When developing new payments products or initiatives, what your customers and potential customers are thinking should be the underlying foundation for development. - Center for Banking and Financial ServicesSummary -
Part 1 will discuss:
• digital consumption indicators
• the drivers of growth for ecommerce in Indonesia
• how shoppers use social media
• who is the Indonesian online shopper?
Indonesia, the fourth most populous country in the world, consumer base is predicted to rise to 135 million by 2030, making it the third largest consumer base in the world and the seventh largest economy.
Indonesia’s E-Commerce Market Will Grow to $65b by 2020
Online sales of physical goods in Indonesia are projected to increase more than eightfold to $65 billion annually by 2020, a study by global business consultancy McKinsey & Company shows.
The report titled, “The digital archipelago: How online commerce is driving Indonesia’s economic development,” concludes that government support, large numbers of young, digitally savvy consumers and increased participation by micro, small and medium enterprises in e-commerce will drive the digital economy and boost online sales over the next five years.
“We think there will be leapfrog growth for Indonesia’s e-commerce sales in the coming years, which is boosted by the number of internet users,” McKinsey Indonesia president director Philia Wibowo said in Jakarta on Wednesday.
According to the Indonesian Internet Service Providers Association (APJII), there were 143 million internet users in the country last year, with about 44 percent of them using mobile devices to go online.
McKinsey noted that e-tailing, or business conducted online through e-commerce firms such as Blibli, Tokopedia, Bukalapak and Lazada, will likely amount to $40 billion by 2020, while transactions on social media platforms, including Facebook, Instagram, Line, WhatsApp and Blackberry Messenger, may reach anything between $15 billion and $25 billion.
Total e-commerce sales in Indonesia amounted to around $8 billion last year, with $5 billion of that from e-tailing.
McKinsey also noted that 83 percent of internet users are expected to make online purchases by 2020, compared with 74 percent currently.
The business consultancy interviewed 60 experts, ranging from chief executives of publicly listed companies, small and medium business owners, startup owners, former ministers to heads of government agencies, across the archipelago.
The company also surveyed nearly 3,500 people, including 700 online merchants, 500 offline merchants, 2,000 online buyers and 250 dropshippers.
“We conducted this research because we saw that there are rarely surveys out there that offer comprehensive reports on e-commerce. This particular sector has a real impact on the country’s economy,” Philia said.
This is McKinsey Indonesia’s first e-commerce survey.
Social Impact
McKinsey said e-commerce has had a positive impact on job creation and social equity in Indonesia.
As the largest e-commerce market in the region, Indonesia could generate about $20 billion in online sales by 2020, compared with $2.5 billion today.
This projection shows that online sales in the coming years will also come from regions in Indonesia that are currently untapped.
The business consultancy projects that e-commerce will support 26 million jobs both directly and indirectly by 2020, compared with 4 million now.
Meanwhile, buyers can also save money through e-commerce. People living outside Java can expect to pay between 11 percent and 25 percent less for goods online, compared with brick-and-mortar shops.
Buyers living in Java can save between 4 percent and 14 percent, McKinsey said.
The business consultancy said e-commerce can also improve gender parity and financial inclusion.
Challenges
McKinsey noted that there are five key challenges if Indonesia wants to boost its e-commerce sector.
The government should ensure that logistics and infrastructure are reliable. Indonesia still trails behind many other countries in terms of infrastructure development and it ranked in 63rd place among 160 countries globally in 2016, according to the World Bank data.
Online payment systems meanwhile also play an important role in the growth of e-commerce. However, only 49 percent of Indonesians currently have access to financial services, compared with 85 percent in Malaysia and 82 percent in Thailand.
McKinsey said while the internet is key to building a strong digital ecosystem, only around 60 percent, or 36 million small and medium business in Indonesia currently have an online presence. Of those, only about 15 percent have online ordering and payment systems, which shows an urgent need for small business owners to implement reliable technology and payment systems.
Aside from that, McKinsey said Indonesia also faces a technical skills shortage. The country only produces eight science, technology, engineering and mathematics graduates per 1,000 citizens, while China produces 34 and India 20.
Supportive Policies
McKinsey further noted that supportive government policies also play an important part in boosting the country’s digital economy.
Indonesia revised its negative investment list in 2016 to allow 100 percent foreign direct investment in e-commerce, if the investment exceeds Rp 100 billion ($6.8 million).
The government is also committed to improving the country’s infrastructure, prioritizing the building and upgrading of ports and roads to lower logistical costs.
“The focus on infrastructure projects must be continued, especially to improve access to rural areas,” Philia said.
The government further established several agencies to support the digital economy, including the Bank Indonesia Fintech Office last year and the National Creative Economy Agency (Bekraf) in 2015.
Some statistics worth noting to give yourself a check as to why your ecommerce offering isn't being taken up in Indonesia:
The majority of the population is very young - nearly 60% are below 30 years of age, with this age group expected to expand by 2.9 million users a year.
