What's Driving Indonesian eCommerce Growth?

Katrina B. & Benedict L

Update 14th Jan 2020: Indonesia will be revising its de minimis value down to US$3 from an earlier US$ 75 on the 30th January 2020 as confirmed by Indonesia’s Directorate General of Customs and Excise, Ministry of Finance. You can find more details about how this could affect your shipments, at our latest announcement.

(Update 17th Jan: Updated with the latest statistics for 2020)

Indonesia is a burgeoning eCommerce market with great potential in SEA. But what’s driving this growth and are there any potential roadblocks to its growth? What can we do to tackle these roadblocks?

With Indonesia’s eCommerce market standing at US$ 21.0 billion1 in gross market value (GMV) in 2019, Indonesia is currently an eCommerce hotbed in Southeast Asia. This industry is seeing lots of investment and has great potential to continue being one of the biggest eCommerce economies in Southeast Asia. According to McKinsey2, Indonesia’s eCommerce industry is expected to hit US$ 40 billion by 2022, a nearly four-fold increase.

More Indonesians than ever are shopping online. Wearesocial and Hootsuite’s3 report mentions that 90 per cent of all of Indonesia’s 152 million internet users have purchased online before. But what’s driving this growth?

Drivers of eCommerce growth in Indonesia

Infographic showing Indonesian eCommerce statistics and drivers of Indonesia's eCommerce growth - large middle-class and affluent class, mobile-first economy and new payment methods like e-wallets appearing in Indonesia

Four major factors have driven the eCommerce surge in Southeast Asia’s most populous country:

  • A growing middle class

  • High internet and mobile penetration rates

  • Growing numbers of fintech and alternative finance options

  • eCommerce Tech Investment in Indonesia

1. A growing middle class

The World Bank notes that at least 52 million4 of the country’s 265 million-strong population are now part of the middle class. The Boston Consulting Group puts this number higher, at 88 million5 in 2014—counting middle-class and affluent consumers (MACs)—and predicts that this group will exceed 140 million by 2020. Boston Consulting Group6had a recent update for this in November 2018. They have 2 different types of middle class – emerging middle class (65 million in 2017) and established middle class (26 million). When these two are combined with the affluent class (24 million), they make up 115 million Indonesians in the middle and affluent class (MAC) in 2017. BCG estimates this will hit 222 million middle and affluent class Indonesians by 2030.

According to Oxford Business Group7, 45% of Indonesians are no longer vulnerable to poverty and that household consumption rose 5.5% in 2018, up from 4.9% the year before. This is reflected in what Wearesocial and Hootsuite8 reported – Indonesians spent 23 per cent more on online consumer goods in 2018 compared to 2017.

Most of the middle-class eCommerce shoppers are located in metropolitan areas like Jakarta Bogor Depok Tangerang Bekasi (Jabodetabek), which have better infrastructure like logistics facilities and internet connectivity, according to Google and Temasek’s 2019 e-conomy report1.

Quite a number of Indonesia’s middle class is spread out too, with at least 52 cities and regencies (typically rural areas that encompass multiple towns) having more than 500,000 MACs. According to Google and Temasek’s 2019 report, 46% of all searches come from Non-metro areas. This has been picked up by some of Indonesia’s eCommerce giants, with the same report mentioning Tokopedia’s intention to ‘go rural’ by signing a memorandum of understanding to develop “digital villages” together with the West Java administration. To get a deeper look at Indonesian online shopping behaviour, be sure to check out our Indonesia eCommerce guide.

 

Interested in expanding your eCommerce business to Indonesia? Janio has end-to-end logistics solutions to help ship your cross-border eCommerce products into Indonesia without a hitch. Talk to us more below to find out more!

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2. High internet and mobile penetration rates

It’s not only upper and middle classes shopping online, though. Rising rates of smartphone and internet penetration have given people across different socioeconomic classes access to online shops, marketplaces, social media sellers, and apps.

Half of Indonesia’s population are active internet and social media users, according to data compiled by Hootsuite8. Almost all of them—around 120 million people—are active mobile social users, too. Statista estimates that in 2020 Indonesia will have 81.8 million smartphone users and forecasts it to grow to 89.8 million users by 20229.

Interested in Indonesian eCommerce? Check out how we help a health and beauty eCommerce business bring its Australian products into Indonesia!

