2019 J.P. Morgan Global Payment Trends

2019 Global Payments Trends Report - Indonesia Country Insights

INDONESIA INSIGHTS REPORT


Indonesia offers e-commerce players the chance to make gains in a fast-growing, highly dynamic sales arena. High app and social media use, an appetite for mobile commerce and growing personal wealth distinguish this youthful population. To help our clients locate, attract and keep their customers, we have tracked and assessed e-commerce developments in 34 mature and emerging markets around the globe.

Introduction

 

The growth profile for Indonesia in 2019 is expected to be modestly slower than in 2018, slowing to just below five percent year-on-year from 5.2 percent year-on-year in 2018.1 The composition of growth, however, is expected to be more positive than the headline suggests, with a positive momentum from private consumption, reflecting the combination of fiscal transfers, modest inflation and a stable currency, which tends to buoy overall sentiment.2 Driven by the positive macro outlook, Indonesia’s online shopping industry is forecast to expand at an impressive compound annual growth rate of 34.6 percent to 2021.3

This document is based on projected figures and is subject to change at any time.

 

A major growth market boosted by economic gains

 

Indonesia’s business to consumer e-commerce market is worth $13.6 billion.14 While accounting for just 0.6 percent of the country’s overall retail market,15 the online shopping sector has expanded at a prodigious rate, growing by over a third in both 2016 and 2017.16 And with this growth set to continue, the world’s largest archipelago also has the highest e-commerce growth prediction out of all the countries surveyed in our report series.* Indonesia’s online shopping industry is forecast to expand at an impressive compound annual growth rate of 34.6 percent to 2021,17 driven by increasing internet penetration, which currently sits at a lowly 32.3 percent,18 and an ongoing trend of steady gross domestic product growth.19 The scale of this development is clearly also a result of the industry’s immaturity. At present, annual per capita spend is low, standing at $344 a year.20

When Indonesians do shop online, they tend to spend on travel. This is far and away the most popular e-commerce segment, taking a 58.9 percent share of all online sales.21 Local sites Tiket and Traveloka are the major travel platforms.22 Clothing and apparel is the second most-shopped category, taking a 14.6 percent slice of the domestic e-commerce market.23 Local online marketplaces, which allow both brands and individuals to sell products, dominate as the sites generating the most traffic: the top three e-commerce sites by visitor numbers are sales platforms Lazada, Tokopedia and Bukalapak.24 This could change, however, as international merchants begin to target this relatively untapped opportunity. Online retail giants Amazon, Alibaba and JD.com all have plans to expand their presence in the country.25

 

A young, multilingual nation

 

Cross-border shopping is the preserve of a minority of online shoppers in Indonesia – just seven percent have purchased from abroad – but cross-border sales account for 20 percent of the overall e-commerce market, suggesting consumers are seeking higher-value items.26,27 The most popular international e-commerce destination is China, followed by Singapore and Japan.28

Sales growth will also be driven by a youthful population; the average age is just 30.5 years.29 Indeed, half of all Indonesians are aged under 30, and there is a rising middle class.30 The official language is Bahasa Indonesia,31 but there are some 580 languages spoken.32 Highly spoken languages include Javanese, English and Dutch.33 Providing websites that offer language capabilities in the most-spoken languages should help drive sales.

 

A unique delivery challenge for merchants

 

With an estimated 17,508 islands, 6,000 of which are inhabited,34 delivery represents a significant challenge in Indonesia. Parcel delivery services are required to traverse mountainous regions, urban hubs and significant bodies of water. In some rural areas, many streets lack official names, and in urban areas there is often duplication of street names.35 The state-owned national postal service, PT Pos Indonesia, is also battling a lack of modern infrastructure and low consumer postal charges, which its president has claimed are below the cost of the service.36

As e-commerce sales increase, the Indonesian government is turning its attentions to the tax affairs of online marketplace platforms in a bid to recover tax from undeclared sales revenue. As of April 2019, all online marketplace operators must report each seller’s turnover to the Indonesian tax authority.37 The new regulations also stipulate e-commerce merchants that make more than $339,943 in annual turnover must charge VAT to customers and pass this fee on to the government.38

