How PemPay is enabling the shift to mobile payment for Indonesian commodities farmers
In Indonesia, as in other commodities-based economies, a majority of transactions between smallholder producers and buyers are still carried out with cash payments. This is risky for many reasons. First, carrying large amounts of cash poses a security risk, making transaction points vulnerable to theft. Miscounted cash, misplaced payments and robbery are all very real risks for Indonesian commodities buyers and sellers. Lack of traceability of cash transactions makes all stakeholders vulnerable to error and to fraud, and obscures valuable data on transaction history.
Figure 1: The WorldBank Global Findex Database, 2017
And yet, an estimated 35% of Indonesian farmers on the PemPem platform do not have a bank account to receive digital payments, maintaining cash’s primacy as the default option for commodities transactions. The coronavirus pandemic has only served to exacerbate smallholder farmers’ access to banking, as major banks revise their credit requirements to reflect increased market volatility.
Pempay is set to disrupt the cash-based economy. Introduced by PemPem in December 2021, Pempay supports PemPem mobile users both with and without bank accounts, commonly referred to as “unbanked”. The project was elaborated with the partnership of major Indonesian banks Bank Rakyat Indonesia (BRI) and Bank Negara Indonesia (BNI), and LinkAja, an Indonesian interbank network connecting four state-owned banks and an Indonesian wireless network provider Telkomsel.
Through the PemPay Virtual Account payment system, banked and unbanked buyers and sellers can perform payment transactions directly within the PemPem mobile supply-chain application they are already using to track prices and inventory. PemPay processes payments to payees quickly and securely and allows users to verify payment transfer status.
PemPay is part of PemPem’s commitment to onboard unbanked users by building a digital payment ecosystem for agriculture microenterprises that is easy, secure and inclusive. Providing a digital payment system that is safer for all reduces risks associated with cash payments while also allowing unbanked users to build credit by establishing a transaction record, something they previously did not have access to.
Safe payments and the ability to build credit contribute to the financial security of smallholder farmers, encouraging greater autonomy and providing an incentive to continue making choices in favour of sustainable farming practices: a win for producers, consumers, and for the planet.
1 The World Bank, Global Findex Database 2017.
2 The World Bank, 19 June 2020. Indonesia Agro Value-Chain Assessment.
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