3. Growing numbers of fintech and alternative finance options

For their part, eCommerce platforms, fintech companies, and banks have worked together to address one of the biggest hurdles to online consumption: payment methods.

In a Google July 2018 report10, 66 per cent of Indonesians are unbanked. To fill this gap, e-wallets and other fintech services have sprung up. Go-Jek11—a super app that lets users book an array of services from rides to massages, as well as request riders to purchase and deliver food and other products—launched its own mobile wallet, GoPay, in 2016. Currently, e-wallets are beginning to gain traction in Indonesia and are being picked up by online retailers12, such as OVO’s e-wallet with marketplaces like Tokopedia.

The agent-to-consumer method is also popular, in which shoppers would pay for purchases via sales agents’ e-wallets, and pay the agents in cash. In 2017, there were around 400,00013 of these digital finance agents in the country, serving over 10 million accounts. One of the earliest players in this space was Kudo, which Grab acquired14 in 2017.

Alternative finance is flourishing in Indonesia. One example is Kredivo, founded in 2016, which offers an online credit card that requires only the person’s mobile phone number. It allows buyers to pay in installments either online or offline. Kredivo reportedly has partnerships15 with around 200 online merchants, including major players Lazada, Bhinneka16 , Blibli17 , and Bukalapak.

Indonesia is seeing a surge in new e-wallet options, which include brands like Go-Jek’s Gopay, Mandiri e-wallet, Tcash and OVO (which has partnered with Grab), among many others.

4. eCommerce Tech Investments in Indonesia

eCommerce players in Southeast Asia can’t have missed the spate of major foreign investments into Indonesian platforms in the past years. After Indonesia’s government loosened investment rules18in 2016, investors haven’t been shy in making headways into Indonesia.

Traveloka received US$ 350 million in investment from Expedia19 to achieve this status. For Tokopedia, Alibaba made a $1.1 billion investment20 which made the former a unicorn in August 2017.

All these investments are being channeled to help out Indonesia’s eCommerce scene. Flushed with cash, Go-Jek, Tokopedia, and Traveloka were able to team up21 to invest in PasarPolis, an insurtech company. This paves the way for partnerships, such as selling insurance plans on eCommerce platforms and providing insurance to SME online sellers.

Since attaining unicorn status (a valuation of at least $1 billion), both Bukalapak and Tokopedia have announced the creation of research and development centres22 (or ‘innovation centres) for eCommerce. Both aim to support local SMEs and develop capabilities in machine learning and drone delivery, which will shake up the local Indonesian business scene.

Go-Jek has also been busy, launching a marketplace for deal vouchers23, and creating an interest-free virtual credit card24. Producing more alternative payment methods for Indonesians can also help encourage more of them to try out online purchases, which can further fuel Indonesia’s eCommerce growth.

While all this is spurs growth of eCommerce in Indonesia, we’ll also need to be conscious of factors that could be hindering its potential as well.

Thinking about expanding your online store to Indonesia? Get the latest tips and tricks in our latest Indonesian e-book, now updated with Ramadan-related info!

2020 Guide to Entering Indonesia’s eCommerce Market

Roadblocks to eCommerce uptake

Of course, it’s not all roses without thorns for this market. The average annual online purchase value3 is IDR1.2 million (US$89) and is expected to stay low with the entry of more consumers across different socioeconomic classes. People worry about delivery times, especially for items purchased abroad. But even locally bought products may take a longer time to reach certain parts of the country. Potential shipping delays also need to be handled well.

For instance, to deliver a product from Jakarta to Tanjung Selor in North Kalimantan25 on the island of Borneo, one needs to first use an aeroplane, then a speedboat. And in an archipelago with around 18,000 islands, Tanjung Selor is hardly an exception.

There are still many Indonesian online shoppers are also wary of fraud and scams from online purchases. As they can’t test the product’s quality before a purchase, many Indonesians rely on online reviews26 or reviews from friends or family. They bemoan the inability to return a product27 it if it falls short of expectations.

Buyers are also concerned about the security of online payments and eCommerce delivery reliability. It’s definitely a legitimate concern—a report by JP Morgan28 in 2019 found that Indonesia still has significant rates of online eCommerce fraud.

