Indonesia is the world’s largest archipelago, spreading across the equator for 5000 km. With a population of approximately 240 million people, Indonesia is the world’s 4th most populous country. Considering the country and population size, Indonesia’s opportunity and challenges are evenly matched for ecommerce growth.
Indonesia Ecommerce Landscape
Ecommerce is still rapidly growing in Indonesia. While some were a bit reluctant in the beginning, there are more consumers buying online now compared to several years ago. People are starting to trust more in the online world and understand the benefit of shopping online, especially convenience.
In 2011-2012, Facebook and Kaskus were still the champions of ecommerce in Indonesia. Kaskus – Indonesia’s largest online forum – was already on 5 million registered users and 22 million monthly visitor in 2012 (www.techinasia.com/kaskus-new-apps-figures/). There were a lot of C2C (Consumer-to-Consumer) transactions that occurred within the forum. The same also can be said with Facebook, where sellers use their contact list in order to promote their products.
The reason why Kaskus and Facebook had the largest ecommerce transaction size was because back then ecommerce was dominated by C2C sellers. This also explains the trust issue where general public is reluctant to buy online, especially from platforms such as forums and social networking websites.
Post 2012, Indonesia has seen a growth in B2C (Business-to-Consumer) ecommerce merchants. Large corporations such as retail marketplaces or food chains are becoming more present while the public becomes more aware of their existence. Their corporation statuses also help their credibility when selling goods and services online, which in turn generates more trust in public to shop online.
With that, it is expected that there will be a shift from C2C merchant dominated ecommerce market to a B2C dominated one.
Payment Method Landscape
When Kaskus and Facebook were still the dominant ecommerce players in Indonesia, there was only one winner for the payment method – Bank Transfer. The nature of the merchants, which were mostly individual sellers, made it difficult for banks or PSP’s to acquire these merchants and to have them accept credit card as a payment method. The rise of B2C merchants has provided opportunities for other payment methods such as credit/debit cards, internet banking, e-wallets, to gain more market share in the ecommerce space.
Bank Transfer
Surprisingly enough, bank transfer has the most ‘friction’ for an ecommerce payment method, yet it was (and still is) the most popular payment method for online transactions. Information attained for large online marketplaces has indicated that typically there’s about 30% to 40% drop-out rate when a consumer says that he would pay by bank transfer.
However, the behaviour of bank transfer payment is different on smaller merchants, especially SME’s or ‘mom and pop’ shops. Bank transfer success rate is much higher over there. According to a mentor of TDA (Tangan Di Atas – one of Indonesia’s largest SME Community), these smaller merchants normally need payments fast and they normally ask consumer to transfer their payment within several hours after confirming their order. This is different with large online retail merchants, where they typically ask consumer to transfer their payment within 48 hours after they confirm their order.
Another key factor is informing the consumer of the merchant’s bank account details. Large online retail merchants normally send emails to consumers confirming their order along with the bank account details. Smaller merchants do it low tech – they send SMS instead (using SMS service providers) for order confirmation and bank account details. They argued that it is easier to read an SMS than opening an e-mail on a mobile phone.
Card Payments
Credit card’s popularity as an online payment method has increased with more large corporations entering the ecommerce space. Acquiring banks in Indonesia are still fairly new to ecommerce, hence a strict KYC process followed for merchants.
Initially, debit cards (both Visa and MasterCard) were blocked by issuing banks from transacting online. Banks argued that ecommerce possess too big of a risk for consumer fraud. However, with an increase of security measures such as 3D-Secure, some issuing banks are starting to open up their debit cards to be used for online transactions.
Opening debit cards for online payment is a good step forward since younger generations are the ones more likely to do an online transaction and usually they do not have credit cards yet. Debit cards in Indonesia are usually combined with ATM cards so practically if someone has a bank account and a card, then he can use that card to purchase online (as long as the Visa/MasterCard logo is present).
About the author
Budi Gandasoebrata is currently the Director and VP of Operations at Veritrans Indonesia. As part of the founding team member at Veritrans, Budi played an active role in establishing the day-to-day procedure within the company, as well as getting the infrastructure in place. Before Veritrans, Budi worked in the R&D Departments of Philips Semiconductor, NXP and ST-Ericsson in the Netherlands and Singapore.
Company description
PT. Midtrans is the operating company for Veritrans Indonesia (www.veritrans.co.id), an online payment gateway for the Indonesian market. Veritrans strives to simplify the whole process by providing a single point of integration for Credit Cards, Mandiri ClickPay, CIMB Clicks, BCA KlikPay, BRI ePay, XL Tunai, and T-Cash. Veritrans works with a majority of the largest banks in Indonesia. Current customers include Blitz Megaplex, Rakuten Indonesia, BerryBenka, and many other leading Indonesian eCommerce companies. The company is a joint venture between Midplaza Holdings, netprice, and Veritrans Japan (subsidiary of Digital Garage).
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