emphasized the transactions demand money in terms of the velocity of circulation of money (Jhingan, 2004). There are views expressed in the fishers equation of exchange; MV=PQ. Here, MV = Money supply, while PQ is the demand for money. The underlying assumption in the equation of exchange is that people hold money to buy goods and fully explain why people hold money.
According to Jhingan (2004) in Bitrus (2011), The Keynesian approach introduced three reasons or motives for holding money; the transactionary, precautionary, and the speculative motive. Each of these motives is associated with one component of the demand for money examined by Keynes. The transaction demand is arising from the need to hold cash for current personal and business expenditures. Therefore, the higher the income of an economic unit, the higher the transactions demand money and vice versa, hence Mt = F(Y) where F > 0. The
depends on the interest rate. According to Keynes, the precautionary demand arises from the need to provide for an unforeseen event requiring sudden expenditures. The higher the level of income of an economic unit, the higher the precautionary demand for money by the individual, or the higher will be the money needed to meet unexpected expenditures and vice versa. Hence Mp = F(Y), F > 0. The speculative demand, according to Keynes, arises from uncertainty about the future interest rate. Keynes emphasized risk and the uncertainty of expectations as the reasons behind the negative relationship between the interest rate and the speculative demand for money. The critical interest rate is at its lowest level and cannot go below that. According to Keynes, if a person decides to keep a bond instead of cash, he speculates that the future interest will not rise, but if he speculates it will increase, then there will be no need to buy it.
Therefore, uncertainty in the future level of interest induces the speculative demand for money.
According to Jhingan (2004) in Bitrus (2011) Friedman’s contributions investors can hold their wealth in the form of money, bonds, equity shares and commodities. Assuming bond and equity capital are perfect substitutes, with equal rates of return, freedman's money demand function is; Md = Md (i, rD Δp/P, Y, W) where Md = money demand; P = price level (positive); i = Interest rate (negative); Y = income (positive); W = Wealth (positive); rD = deposit rate (negative). According to him, all things being equal, an increase in the expected rate of inflation increase the demand for commodities and reduces the demand for money and vice versa.
According to Sukirno (2009) demand describes the overall state of the relationship between price and quantity demanded, while the quantity of goods demanded is the number of requests at a certain price level. The factors that affect the demand for electronic money are the price of e-money cards, the price of other cards (debit cards, credit cards), income, tastes, and technology.
In an economy that uses commodity money, the money supply is the quantity of that commodity. Control over the money supply is called monetary policy (Mankiw, 2006). In a study conducted by Hidayati et al. (2006), without the inclusion of float calculations in the M1 definition, it is assumed that reducing the money supply will encourage people to switch to e- money users. Electronic data capture (EDC) as one of the supporting instruments must be available at merchants all around Indonesia to realize the Less Cash Society (LCS). Based on Sumolang (2015) research, the more available EDC machines will increase the demand for e- money in Indonesia.
Non-cash Payment System in Indonesia
National Payment System (NPS) by Mbuguah and Karume (2013) is any payment that begins with a deal agreement converted to payment instructions. The instructions are used to initiate the payment process, which, from the framework, passes through some form of clearinghouse and settlement. Finally, the payment is made. Confirmation that the payment has been made and the deal executed as agreed on follows. In Indonesia, there are two payment instruments, namely the first payment for credit transfers, which are payment orders to place funds from the sender to the recipient through the transfer of funds from the sending bank to the receiving bank. The second payment for debit transfers is a fund transfer system where a debit transfer order is made or authorized by the party that owns the funds and will send the funds to another party (DASP, 2013). The use of cash is only practical enough for payments which relatively small value. Then it is unsafe to make large payments with cash. These constraints proposed the creation of non-cash payment instruments such as paper-based (check, current account), card based (credit card, debit card), electronic-based (DASP, 2013).
According to Bank Indonesia, Electronic Money is defined as a payment instrument that meets three components. First, it is issued based on the value of money paid in advance to the issuer.
Second, the value of money is stored electronically in a medium such as a server or chip. Third, the value of electronic money managed by the issuer is not a deposit referred to in the law governing banking. Electronic money by Gusti (2020) is essentially cash without any physical form; the value of the money comes from the value of the money deposited in advance to the issuer. In line with Prinz (1999), e-money is an e-purse that consists of a computer chip or an integrated circuit embedded in a plastic card and is transferred by inserting the card into a card reader.
