Young population favours mobile shopping
A report tracking Indonesia’s e-commerce landscape published by investment bank JPMorgan in 2019 puts the average age of its population at just 30.5yrs, with half of all citizens under 30. Those include 176m mobile Internet users according to GSMA Intelligence (forecast to reach 199m within five years), which estimates the country to be the third-largest market in the Asia Pacific (APAC) region – see Spotlight on Indonesia: seizing the digital transition opportunity now.
Over half (55%) of 16 to 64-year-olds used shopping apps and 33% banking apps in the third calendar quarter of 2019 according to GlobalWebIndex, with 48% also using their mobile phone to transfer money to friends or family. In all 80% made online purchases using their mobile devices, far more than did so using a desktop or laptop computer (25%). That usage is reflected in the most popular apps downloaded from Google and Apple App stores. App Annie placed e-commerce sites Shopee and Tokopedia in the top ten ranked by active users in January 2020, with Shopee also the 5th highest app ranked by the number of downloads.
The value of total consumer e-commerce spend in Indonesia soared to almost US$19bn in the last year, with around 168m purchasing consumer goods online in 2019. Statista’s market outlooks for e-commerce, travel, mobility and digital media calculate that consumer e-commerce spends on fashion and beauty products and services grew 54% between January 2019 and 2020, for example. The value of transactions in other areas saw similar levels of expansion in the same period with toys and hobbies up 67%, food and personal care up 60%, furniture and appliances up 57%, and electronics and physical media up 48%.
Research suggests that mobile transactions make up a significant proportion of that total consumer e-commerce spend. JPMorgan’s E-Commerce Payment Trends: Indonesia report, for example, estimates the size of the mobile commerce market in Indonesia at US$7.1bn in 2017 (US$5.3bn via an app and US$1.8bn via a browser), with up to 52% of all completed e-commerce transactions then undertaken on mobile devices. JP Morgan went on to predict that the mobile commerce market in the country will grow to be worth US$31.5bn in 2021.
eWallet market growth
Indonesia is also witnessing parallel changes in the way that its citizens prefer to pay for the online goods and services they purchase with their mobile phones. A high proportion of its population is currently unbanked, with only 48% of citizens aged over 15 having an account with a financial institution according to Worldbank Global Financial Inclusion Data for February 2020.
Despite low card penetration estimated at just 0.59 debit cards and 0.07 credit cards per capita, JPMorgan indicates that credit cards remain the dominant online shopping payment method; however, accounting for 34% of transactions. But the investment bank also notes that digital, mobile money or electronic wallets (eWallets) are rapidly increasing in popularity from a much smaller base, in 2017/18 accounting for one in five of all online shopping transactions.
Worldbank estimates that the number of mobile money accounts (3.1%) exceeds the number of credit cards (2.4%) in the country. Yet again, evidence suggests the most significant single source of e-commerce purchases still comes from credit cards (33%) ahead of bank transfers (24%), eWallets (14%) and cash (13%), according to PPRO’s payments and e-commerce reports for 2019 and 2020.
Bank Indonesia estimated total eWallet transaction value at US$10.5bn in 2019, up from US$3.2bn in 2018. Meta-search website iPrice Group puts the full value of transactions made through eWallet apps in the country at US$1.5 billion in 2018, but forecasts that will reach $25 billion by 2023. Officials from Bank Indonesia recently suggested that e-money transactions had rocketed 173% between January 2019 and January 2020 alone to reach US$1.1bn in a single month.
While ride-hailing apps accounted for 35% of all Indonesian eWallet transactions in 2018, growth in offline, QR payments will expand to account for half of the US$25bn total in 2023, according to figures from Redseer. A survey of 500 millennials and Generation Z respondents commissioned by digital payment group and GoPay owner Gojek and conducted by Ipsos in December 2019 found 68% used digital wallets at least once a week, more so than cash, and most often to pay for transportation and food delivery services.
GoPay and OVO dominate
The expansion of eWallet transaction volume and value has been galvanised to some extent by an explosion in the number of companies now offering services in Indonesia, almost all of which are locally-headquartered. One reason for that is the national non-cash movement (GNNT) strategy initiated by the central bank to boost economic activity in 2014, which has been pushing Indonesia towards digital payments ever since.
Consequently, as of April this year , 48 electronic money licenses had been issued by Bank Indonesia. According to data compiled by App Annie in the second quarter of 2018, the top five eWallet apps ranked according to monthly active users are GoPay, OVO, DANA, LinkAja and Jenius, with start-ups like DOKU and Payfazz also making their mark.
After starting as the Gojek ride-hailing service in 2009, GoPay launched its eWallet in 2015. Up until the middle of last year, it was the only mode of non-cash payment accepted by Gojek, which offered discounts on rides and food delivery orders in return. Estimations suggest GoPay accounted for 30% of total electronic money transactions in Indonesia in 2017, with transactions amplified by partnerships with over 300,000 merchants across the country – everything from cafes and convenience stores to taxi drivers, teachers, schools and transportation companies.
The acquisitions of three fintech companies – Kartuku, Midtrans and Mapan, estimated to process almost US$5bn of debit/credit card and digital wallet transactions at the time – certainly helped GoPay’s expansion. GoPay executives calculated the platform was used to process three-quarters of all mobile payments in Indonesia in 2018, paving the way for a reputed gross transaction value of US$6.3bn in 2019 (representing 61% market share). That led to PayPal buying a majority 70% stake in the Jakarta-based company in December 2019, in doing so, becoming the first foreign platform licensed to provide digital payment services in China where GoPay also operates.
