indonesia_payments

When thinking about the payments landscape in Asia, there’s no doubt that its complexity is the first thing that springs to mind. Southeast Asia alone has over 1,000 local payment methods (LPMs) each fighting for their corner of the market.

But one country is shaping up to be the region’s next payments battleground and that’s Indonesia, the largest B2C e-commerce market in Southeast Asia.

Against the backdrop of COVID-19, Indonesians have been turning to the e-commerce marketplace as a safer and more hygienic way to procure goods and services. For the country’s retailers, this surge in demand for online services forced some to take their businesses online for the first time.

Market size

Others, such as Blibli and unicorn startup Bukalapak, seized the opportunity to gain market share by rapidly increasing online offerings in vertical such as groceries to cater to the rising demand. While external factors such as COVID-19 have accelerated e-commerce transaction volumes, in Indonesia, the market was already on an upward trajectory with the country’s digital economy expected to be worth US$130 billion by 2025.

With an outlook like this, it is no surprise that there have been high-profile movements in the market of late. With a presence in the market since 2009, Gojek is Indonesia’s flagship super-app with a valuation of US$10 billion and an expanding presence across Southeast Asia with 170 million users in the region.

Also Read: Indonesian digital payments platforms OVO, Dana reportedly agreed to merge

Just earlier this month Facebook’s WhatsApp, together with PayPal, announced that they had invested an undisclosed but ‘meaningful’ sum in the company. It remains to be seen what this will mean for Gojek’s payment method, GoPay, but it has already led to fierce competition in the form of a rumoured merger between Indonesian fintech startups Ovo and Dana.

With the merger, digital payments company Ovo and digital wallet provider Dana will go head-to-head with Gojek fighting to grow and retain their slice of a consolidated Indonesian payment market.

Merging forces

What Gojek and a merged Ovo and Dana have in common, is that both would-be ‘super apps’ see their digital payments business as their route to customer acquisition before offering financial products and services ranging from ride hailing (e.g. Go-Ride), food delivery (e.g. Go-food) and massages (e.g. Go-Massage) to utility bill payment (e.g. Go-Bills) and grocery shopping (Go-Mart).

The implications of a potential Ovo-Dana merger lie in the significance that it could help merchants operating in the country streamline the payment methods they offer their customers. With 17,000 islands across the country, Indonesia’s payment landscape is notoriously fragmented.

For consumers, this would mean an improved payment experience with the local payment methods they know and trust available when they make a purchase.

So where does the opportunity lie for new entrants in the Indonesian market?

Well, the success seen by Indonesia’s unicorns might well just be the tip of the iceberg for ambitious fintech both currently operating in Indonesia and eying market expansion. The country’s 273.5 million-strong population offers huge potential for growth with the rapid adoption of digital payments set to continue.

This is in large part due to an unbanked population of circa 95 million, a third of Indonesia’s population. As the payment market opens up, more and more of these people will be able to access financial services which are in turn set to drive digital transactions.

Also Read: Here’re the most-used digital payments across APAC in Mar-Apr 2020

Indeed, this is evidenced by smartphone adoption in the country which is growing 17 per cent year on year. When we consider these developments together with the Government’s support of digital payments like introducing standardised QR codes (QRIS) and the planning for “robin hood” type flat-rate fees for certain digital wallet transactions (where larger merchants pay more than smaller merchants) aimed to increase SME adoption of ewallet support.

Given two years ago Indonesia e-wallets overtook ATM and debit cards in 2018 it appears that there is no end in sight when it comes to chart the stratospheric rise in digital payments in Indonesia.

In this conducive environment, the opportunity is ripe for those looking to offer digital payments and e-commerce services in Indonesia. In fact, according to our recent Global Payments Almanac; China, the US, and Singapore make up the top three nations Indonesians’ procure their goods and services from, making it an attractive market for cross-border focused and international merchants.

That being said, the Indonesian market is not without its complexities, and new e-commerce regulations set to come into force in November 2021 will require extra consideration from merchants looking to enter the space without a physical presence in the country.

While this move may result in cross-border focused and international merchant businesses limiting their product offerings in Indonesia for the foreseeable future, it will strengthen the development of local market places given that Indonesians would have to turn to them to access those same goods.

Also Read: Fintech innovations are likely to be accelerated during the pandemic: OVO CEO Jason Thompson

More importantly, the consolidation of e-commerce market places will also see them focus more on providing local support and better customer service – and this can come in the form of facilitating payments with the local payment methods that Indonesians trust and prefer.

It is for this reason that digital payment providers such as Dana and Ovo are considering a merger to strengthen their market position to enhance their service offerings to the Indonesian public. This merger would create additional complexities with Gojek backed by Tencent and Ovo/Dana back by Ant Financial again going head to head in a market-creating completely independent ecosystems.

Where e-commerce savvy Indonesian consumers, and those new to online purchases, decide to part with their cash online will be driven by the customer service they are offered by a merchant. This includes the ease of payment and having the payment options they know and trust for example LinkAja, Ovo and GoPay e-wallets, cash payment via mini-marts, or chains of convenience stores such as Alfamart available.

Those entering the market will need to arm themselves with the local knowledge via partners who can keep pace with Indonesia’s changing payments landscape to ensure they gain the trust of the growing local consumer spending power.

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Image credit: Eka Sariwati on Unsplash

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