The effectiveness and speed of payment transactions using electronic money by Tazkiyyaturrohmah (2018) in Gusti (2020) are very much needed for startup companies to progress and develop. Business activities that rely on payment using cash with various weaknesses and limitations have begun to be abandoned. The development of a startup business in Indonesia affects electronic money transactions increasingly using, such as Go-Jek or Grab online transportation. According to Pranoto and Salsabila (2018) in Gusti (2020), the dominance of the use of electronic money in Indonesia is currently able to shift the number of credit card users whose users are increasingly reduced to be replaced with electronic money that is easier and faster in the transaction process.
Electronic Payment System
The research conduct by Costa and Grauwe (2001) in Istanto and Fauzie (2014), The widespread use of non-cash payment instruments implies reducing the demand for money issued by the central bank, which is can affect the implementation of the central bank's duties in implementing monetary policy, particularly controlling monetary amounts. On the other hand, in a study by Woodford (2000) in Istanto and Fauzie (2014), even though non-cash payment instruments substituted the currency, monetary policy would still be effective. The central bank, in this case, can still control its policy through short-term interest rates. In line with Istanto and Fauzie (2014), current economic transactions are not only facilitated by cash but have expanded to use electronic non-cash instruments, which are more efficient. As a result of developments in information technology such as Card-Based Payment Instruments (CBPI) such as credit cards, debit cards, ATM cards, the BI-RTGS system, and finally, e-money began to emerge. The use of such mobile application-based services by Arner et al. (2020) in Fu and Mishra (2020) provides an attractive option, particularly during the pandemic, imposed restrictions to movement and risk of contamination via physically handling cash. By Prinz (1999), acceptability is the most important feature for using internet payment systems. Also, the simplicity of use, portability, and security are considered to facilitate acceptability.
According to Prinz (1999), in a debit system, the buyer opens an account where they deposit (real) money and all transactions are prepaid. Therefore, in a credit system, the buyer receives a credit from the supplier, which will afterward deduct the sum from the buyer's bank account.
In line with Zandi, Singh, and Irving (2013) in Marshall and Coke (2016), increasing credit card and debit card usage contributes to economic activity by reducing transaction costs and improving efficiency in the flow of goods and services.
Based on Pramono et al.'s (2006) 's working paper, the development of non-cash payment instruments such as debit cards with savings as the underlying. It causes a shift function of savings from deposits that cannot be withdrawn at any time to deposits that can be withdrawn.
Considering the characteristics of e-money, which has a float of funds that can be used as a means of payment at any time, this type of fund can be categorized as a very liquid fund or
of the use of electronic money in Indonesia is currently able to shift the number of credit card users whose users are increasingly reduced to be replaced with electronic money that is easier and faster in the transaction process.
3. Methodology
This study is conducted using literature synthesis (it can see the result in Appendix A). Works of literature used in this study are kinds of research correlated with this study, about the impact of Covid-19 on demand for e-money in Indonesia.
4. Conclusion
According to the analysis based on literature synthesis, we could summarize that e-money can be affected by the money supply, electronic data capture, other non-cash payment (debit card and credit card), and the customer income. Due to the spread of covid-19, many people think that avoiding physical contact with cash and any payment methods could reduce the spread of Covid-19.
5. Future Research
For future research, it is suggested to apply the quantitative approach to analyzing the impact of covid-19 on Indonesia's cashless payment method.
References
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771–779
Bank Indonesia. (2020). Indonesia Financial Statistics Bank Indoensia. (2020). Payment System Statistics
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Gusti, Girang Permata. (2020). Is There Any Impact Of Electronic Money To Increase Knowledge Of Financial Literacy?: In The Pandemic Situation Of Covid-19 In Pontianak City. Malaysian E Commerce Journal, 4(2): 48-53.
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No. 10, Hal. 610-621.
Mankiw, N. Gregory. (2006). Makroekonomi Edisi Keenam. Penerbit Erlangga. Jakarta.
Marshall, Michael. and Coke, Oma. 2016. A Sectoral Analysis of E-Money Consumption and Growth. Social and Economic Studies 2 & 3 Page: 69 – 98
Mbuguah, Samuel. and Karume, Simon. (2013). Trends in Electronic Money Transfer in Kenya. Journal of Emerging Trends in Computing and Information Sciences, Vol. 4, No.
