The increasing popularity of e-commerce in Indonesia has changed people’s lifestyles, including the payment system they use. Some 76 percent of consumers have used non-cash systems for e-commerce transactions, opening up opportunities for technology-based financial services (financial technology/fintech) firms to increase their business and market range.
Based on a survey conducted by Katadata Insight Center (KIC) of 20,000 respondents in 34 provinces on 27 August-9 September 2018, some 76.08 percent of respondents have used non-cash payments for online shopping. Payment through ATM transfers dominated at 31 percent.
Mobile banking was the second most popular type of payment with 19.1 percent, followed by Internet banking (13.3 percent), through virtual accounts (11.03 percent), while digital payment or fintech was only 1.66 percent.
For cash payment for e-commerce transactions, payment points in the form of franchise outlets such as Alfamart and Indomaret were used by 14.62 percent of respondents. “Cash on delivery [COD] reached 9.3 percent,” said Jamilatuz Zahro, Katadata Senior Data Analyst in a report entitled Indonesia E-Commerce Mapping 2018, published on 18 September.
Based on the KIC survey, some 35.36 percent of e-commerce consumers spent Rp 100,000- Rp 500,000 per month, 23.22 percent spent Rp 500,000-Rp 1 million per month, and 18.2 percent spent Rp 1 million-Rp 3 million per month.
Some 12 percent of respondents have made transactions with a nominal value below Rp 100,000, while 11 percent shop above Rp 3 million per month.
In comparison, a 2016 survey from Daily Social shows the payments used for e-commerce transactions through bank transfer or ATM was 49.01 percent. Other payment methods through mobile banking were 0.4 percent, Internet banking (21.43 percent), virtual account (1.79 percent), and digital payment (0.6 percent). Some 26.77 percent was by cash payment through franchise networks and COD systems.
The high number of non-cash payment users reflects high consumer confidence in e-commerce companies. Consumers believe the goods to be purchased on online shopping sites match the images displayed. If consumers are not sure, they prefer to pay cash when they receive the goods (COD system).
The use of non-cash payment systems also reflects consumer behaviour favouring practicality and transaction speed.
Referring to the research, the dominance of banks in the payment of consumer e-commerce transactions shows Indonesians still depend on conventional payment. Fintech companies need more time and more attractive products so people can gradually give up their dependence on conventional payment systems.
Go-Pay, a subsidiary of Go-Jek Indonesia, is expanding its use in the Go-Jek ecosystem and extending its payment in offline and online stores. For e-commerce transactions, Go-Pay collaborates with Adidas, The Body Shop, Sociolla, Hijup, Cotton Ink, Rollover Reaction, By Lizzy Parra (BLP), Sayur Box, Loket.com, Naked Press, and Panorama Tours.
PT Cashlez Worldwide Indonesia (Cashlez) is partnering with banks and e-commerce companies to expand its services. Cashlez Link services can be used to shop at Blanja.com, Blibli.com, Elevenia, MatahariMall.com, Tokopedia, Bukalapak, Shopee, and Ralali.com. Its banking and switching partners are PT Bank Mandiri Tbk, PT Bank Negara Indonesia Tbk, Maybank, JCB, Mastercard, and Visa.
Cashlez Founder and CEO Teddy Setiawan said the payment methods of mobile point of sale (mPOS) and Cashlez Link are expected to increase non-cash transactions by 300 percent as the shopping process becomes easier and more practical. “Cashlez’ vision for a cashless society is to create a frictionless payment app that can encourage people to switch from cash payments to electronic,” Teddy said in a press release on the Cashlez website.
PT Nusa Satu Inti Artha, organizer of the DOKU electronic wallet service, has recently teamed up with Bank Danamon to expand its services. DOKU helps Danamon provide the D-Wallet electronic wallet platform, targeting 1 million users.
DOKU CEO Thong Sennelius said electronic wallet services can be used for e-commerce transactions in Lazada, AliExpress, and to buy airplane tickets from Air Asia and Citilink.
Digital Payment Ecosystem
IDC Financial Insights Senior Research Manager Handojo Triyanto said the partnership between fintech payment systems and banks would rise. It aims at interoperability or expanding the use of electronic payment systems provided by fintech firms.
“This phenomenon is already visible, especially in the field of payment, as speed dominates the essential market for payment systems,” Handojo said.
Banks utilize fintech to follow changes in consumer behaviour with lifestyles that are increasingly tied to devices (gadgets). Fintech firms also benefit from being able to expand their consumer base and save investment funds by utilising banking networks.
McKinsey’s The Digital Archipelago report also mentions Internet penetration and the enthusiasm of the Indonesian people in using digital technology to drive e-commerce growth. The online trade market in Indonesia is predicted to grow significantly to US$ 65 billion in 2022, with around 30 percent triggered by consumption.
The success of this online trading ecosystem development requires improvement in five factors. First, reliable infrastructure and logistics. Second, payment systems that are more secure, unlimited and scalable. Third, a digital trading ecosystem that involves micro, small and medium-sized enterprises (MSMEs). Fourth, strong human resources. Fifth, a healthy investment climate.
“The adoption of online payment systems and security is a requirement for the growing online trade market,” McKinsey wrote. At this moment, only 49 percent of Indonesia's population has access to financial services, below the penetration of financial services in Malaysia (85 percent) and Thailand (82 percent).
This shows a large growth opportunity for non-cash payment systems. However, cyber security is also a factor that must be taken seriously so as not to become a disincentive for future e-commerce transactions.