To date, the only real rival to GoPay in terms of market share is another US$1bn valued company, OVO (one of only five Indonesian unicorns alongside GoPay as of December 2019). Launched in 2017 by the venture capitalist arm of Jakarta-headquartered conglomerate Lippo Group, OVO is also backed by Indonesian ride-hailing specialist Grab, local e-commerce company Tokopedia and Japanese financial services firm Tokyo Century Corporation. Those ties have helped OVO partner a significant number of retailers which range from cinemas, supermarkets, car parks and department stores to hospitals, coffee shops and bookstores. Accurate figures are hard to verify, but with OVO’s share of total digital wallet transactions in 2019 estimated at 27%, OVO and GoPay may have as much as 80% of the market between them.
Local players make up the rest
The race for distant third place looks may be between Dana and LinkAja. Backed by Chinese financial services group Ant Financial, which was formerly known as Alipay, is affiliated to Alibaba and also has a stake in India’s Paytm eWallet. Dana itself is a subsidiary of Jakarta-based technology, telecoms and media conglomerate Elang Sejahtera Mandiri (also known as Emtek). It debuted its eWallet in July 2017 though the app was initially only available to users of Blackberry Messenger (BBM), which Emtek owned at the time and has since discontinued. Even so, Dana counted 35m active users per month by the end of 2019, approximately 3m transactions per day and 87,500 merchant partners.
Management believes the company can double those numbers this year and have inked some significant partnership deals to help it succeed. As of January 2020, customers can also use their DANA eWallet account to pay for Apple services from the App Store, Apple Music, Apple TV app, iTunes Store and iCloud storage. A further deal with Indonesian telemedicine company YesDok announced the following May allows people to pay for videoconferencing based medical consultations using DANA, a strategic move during the Coronavirus pandemic.
Owned by state-owned telecommunications company Telkomsel, LinkAja is a QR code payment platform which allows customers to top up credit, buy packages, pay online, pay merchants, pay bills, buy game vouchers, donate and send money from their smartphones. Little more than a year old, the app was merged with Telkomsel’s existing TCash mobile payment system on debut in March 2019, and also integrates the eWallets offered by its financial backers – Bank Mandiri, BRI and BNI. LinkAja recently launched Indonesia’s first sharia eWallet, backed by 1,000 mosques and which enables Islamic financial services and management of customer balances in accordance with Islamic law.
A long list of much smaller players make up the remainder of the Indonesian eWallet market, including Doku, PayFazz, Octo Mobile, the Bank of Central Asia (BCA) Sakuku, Bank DKI’s JakOne Mobile, Bank Mega’s Mega Mobile and Uangku.
King cash offers scope for enormous digital payment expansion
Despite the phenomenal growth of digital payments to date, the scope for further expansion is still enormous as citizens adopt alternative digital payment methods at the expense of physical currency. It is estimated that 99% of all financial transactions in Indonesia are still carried out using cash according to management consultancy McKinsey and Company. In 2019, that had decreased only slightly to 97% reckoned OVO.
Even when it comes to e-commerce specifically, JPMorgan estimates that cash accounted for 14% of online transactions in 2017/2018. Cash on delivery is still a widely available payment option, though one predicted to decline to 6% of online payments by 2021. The bank also predicts that digital wallets accounted for 20% of those e-commerce transactions however, second only to card payments and bank transfers (26%).
A number of factors may put the brakes on anticipated eWallet growth in the short term. One is the possibility that the Indonesia government will impose uniform fixed fees (around 0.7%) on some eWallet transactions in the future, a move that would have the dual effect of reducing revenue and inflating costs for start-ups in particular. The country’s demographic too is challenging, with its population spread across 6,000 inhabited islands speaking around 580 languages.
Another barrier is fears around the significant levels of online fraud which have been reported in Indonesia over the last few years. A survey conducted by cyber security firm Kaspersky Lab involving 26 countries around the globe concluded that 26 percent of online consumers in Indonesia were victims of online financial fraud in 2016. And in 2017, the Indonesian Criminal Investigation Police estimated consumer losses caused by e-commerce fraud at around IDR 2.2bn.
Managed payment services
Measures to counter online fraud are steadily improving though – both those implemented by eWallet and mobile payment providers themselves and specialist solution providers which help others to integrate their payment and billing systems with those of local merchants and telecommunications companies.
DOCOMO Digital is one, using big data processing, analytics and machine learning technology to analyse user behaviour and create accurate profiles based on previous usage to better detect and block potentially fraudulent transactions. The company can also help eWallet providers increase their subscriber base by allowing consumers to fund digital transactions directly through their mobile phone accounts via direct carrier billing (DCB), particularly sections of the “unbanked” population and younger generations that do not have credit and debit cards.
DOCOMO Digital already has close relationships with leading telcos and mobile network operators (MNOs) throughout South East Asia, coupled with experience and knowledge of local financial services and data protection regulation. More than 15% of online users employ DCB as a secondary payment method for digital purchases, and 5% as a principal payment method according to an Ovum survey of 20 countries across the world. And Indonesia sees a particularly high number of users employing DCB as a secondary payment method, 21%, estimates the research company in In its Global Carrier-Billing Forecast Report: 2019-24.
Backed by DOCOMO Digital’s secure consumer payment mechanism, sophisticated fraud analysis and enhanced customer experience capabilities, eWallet providers may find the edge they need to survive in an increasingly competitive digital payments market.