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Pantelimon, F., Georgescu, T., & Posedaru, B. (2020). The Impact of Mobile e-Commerce on GDP: A Comparative Analysis between Romania and Germany and how Covid-19 Influences the e-Commerce Activity Worldwide. Informatica Economica, 24(2), 27-41.
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Appendix A. Literature Synthesis No
Research Title, Author, and Publication Year
Variables Method Results
1 An econometric analysis of money demand function in Sudan, 1960 to 2010.
Suliman Zakaria Suliman and Hala Ahmed Dafaalla (2011)
Dependent:
1. Money demand Independent:
1. Real Gross Domestic Product (GDP)
2. The rate of inflation 3. Exchange rate
Error Correction Model (ECM)
In the long run, there is a positive influence between real money demand and real income. The inflation and exchange rate variables have a negative effect on real money demand.
2 The Determinants of The Demand for Money in Developed and Developing Countries
Yamden Pandok Bitrus
(2011)
Income, Interest Rate, Price Level, Deposit Rate, Wealth, Require Reserve, Individual Preference, Payment Habit, and Brokerage Fee/Risk
Comparative Analysis
All variable determines the desire of people to hold cash (demand for money) in both developing and developed countries
3 Trend in Electronic Money Transfer in Kenya.
Samuel Mbuguah and Simon Karume
(2013)
Dependent:
1. Electronic money transfer in Kenya
Independent:
1. Automated Teller Machine (ATMs)
2. Mobile money transfer
Trend Model Automated teller machines (ATMs) and mobile money transfers have a significant positive trend towards electronic money transfers in Kenya.
4 Analisis Dampak Pembayaran Non Tunai Terhadap Jumlah Uang Beredar Di Indonesia.
Lasondy Istanto S. and Syarief Fauzie
(2014)
Dependent:
1. Narrow Money (M1) 2. Broad Money (M2)
Independent:
1. Card Based Payment Instruments (APMK) 2. E-Money
3. Clearing
4. Bank Indonesia - Real Time Gross Settlement (BI-RTGS)
Error Correction Model (ECM)
1. The APMK variable has a significant positive effect on M1 in the short-term but not significant in the long-term.
2. The variables e-money, clearing, and BI-RTGS have a significant positive effect on M1 both in the short and long term.
3. The APMK variable has no effect on M2 in the short and long term, while the e-money variable has a significant negative effect on M2 in the short-term and has no effect in the long-term.
4. The clearing variables and BI-RTGS have a significant positive effect on M2 in the short-term. The clearing variable does not affect the long-term, and the BI-RTGS
variable has a significant positive effect in the long-term.
5 A Sectoral Analysis of E-money
Consumption and Growth
Michael Marshall and Oma Coke
(2016)
Dependent:
1. Consumption
2. Private Consumption 3. Overall GDP
4. Sectoral GDP a. Agriculture,
Forestry & Fishing b. Manufacture
c. Food, Beverages &
Tobacco
d. Finance &
Insurance Services Independent:
1. Point of Sale (POS) (Penetration and Size) 2. Automated Bank
Machines (ABM)
(Penetration and Size) 3. Internet Payments
(Penetration and Size)
Autoregressive Distributed Lag (ADRL) Model
The results show that all three classifications exhibited a positive long run relationship with overall GDP.
POS and ABM payments show a positive long run relationship in the Food, Beverage and Tobacco sector and the Finance and Insurance Services sector, while internet payments showed a positive relationship with GDP in the Agriculture, Forestry and Fishing sector.
The short run impact of these variables with the real sector using the Error Correction Method (ECM) and found evidence of short run dynamics between e-money consumption and sectoral growth.
6 Decision Model of Use E-money in Covid-19 Pandemic Situation
Ni Putu Dyah Krismawintari, Yeyen Komalasari, I Gusti Bagus Rai Utama, Christimulia Purnama Trimurti, and I Wayan Ruspendi Junaedi (2020)
Dependent:
1. Decision to use e-money Independent:
1. Looking for information 2. Transaction Behavior 3. Concerned about
contracting Covid19 4. Ease of e-money
5. Efforts to attract the use of e-money
6. Use of Cash when Covid19
Quantitative approach using SEM-AMOS
A person's decision to use e- money is significantly influenced by concerns about Covid-19 transmission when they leave the house. Other variables are the frequency of someone searching for news about Covid-19, transaction behavior, ease of electronic money, efforts to attract the use of E-Money by service providers, and the use of cash when COVID-19 does not have a significant effect.
