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Indonesia’s active internet population is developing extremely fast, currently made up of 83.6 million users and projected to reach 93.4 million by 2015 (source: eMarketer 2013). The demographics are impressive pointing to a young populace with more than 60% of internet visitors below the age of 35. Vela Asia estimated that the Indonesian e-commerce market was valued at $2 billion USD in 2012 and $8 billion USD in 2013. This value is forecast to reach $12 billion USD by the end of 2014 and $18 billion USD by 2015. Indonesia’s e-commerce potential is ranked number one in Southeast Asia (source: Vela Asia), however, despite this large potential, many road blocks are slowing down the industry. The main e-commerce challenges are: gaining customer trust, unclear e-commerce regulations, complicated banking services, low investment in cellular networks, and last but not least underdeveloped and inefficient transport infrastructure.
In 2013, there were 4.6 million e-customers, about 8% of internet users and this contributed only 0.1% of total Indonesian retail. The 2015 projection is 7.4 million online customers, around 10% of the total internet population. The foremost reason for avoiding purchasing on-line is the absence of customer trust (APJII 2012). Some pressing issues are fear of scams (34.6%), inability to see the products (21.5%), and high prices (13.8%). Reliable B2C online commerce companies such as Lazada Indonesia, Rakuten, eBay, Sukamart, Zalora Indonesia, and Groupon Indonesia grasp only 20% of e-commerce whereas social commerce gets 80%, this despite having no guarantee of quality or protection from fraud.
A great example of a successful B2C e-commerce company is Lazada Indonesia who has seen a 20% increase in monthly sales growth (source: e27), now having 400.000 visits per day and is targeting $6 to 7 billion USD in the coming years. E-customers seem to trust more peer-to-peer online social platforms such as Facebook which holds a 50% share, Kaskus with 49.2%, and Toko Bagus with 13.6% (source: Veritrans & Daily Social 2012).
Unclear governmental intentions regarding e-commerce have inevitably postponed investment decisions and definitely do not help boost customer confidence. At this moment there is no agreement either on taxation or on any robust consumer protection regulations. From the start of 2013, the Trade Ministry has changed its rhetoric from a complete taxation on e-commerce to a complete scrapping of VAT for Indonesian based e-commerce businesses.
Efforts to entice and accommodate Indonesian customers have seen the bigger e-retailers offering between 4 and 14 methods of payment. The most popular are bank transfer (70%), Klik BCA (41%), credit card (30%), cash on delivery (24%), and Mandiri Internet (15%) (source: Veritrans & Daily Social 2012). A unique feature to the Indonesian market is that consumers often require a telephone confirmation for their order, adding to the business costs but gaining the desired consumer trust.
The penetration of banking services should provide consumers wider access to e-commerce. But it is important to draw the big picture. Despite the existence of many payment options for the e-bill, only 19.6% of Indonesians had a bank account in 2011, compared to 66% in Malaysia and 72.7% in Thailand. Owners of debit cards in Indonesia are just 11% (source: the World Bank) and only 5% of Indonesians have credit cards (source: AKKI). As a result of the high credit card fees and complicated online bank systems, social commerce-consumers opt more for the traditional methods of payment such as cash on delivery. One of the more popular ways to pay for online purchases is via ATM direct transfer, however, the ATM distribution in the archipelago is undersized.
Another way to do online payments is through mobile phones. In 2014 there were in total 169.7 million mobile owners and for 2015 the projection hits 179 million (source: The Report Indonesia 2014). By 2012, 12.6 million e-wallet users and 50,000 cash out points existed. However, about 95% of the users were unregistered, implicating that most e-wallet balances were below $100 USD.
In reality most e-commerce is done through social platforms making payment tracking and data collection hard, thus e-commerce potentially occupies a large part of Indonesia’s grey economy.
Indonesia is currently the 9th largest smartphone user in the world. It is estimated to reach 57.7 million in 2014 and 71.6 million for 2015 (source: APJII), and expanding to above 100 million by 2017 (source: eMarketer 2013). Smartphones are the most popular device for connecting to the internet (65.7%), followed by desktops (52%), notebooks (45%), and tablets (1.9%) (source: APJII). Regulators and operators, however, are slow to satisfy the speed demands of smartphone users. The e-commerce company Rakuten underlines how expensive home internet hinders the time buyers spend online. Contrary to this, Lazada stressed that most people do e-shopping through their mobile phones, and this coincides with the massive amount of time people spend traveling.
A drawback for the smart phone industry is that cellular networks in Indonesia are jam-packed, and revenue per user is just eight cents per megabyte, among the lowest globally, which has a direct effect on upgrading weak network infrastructure. Smartphone users still experience low download speeds, low quality, and irregular coverage limiting access to internet services. The good news is, mobile broadband penetration is high at 31.9% and expected to be between 40-70% by 2018 and with minimum speeds of 2 Mbps.
One of the major pluses for e-commerce is that anybody, from anywhere, can order anything, never leaving their home. But Indonesia has 6000 inhabited islands spanning 5000 km from west to east. And this island country is served by only 700 ports all suffering from underinvestment. Waiting time in ports is between 6.4 days and 10 days. Of all roads: 8.1% are national, 11.5% are provincial, 80.7% are district roads, and 0.2% are toll roads. Although Indonesia is infamous for its poor infrastructure, e-commerce can reach even the furthest point of the archipelago, of course with a certain additional price and time delay. E-retailers give between two and six days for delivery, and prices vary significantly depending on where the order is going to, as well as the type, size, and weight of a product. The last certainly will push the delivery price up and for regions where wealth is not comparable to that in Java, it will obstruct a large number of customers from pursuing e-retailing.
Indonesian e-retailing has some challenges ahead, but as a new retail channel it should improve ways of doing business. It will challenge current retailer practices and open new doors to SMEs. How it evolves is hard to forecast especially with changing technologies, legislation and consumer habits. New trade agreements such as the ASIAN could see foreign interests reaching more Indonesian consumers very easily and Indonesian businesses expanding to new markets. Based on global trends, businesses that embraced e-retailing saw substantially higher growth, so the question is are e-retailing businesses ready and where do they want to be?
KADIN Indonesia - 2014
Capital: Jakarta
Population: 259 million (2016)
Currency: Indonesian Rupiah
Nominal GDP: $936 billion USD (IMF, 2016)
GDP Per Capita: $3,620 USD at Current Prices (IMF, 2016)
GDP Growth: 5.0% (2016)
External Debt: 36.80% of GDP (BI, Q2 2016)
Ease of Doing Business: 91/190 (WB, 2017)
Corruption Index: 90/176 (TI, 2016)
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