A growing economy, deepening internet penetration, rapid mobile device adoption, increased social media usage and greater spending power by the middle class Push factors for Indonesia’s eCommerce sector ripe for expansion
Indonesia faces challenges with respect to adoption and implementation of new technologies, infrastructure developments and congestion due to rapid urbanization.
The Indonesian consumer is also becoming more discerning, looking for more convenient ways to shop and engage with brands in the online space.
Digital Consumption in Indonesia
Indonesia has the highest percentage of internet users (74.6mn users) vs. other ASEAN countries
Indonesia’s internet user base is slated to have a 20% year-on-year growth until 2016, which will lead to 102.8 million users by then.
This is due to the increasing spending power of the middle class.
Fierce competition between mobile companies is also driving mobile phone and subscription plan prices down, making them affordable for more users.
The number of Indonesian internet users grew steadily from 42.2 million to 74.6 million from 2010 to 2013. (Source: MarkPlus Survey) Netizens who can be defined as users who spend more than 3 hours a day online have also grown during the same period from less than 20% to more than 40%. Almost half of these netizens were under the age of 30 years, while those above the age of 45 years made up 16.7% of netizens in the country. Most netizens access the web via smartphones (86%) and spend between Rp 50,000 (US $5) and Rp 100,000 (US $10) every month for internet access.
Popular Social Media Platforms in Indonesia
Between January to March 2014, Indonesia’s capital, Jakarta, contributed 2.4% of the global total of 10.6 billion Twitter posts, making it the city generating the most tweets in the world.
97% of Indonesian Mobile Consumers visit social networks and 79% doing so least once a day via their smartphones. Source: Google study on Understanding the Mobile Consumer in 2013 Jakarta “social media capital of the world”
The country’s most popular social media platforms are Facebook, Twitter and Google Plus.
In early 2013, Indonesia was ranked first worldwide in terms of growth of account owners for Twitter. As of 2014, it has 69 million active Facebook users, making it the fourth largest user in the world.
It also had 36% of its population on Google Plus and is also the second largest user of mobile messaging app Line as of September 2014, with 30 million active users.
With 26.4% of online transactions occurring on social media platforms in 2014, this high level of social media activity represents a huge opportunity for global and regional brands to engage with their customer base and ultimately drive sales in the social space. Are you driving sales in the social space?
There are an increasing number of accounts on social media being created purely to sell products.
Social media is also a great platform for businesses to address customer concerns in a timely and personal way. An active and engaging online social presence is key for online success in Indonesia.
Who is the Indonesian online shopper?
WHERE’S THE GROWTH IN INDONESIAN ECOMMERCE?
From 4.6 million Indonesians shopping online (2013) to increase to 8.7 million people (2016)
Indonesians are very social people and show strong preference for shopping on social channels.
On messenger groups such as Blackberry Messenger and LINE, consumers find that they can directly converse with retailers.
Social platforms include online forums like Kaskus and Tokobagus, where consumers can share their purchases and product reviews.
In 2012, a single transaction’s average basket size was USD $55, with online shoppers spending an average of USD $256 over the year.
With personal spending levels rising by 10% annually alongside rising internet adoption rates, it is clear that online transactions are growing steadily.
While the number of customers are large, the most successful online sites are selling products with a value of less than Rp 200,000 (USD $20).
Sukamart, an Indonesian online grocery store, says that its average basket size is Rp 300,000 to Rp 500,000 (USD $30 to $50). This compared to the average basket size of USD $94 on asos.com, a popular UK fashion retailer.
Indonesians are risk averse and late adopters of new products and technology, regardless of their social class.
Indonesians prefer Cash on Delivery or Bayar di Tampat payment methods and channels like forums and social networking sites, which allow for interaction with sellers and other customers, so that they can ask questions and receive recommendations before committing to a purchase.
Indonesians shop across multiple categories, the most popular are clothing and apparel (67.1%), shoes (20.2%) and bags (20%)
Females tend to have a higher purchase rate, with the highest spending on clothing, mobile devices, travel, laptops and accessories.
Due to the low home internet penetration, another trend seen is that online shopping is primarily being done during office hours on an employer’s internet.
Retailers see a daily peak in Indonesian online shopping at 11am.
This peak is followed by a second rise in the early afternoon as workers get back online after lunch.
For eCommerce, these are key time periods for targeted promotions and audience engagement.
More than a quarter of Indonesian users spend over 30 hours per week online, which is on par with other Asian countries such as Malaysia and the Philippines but less than Singapore and Vietnam.
What drives growth in online shopping in Indonesia? Driver 1: Rapid growth and increased spending
In 2013, Indonesia’s total GDP was USD $868.3 billion, following an average growth of 5.9% over 2009 to 2013.
Growth is expected to continue at an average of 5.8% until 2020, providing a solid foundation for new investments in the country and increasing the disposable income of the growing middle class.
Online spending is predicted to increase by 40% in 2014 and 53% in 2015.
Majority of Indonesia’s businesses are small and medium businesses, representing 99% of all businesses in operation.
The country’s retail sales amounted to USD $411.29 billion in 2014, of which 0.6% (USD $2.6 billion) are online sales.