7 Empirical Study of Electronic Money as Economics
Alternative amidst the Global Pandemic in Indonesia
Shinta Maharani and Evi Krisdayanti (2020)
Dependent:
1. The Interest in Using Electronic Money Independent:
1. Performance Expectation
2. Business Expectation 3. Social Influence
Regression Performance and business expectations also social partially and simultaneously significantly influence the interest in using electronic money in Indonesia during the pandemic, thus the electronic money has provided one of the maximum solution to the problems that currently recorded in history.
Indonesia during Covid-19 Pandemic Diana Silaswara, Indra Gunawan, and Tjong Se Fung
(2020)
3. Time Deposits (Rupiah and Forex)
4. Savings (Rupiah and Forex)
5. Government policy regarding the Covid19 pandemic
increase in the money supply and a decrease in electronic money issued by banks. This is due to a decrease in time deposits (Rupiah and Forex), conditions occur because the effect of the number of companies that are doing Termination Employment and pay for employee severance.
Government policies by closing shopping centers, the tourism sector and other policies also contribute to create conditions that make people have to convert their time deposits into savings so that they are easy to use if needed.
9 Is There Any Impact Of Electronic Money
To Increase
Knowledge Of
Financial Literacy?: In
The Pandemic
Situation Of Covid-19 In Pontianak City Girang Permata Gusti (2020)
Dependent:
1. Financial Literacy Independent:
1. Electronic Money
Linear Regression
The electronic money has a positive and significant effect on financial literacy, in the pandemic situation of COVID- 19 in Pontianak City.
10 FinTech and the Covid-19 Pandemic:
Evidence from Electronic Payment Systems
Daniel Tut (2020)
1. Mobile Payments 2. Electronic Payment
Cards
3. Real-Time Gross Settlement System (RTGS)
4. Commercial Banks’
Balance Sheets 5. Diaspora Remittances
Empirical Study (Qualitative Descriptive)
1. The pandemic initially had a negative impact on the adoption of FinTech, but favorable short-term regulatory changes have reversed some of the negative effects.
2. The use of all electronic payment cards has significantly declined during the pandemic except for charge cards. We find an increase in the use of charge cards as consumers shift towards cheaper forms of payment.
3. The pandemic has reduced both domestic and international electronic fund transfers via RTGS.
4. The pandemic has also resulted in a deterioration in
the quality of commercial banks’ assets and balance sheets.
5. Remittance inflows via FinTech platforms have significantly declined reflecting contractions in global economic activities.
11 The Impact of Mobile e-Commerce on GDP:
A Comparative Analysis between
Romania and
Germany and how Covid-19 Influences the e-Commerce Activity Worldwide Florin-Valeriu
Pantelimon, Tiberiu- Marian Georgescu, and Bogdan-Ştefan Posedaru
(2020)
1. Mobile Commerce
(Romania and
Germany)
2. Gross Domestic Products (GDP)
(Romania and
Germany)
Regression and Correlation
This study has a very strong positives linear relation between the sales volumes in the mobile commerce and the GDP.
Due to isolation measures and recommendations the consumer spending in physical stores decreased severely. Thus, people switched from buying from physical stores to e- commerce. On the other hand, in half of the analyzed countries, less than 20% of the respondents declared that they increased their online shopping activities (12% in Germany, 16% in France and Canada, 18% in Australia, Japan and the United Kingdom).
12 The role of Fintech in predicting the spread of COVID-19.
Mohannad Abu Daqar, Milan Constantinovits, Samer Arqawi, and Ahmad Daragmeh (2021)
Dependent:
1. Covid-19 Spread Independent:
1. Fintech behavior before Covid-19
2. Fintech behavior after Covid-19
3. Fintech perception after Covid-19
Structural Equation Model (SEM)
Behavior before COVID-19, Fintech Behavior after COVID- 19, and Fintech Perception after COVID-19) have the greatest impact on and association with predicting the spread of COVID-19 among people (52.5%). Higher Fintech perception and behavior among Fintech users will help in reducing the spread of COVID- 19 by avoiding the use of contact payment methods.
