I’d like to withdraw $20,000 please…

We opened our first corporate bank account a few months ago at BCA (one of the major Indonesian banks). While filling out the archaic multiple carbon copy forms to pay invoices, I noticed the woman next to me was withdrawing the equivalent of $20,000 in cash (an amount equal to ten years salary for an average Indonesian). And with the largest Rupiah bill being $10, that’s 20 stacks of 100 notes. After the withdrawal, she casually put all the cash in her handbag and walked out unaccompanied by any security official. I looked at the date on my blackberry and thought, ‘oh yeah, January 5th, start of month, it’s payday in Jakarta.’

The woman was simply collecting the monthly payroll for a medium-sized company. In a country where few people have bank accounts or access to any financial services, Indonesia remains a cash-heavy society. To give you an example, the Ritz Carlton employs about 3,000 in Jakarta alone. The vast majority of the staff consists of low-skilled workers such as cooks, waiters, receptionists, security guards, bus boys, and cleaning staff. On average, they earn anywhere from $150 to $300 per month, which is paid in cash. The payment process consists of long lines and accountants, who dosh out fistfuls of cash – a cumbersome, but necessary process to pay staff.

This is commonplace in Indonesia. You can tell because the $20,000 in cash was given to the woman by the bank teller (with no glass protective front) in open view to other customers. No one in-line bats an eye. Although this practice is considered normal, every society eventually goes cashless. If you look at the US or other developed countries, not carrying cash is common. People have debit and credit cards, with which they buy the majority of goods and services. This is far from reality in Indonesia, where less than 5% of the population has credit cards. Even for those that pay with credit cards, stores pass on the 3% surcharge to the consumer.

It is without doubt that Indonesia will go cashless. It is just a matter of how and when. The ‘how’ will be via mobile phone. It is the only wide-spread tool that can store value, ie, cash. At the end of the day, it is only a question of who will win and when…