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Southeast Asia’s potential: Indonesia

Before the COVID-19 pandemic, Southeast Asia was experiencing strong economic growth. While some countries like Indonesia, Malaysia, and the Philippines are still battling the effects of the pandemic and containment measures still persist in these places, the ecommerce space has been booming during that time.

Before the year 2000, the Indonesian retail market was fragmented. As an archipelago with around 18,000 islands, independent local stores were dominating the retail industry. The rise of the internet during the past decade changed the landscape completely, and the competition among ecommerce companies intensified after the Indonesian government fully opened the ecommerce industry to foreign companies in 2016, not requiring them to operate through local partners anymore. As a result, foreign companies like Alibaba, JD.com, Shopee or Lazada entered the market and started competing with local players like Tokopedia and Bukalapak.

Indonesia is now the fastest growing internet economy in Southeast Asia, with ecommerce being the major contributor, accounting for $21 billion in 2019 and more than $30 billion in 2020. The country is even expected to reach 50% of all ecommerce transactions in the SEA region by 2025, accounting for an enormous $82 billion, according to a recent study by Google, Temasek and Bain & Co.

The COVID-19 crisis is fueling that growth and is likely to change consumers’ behaviors for the long run, with overall ecommerce transactions almost doubling during the pandemic and with a 60% increase in intent to spend online, even after the pandemic has ended.

Indonesia is also the most populous country in the Southeast Asia region with 273M inhabitants and with a growing segment of middle-class affluent consumers. The internet penetration rate is still relatively low but is increasing rapidly with more than half of the population now having access to the internet, from just 32% a year ago. Indonesia is also a mobile-first economy with more than half of Indonesians having access to mobile phones and social media, a figure that is expected to grow to almost 100% in 2025.

As 2021 approaches, the potential for online retailers seems tremendous, but focusing on the right payment methods is more important than ever in the country. According to a 2019 JPMorgan report, bank penetration is very low with over half of Indonesians not holding a bank account and around 96% not owning a credit card, making Indonesia the world's second-largest cash-based economy after India.

As a historically cash-based society, many Indonesians still use cash payments, bank transfers and ATM payments for online purchases (ATM payments means that ATM branches of Indonesian banks are used to transfer money from the shopper's bank account to the online merchant's bank account). But interestingly enough, with 4% of Indonesians owning a credit card, this still remains the most popular online payment method in the country, and credit card’s use is still expected to rise. On top of the previously mentioned payment methods, digital wallets’ usage is quickly growing. In fact, digital wallets are now the most popular cashless payment method in Indonesia with companies like GoPay and Ovo becoming more and more popular across the country.

With Indonesia’s rising internet penetration and consumers' changing behaviors, the region will continue to be a breeding ground for ecommerce in the next few years. To capitalise on this, make sure you are prepared with the right plans, payment methods and partners, so you can provide a seamless and reliable ecommerce and checkout experience for your Indonesian customers.

If you want to conquer new markets successfully and find out what we can do together, please contact us on our website, via LinkedIn or email (ecommerce@softline.com).

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