Cashless Payment System: The Effect of Card-Based Payment Instruments (APMK) and Electronic Money on Household Consumption in Indonesia

Abstract

Technological innovations in the financial sector are able to stimulate economic growth, a phenomenon referred to as the Supply-Leading View proposed by Schumpeter. One form of such innovation is cashless payment systems. Based on the instruments used, these systems can be classified into two categories: payment instruments using card-based payment instruments (APMK) and electronic money. The implementation of cashless payment systems is expected to facilitate microeconomic payment transactions and reduce transaction costs at the macroeconomic level, thereby increasing household consumption. Accordingly, this study aims to analyse the effects of APMK and electronic money on household consumption, both in aggregate and by expenditure sector. The analysis employs a fixed-effects panel data model using data from 33 provinces in Indonesia covering the period from 2019 to 2023. The results indicate that both APMK and electronic money have a positive and statistically significant effect on household consumption. Furthermore, APMK has a positive and statistically significant effect on household consumption across expenditure sectors, although this effect is limited to certain sectors. Meanwhile, electronic money has a positive and statistically significant effect on household consumption across nearly all expenditure sectors. The policy recommendations of this study emphasize the importance of synergy between Bank Indonesia and the Government in improving digital financial literacy, particularly among population groups that have not yet adopted or fully understood the benefits of APMK. In addition, accelerating and ensuring the equitable distribution of the infrastructure required for APMK usage across all provinces is essential.