For other consumers, especially those in Medan and Surabaya, the reason for hesitating to shop online is simply that they don’t know how.

This problem is most prevalent both among households earning less than IDR1 million (US$68) a month and those earning more than IDR10 million (US$684) a month, according to Deloitte30. (Indonesia’s middle-class households are typically described25 as having monthly incomes of IDR3 million to IDR10 million.)

These problems aren’t without solutions however, there are eCommerce companies that are doing tackling bigger issues and also some steps you can take to handle these as well.

What can merchants do about these roadblocks to eCommerce?

To address these problems, some of the local eCommerce players are either developing their own payments platforms or partnering with or acquiring fintech companies. For instance, Ralali developed its own e-wallet31, various digital platforms33 offer integration with eCommerce sites, and Go-Jek bought at least three fintech firms33.

If you’re aiming to enter the Indonesian market, you should also seek out an international shipping partner with a wide network across the archipelago. When working with your shipping partner, you’ll also need to be transparent about delivery times and product return policies and invest in educating consumers on online shopping.

You can also implement various strategies to prove product quality, such as encouraging customer reviews, producing product videos and demos, and using an online-to-offline approach to allow buyers to see and try out the items in real life.

With Indonesia’s rising middle class, internet penetration, and developments in its tech scene, it’s going to continue being a hotbed for eCommerce action the next few years. To capitalise on this, making sure you have the right plans and the right shipping partners will go a long way in helping you leave your eCommerce mark in the country.

Interested in Indonesian eCommerce? Check out how we help a health and beauty eCommerce business bring its Australian products into Indonesia!

If you’d like to find out more about how we can solve your SEA eCommerce cross-border delivery needs, come and have a conversation with us.

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Interested in eCommerce in Indonesia? Find out more about Indonesian eCommerce scene here:

 

References:

  1. Temasek: Google, Temasek, Bain & Company e-Conomy SEA 2019 Report
  2. McKinsey: The Digital Archipelago – How online ecommerce is driving Indonesia eCommerce
  3. We Are Social: 2019 eCommerce in Indonesia
  4. World Bank: Indonesia’s middle class vital for the country’s future
  5. BCG: Consumer Durables – Capitalizing on a Growing Population of Shoppers
  6. Consultancy Asia: BCG report highlights the growing upper wealth classes of ASEAN
  7. Oxford Business Group: Indonesia’s growing middle class boosts consumer spending
  8. We Are Social: Digital in Southeast Asia 2018
  9. Statista: Smartphone users in Indonesia 2011-2022
  10. Think With Google: The race to reach 180M unbanked Indonesians
  11. Go Jek
  12. Finch Capital: Indonesia’s e-wallet race is heating up. Here are the main players
  13. Helix Institute: Indonesia emerging agent
  14. Business World: Grab acquires Kudo
  15. Marketing Interactive: Indonesia-based FinAccel bags US$30m in funding for Kredivo
  16. Bhinneka
  17. Blibli
  18. Reuters: Indonesia eases foreign ownership rules for retail, port sectors
  19. Tech Crunch: Expedia invests $350M in Traveloke to create Southeast Asia’s newest unicorn
  20. Oddup: Tokopedia joins Indonesia’s unicorn list as it secures $1.1B funding from Alibaba
  21. Tech Crunch: Three Indonesian tech unicorns unite to back digital insurance startup
  22. e27: Tokopedia to build e-commerce innovation centre
  23. Daily Social ID: Go-Jek Launches “Go-Deals” Marketplace Vouchers
  24. e27: Meet PayLater, an interest-free ‘virtual credit card’ service by Go-Jek
  25. The Jakarta Post: Logistics service providers gear up for e-commerce boom
  26. Jakpat: Online Product Reviews and Purchasing Decision – Survey Report
  27. CCCS: eCommerce 2017 Handbook
  28. JP Morgan: Indonesia merchant services
  29. Deloitte: Embracing bricks and clicks in Indonesia
  30. Nikkei Asian Review: Indonesians splurge when monthly income passes $375
  31. Digital News Asia: Ralili.com launches e-wallet
  32. Financial Time: Tech groups jostle for advantage in Indonesian digital payments
  33. Tech in Asia: Go-Jek buys 3 fintech firms to conquer Indonesia payments
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