Amid the humanitarian crisis of Covid-19, Indonesia has discovered a silver lining. Digitization of traditional offline businesses is accelerating in the shadow of the pandemic.
E-commerce companies like Gojek, Grab, and Shopee have been pouring resources into the country’s large and growing market, finding new ways to deliver value for merchants and consumers while attracting investment from global tech players.
Gojek, Indonesia’s first unicorn, is a case in point. As the pandemic has been raging this year, Gojek raised another $1.2 billion dollars from well-known investors, including Facebook and PayPal, seeking to tap into the fast-growing market.
Gojek’s valuation is now said to have reached $10 billion, according to CB Insights, with operations that currently span Vietnam, Singapore, Thailand and the Philippines. From its founding in 2009 as a ride-hailing firm, the company has expanded to offering some 20 different services, including parcel and grocery deliveries, and Indonesia’s leading digital payments platform, GoPay.
Unlike the past, the pace of change is speeding up as the competition shakes up the country’s e-commerce market, and it’s coming from all directions. Singapore-based Sea Ltd.’s Shopee held the largest share of Indonesia’s e-commerce market in the second quarter, according to research firm Iprice. Local rivals Tokopedia and Bukalapak were said to be numbers two and three, respectively, with Alibaba-backed Lazada coming in fourth. During the same period, Shopee saw its daily average orders increase over 130%.
As recently as three years ago, a Google/Gfk digital wallet study called Indonesia the “most valuable untapped e-money market.” That potential was clearly not lost on current market participants, and the take-up rate has been impressive. According to iPrice and App Annie, use of financial apps grew 70% over the 12 months that ended in June, as e-wallets have become a preferred payment method for contactless transactions during the pandemic.
Ipsos Media, a market research firm, found that Gojek’s GoPay has the highest market share of 60%, followed by Ovo, an affiliate of Indonesian multi-national conglomerate Lippo, at 29%. Ovo is partnered with e-commerce giant Tokopedia and Singaporean super-app Grab. Ant Financial-backed Dana, which holds a 9% share of the market, is the e-wallet partner of Bukalapak.
Competition has been heating up, with e-wallets offering discounts to consumers to gain share. The battle has been joined by Shopee’s own ShopeePay, which has jumped into the fray with aggressive discounts, and offers the consumer the option of deferring payment through ShopeePay Later.
In July, Sea revealed more than 45% of Shopee’s gross orders in Indonesia were paid through ShopeePay. Sea reported a combined adjusted EBITDA loss of $415 million in e-commerce and digital financial services in the second quarter, up from a loss of $266 million in the prior year’s second quarter.
Gojek has also locked horns with Singaporean super-app Grab, in a market share battle that might be characterized as mutually self-destructive. According to Crunchbase, Grab has raised more than $1 billion itself, this year. The two decacorns are frequently rumored in the press to be on the verge of a merger of some sort, which could arguably eliminate duplicative costs and help staunch their own cash hemorrhages. Recently, Bloomberg reported that Masayoshi Son, the legendary founder of Softbank Group and the biggest outside investor in Grab is said to favor a merger.
What else should investors know about Indonesia? First, the overall market is a hot, and growing much faster than the world average. Goldman Sachs expects Indonesia’s GDP to dip 1.4% this year and to bounce back to 6.3% and 5% growth in 2021/22, respectively. With high smartphone penetration, a young internet-savvy population, and growing middle class, Indonesia boasts the fourth largest internet user base in the world, some 171 million people, according to Goldman, which ranks Indonesia’s e-commerce vertical’s total addressable market larger than that of Brazil, India or Russia. Indonesia’s overall internet economy was projected to grow over 3-fold, from $40 billion in 2019, to $130 billion by 2025, in the 2019 SEA Internet Economy Report.
Because of the way its market is structured, with a large number of micro-merchant sellers, or warungs, successful players are making headlines and attracting investment by aggressively courting warungs, which account for as much as 70% of fast-moving-consumer-goods transactions, according to investment firm CLSA.
How is e-commerce and financial technology improving lives? For the warungs, typically small stores or kiosks that sell snacks, packaged foods, cooking oil, and other basics like cleaning or school supplies, relationships with e-commerce companies offer better inventory management, better pricing on product, and electronic ledger capability to keep tabs on credit out to borrowers.
For consumers, over 60% of whom are unbanked, fintech provides security, efficiency, and the potential for lower cost loans, as, through their transactions, consumers build a digital credit score. Facebook’s investment this June in Gojek, through its WhatsApp division, as with PayPal’s, is a vote of confidence that this model is working.
Facebook’s investment could pave the way to integrate GoPay into WhatsApp in Indonesia, making it look a bit more like Tencent’s WeChat, which offers WeChat Pay and myriad other services, in China. It also allows Facebook and PayPal to get into e-money in Indonesia, where companies with more than 49% foreign ownership are prohibited from operating as standalones.
It would also mean that the more than 170 million users of Gojek’s services could shop at PayPal’s global network of over 25 million merchants. Gojek says the funds will be used to speed up digital economy inclusion, with a focus on digital payments and financial services, aimed at small and mid-sized enterprises in Southeast Asia.