Forecasts for 2015 indicate that online sales in Indonesia will reach USD $3.56 billion.
"Consumer companies, like Unilever, can sell soap to 250mn Indonesians because it’s available in 300,000 shops. How much can you earn if you can piggyback off your existing networks? Everybody in Indonesia’s streets is selling things. They don’t have bank accounts, but they do have mobile phones. They need to withdraw and deposit cash with their mobile phones. How much can you earn if you can make this happen?"
- Hendy Setiono, CEO, shares his experience in growing the Baba Rafi as the biggest Kebab franchise globally with over 1000 outlets.
Even though sales through online channels will account for only 0.7% of total retail sales.
Despite the capital city initially being the driver of eCommerce growth, both Rakuten and Zalora say that as of 2014, 70% of their orders come from rural areas.
Indonesia’s second- and third-tier cities are growing fast but many still lack shopping malls, presenting a largely untouched segment and an opportunity for online companies to reach customers looking for more convenient shopping solutions where brick-and-mortar stores are not easily accessible.
What drives growth in online shopping in Indonesia? Driver 2: Increased affordability of mobile devices and mobile internet
The rise in mobile phone ownership is a key factor driving the rise in internet adoption rate. Mobile phone ownership doubled from 12% in March 2012 to 24% in March 2013, with an estimated 71 million mobile phone users in Indonesia by 2015 and 16.2 million tablet users by 2017.
HOW WELL DO YOU KNOW YOUR BANKING CUSTOMERS?
YOU DO NOT NEED ANOTHER 1,050 YEARS TO WIN INDONESIA’S 250MN CUSTOMERS
In the past, banks had taken 350 years to achieve 60 million (customers). Stop time- consuming guesswork by tapping into experts who combine deep knowledge of banking with the discipline of market research, like one of the finest guys from RFi Group, Gerald Ferguson. Gerald will be sharing the insights that have saved banks millions of dollars in implementing payments solutions by providing a ‘crystal clear’ picture of your market opportunity and the necessary marketing strategy needed to realise it. More at www.amgfirst.com
With users spending an average of 181 minutes on their smartphones every day, the most amount of time in the world, there is a huge opportunity for mobile commerce. While fixed broadband internet is currently only in 1.6% of total households, affordable mobile internet plans has allowed a whole generation of internet users to leapfrog desktop technology and move straight to mobile devices. 181 MINUTES
The rise in mobile phone ownership is a key factor driving the rise in internet adoption rate. Mobile phone ownership doubled from 12% in March 2012 to 24% in March 2013, with an estimated 71 million mobile phone users in Indonesia by 2015 and 16.2 million tablet users by 2017. MOBILE PHONE
According to Google’s 2013 survey on mobile consumers, smartphones are emerging as a significant point of purchase amongst Indonesians. SMARTPHONE
95% have researched a product or service on their phone. RESEARCH
62. 57% have made an actual purchase via smartphone, 64% doing so at least once a month. PURCHASE
In 2013, Indonesians spent USD $8.5 million in mobile commerce. In addition to driving up numbers of online purchase, research which starts on smartphones also lead to purchases across channels - 64% of shoppers who start the buying journey on mobile go on to buy via computer and 68% go on to buy in-store. $8.5M MOBILE COMMERCE
What drives growth in online shopping in Indonesia?
Driver 3: Growing middle class with disposable income
Indonesia is also urbanizing at an extremely fast rate with 71% of the total population, or 209 million people, predicted to move to urban areas by 2030. 209 MILLION BY 2030
The overall rise in disposable income will also see an estimated 90 million Indonesians becoming part of the consuming class by 2030. 90 MILLION
According to the Yayasan Indonesia Forum, Indonesia is also on the path to becoming a high income country by 2030 with expectations for high levels of industrialization, more advanced technology and growth in the service sector. These factors, along with the growing sophistication of customers and their openness to other forms of retail, will significantly contribute to even greater ecommerce rates as spending power increases. HIGH INCOME
What drives growth in online shopping in Indonesia? Driver 4: It’s all about convenient delivery.
The expanding middle class has resulted in increasing urbanization and higher levels of car ownership. Indonesia’s car sales reached almost 900,000 units, making it the number one car market in Southeast Asia in 2011. (Wharton Report 2011) CAR OWNERSHIP
While this is indicative of an increasingly wealthy nation, it has also contributed to transport issues. Congestion continues to remain a challenge for the bustling cities of Indonesia. People are continuously looking for more convenient ways to shop. Online shopping has become increasingly popular as shoppers can make their purchases from the comfort of their offices and homes while avoiding traffic. CONGESTION
Part 2 will discuss:
• ecommerce sites that are already making money
• why Indonesian customers hesitate about paying online?
• what solutions that ecommerce businesses can employ to overcome this
• actionable insights going forward
Sources:
- McKinsey 2018
- SP eCommerce
- Bank Mandiri Indonesia Economy Update 2015
- KPMG Mobile Payments
Comments
Post a Comment