Mobile commerce leads e-commerce sales story

 

Indonesia is a country of smartphone devotees. While penetration is only at 40 percent,39 those that do own mobile devices use them constantly. Shopping on the move is already the primary e-commerce mode in the country, accounting for 52 percent of all completed transactions.40

Indonesia is one of the fastest-growing mobile commerce markets in the world, now worth $7.1 billion,41 a figure that is projected to rise rapidly as smartphone penetration increases. The nation’s mobile commerce market is expected to grow at a compound annual growth rate of 45.2 percent to 2021,42 when sales via this channel will be worth a projected $31.5 billion.43

 

Apps surge ahead in sales

 

Apps are the primary mobile sales channel, taking a 74.8 percent share of the mobile commerce market or $5.3 billion in sales.44,45 YouTube, Facebook and WhatsApp are the most popular social media channels, and, as in other countries, e-commerce merchants are using the power of influencer marketing.46 Social media represents a highly effective way to reach consumers: capital city Jakarta, for instance, has the highest number of active Twitter users in the world.47 Selling via social media sites such as Pinterest and Instagram’s Stories function is a key trend.48 As a result of micro-enterprises selling via social media, social commerce is now estimated to account for 40 percent of all e-commerce sales in the country.49 While these more informal sales platforms, which are dominated by micro-enterprises, may present issues for the country’s tax authorities, they also represent an exciting opportunity for larger merchants to engage with young, technologically advanced Indonesian shoppers.

 

Cards win out, as digital wallets face regulatory delays

 

Cards are the dominant payment method in Indonesia when spending online, taking a 34 percent share of the market.50 This is in spite of low card penetration, which sits at just 0.59 debit cards per capita and 0.07 credit cards per capita.51 Visa® and Mastercard® are both well-recognized and utilized brands,52 and cards will continue to hold the pre-eminent position in the marketplace, growing at a compound annual growth rate of 39 percent to 2021.53

Bank penetration in Indonesia is 48 percent,54 leaving significant room for growth in the debit card market. Despite this low penetration, bank transfers are the second most-used online payment method, accounting for just over a quarter (26 percent) of sales.55 This method is expected to decline slightly to take a 24 percent share of the market by 2021, by which point it will be overtaken by digital wallets.56

Currently the third most-used payment method, digital wallets are rapidly increasing in popularity.57 Aided by rising smartphone penetration, digital wallets are used for one in five of all e-commerce sales.58 Popular brands include PayPal® and domestic brand Go-Pay, the digital wallet arm of a major Indonesian e-commerce success story, the e-commerce app Go-Jek.59,60

Long waiting times have been reported when attempting to obtain the domestic banking license needed to operate a digital wallet business within Indonesia.61 The required regulatory approval is called an ‘electronic-money’ license, which is issued by the Indonesian central bank, Bank Indonesia.62 In addition, all digital wallet providers with more than 300,000 active users (or who plan to have more than this number of users) must seek further approval before starting further payment activities such as issuing and acquiring or creating new products.63 Despite these issues, digital wallets are the fastest-climbing payment method, growing at a compound annual growth rate of 47 percent to 2021, by which point they will be used in 29 percent of all e-commerce transactions.64

Cash still makes up 14 percent of the Indonesian e-commerce payments space,65 likely due to the fact that more than half the population remains unbanked.66 Cash on delivery is a widespread payment option,67 although this method is predicted to decline to take a six percent share of online payments by 2021.68

 

Fraud could be mitigated as new payment methods emerge

 

Significant levels of online fraud have been reported over the past three years in Indonesia,69 but there exists a paucity of data. As payment methods with strong digital security measures, such as cards and digital wallets, grow in use, incidences of fraud should fall.

 

Key takeaways

 

Indonesia is one of the fastest-growing economies in the world, but its rapid development has largely been based on the export of goods such as textiles, automobiles and electrical appliances. The country’s digital economy is now looking to catch up, yet the country presents unique challenges for international brands targeting one of the fastest-growing economies in the world. In addition to being a nation where approximately 580 languages are spoken, Indonesia is made up of about 6,000 inhabited islands – two factors that can make digital sales and product fulfillment challenging.  Cross-border shopping is the preserve of a minority of online shoppers in Indonesia where local online platforms currently draw the most consumer traffic, the most popular of these being Lazada, Tokopedia and Bukalapak.  Despite relatively low card penetration, cards are the preferred method of payment when Indonesian consumers shop online.

 

Data may vary from historical figures, due to certain categories being re-stated as new information sources have become available.

* J.P. Morgan 2019 Payments Trends – Global Insights Report series includes the following countries: Australia, Brazil, Canada, China, Hong Kong, India, Indonesia, Japan, Malaysia, Mexico, New Zealand, Singapore, Thailand, Turkey, U.S., Vietnam.

 

Global Payments Trends Reports

International e-commerce success can hinge upon understanding the needs, nuances and growth patterns of individual nations. J.P. Morgan’s Global Payments Trends Reports aims to offer merchants the knowledge they need for global success through in-depth, country-by-country analysis.

For more information, please contact:

Your J.P. Morgan Relationship Manager or visit: https://www.jpmorgan.com/country/US/en/merchant-services/payment-insights

 

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© 2019 JPMorgan Chase & Co

 

1 Economic Research, J.P. Morgan Chase Bank, March 2019.

2 Economic Research, J.P. Morgan Chase Bank, March 2019.

3 J.P. Morgan 2019 Payments Trends – Global Insights Report: Data has been provided to J.P. Morgan Merchant Services by Edgar, Dunn and Company via ecommerce IQ, Google and TEMASEK report and EDC analysis.

4 J.P. Morgan 2019 Payments Trends – Global Insights Report: Data has been provided to J.P. Morgan Merchant Services by Edgar, Dunn and Company via World Bank, 2017.

5 J.P. Morgan 2019 Payments Trends – Global Insights Report: Data has been provided to J.P. Morgan Merchant Services by Edgar, Dunn and Company via CIA World Fact Book, 2017.

6 World Bank Open Data. ‘Indonesia.’ Accessed March 2019.

7 J.P. Morgan 2019 Payments Trends – Global Insights Report: Data has been provided to J.P. Morgan Merchant Services by Edgar, Dunn and Company via ecommerceIQ.

8 J.P. Morgan 2019 Payments Trends – Global Insights Report: Data has been provided to J.P. Morgan Merchant Services by Edgar, Dunn and Company via EDC Analysis.

9 J.P. Morgan 2019 Payments Trends – Global Insights, Report: Data has been provided to J.P. Morgan Merchant Services by Edgar, Dunn and Company via Tech In Asia/Jakpat report: ‘Indonesia Ecommerce Habi’t 2017.

10 J.P. Morgan 2019 Payments Trends – Global Insights Report: Data has been provided to J.P. Morgan Merchant Services by Edgar, Dunn and Company via World Bank.

11 J.P. Morgan 2019 Payments Trends – Global Insights Report: Data has been provided to J.P. Morgan Merchant Services by Edgar, Dunn and Company via McKinsey report on ‘The Digital Archipelago’, 2017.

12 J.P. Morgan 2019 Payments Trends – Global Insights Report: Data has been provided to J.P. Morgan Merchant Services by Edgar, Dunn and Company via World Bank, 2017.

13 J.P. Morgan 2019 Payments Trends – Global Insights Report: Data has been provided to J.P. Morgan Merchant Services by Edgar, Dunn and Company via BIS.

14 J.P. Morgan 2019 Payments Trends – Global Insights Report: Data has been provided to J.P. Morgan Merchant Services by Edgar, Dunn and Company via ecommerceIQ.

15 J.P. Morgan 2019 Payments Trends – Global Insights Report: Data has been provided to J.P. Morgan Merchant Services by Edgar, Dunn and Company via Google - TEMASEK Report.

16 J.P. Morgan 2019 Payments Trends – Global Insights Report: Data has been provided to J.P. Morgan Merchant Services by Edgar, Dunn and Company via ecommerceIQ.

17 J.P. Morgan 2019 Payments Trends – Global Insights Report: Data has been provided to J.P. Morgan Merchant Services by Edgar, Dunn and Company via ecommerce IQ, Google and TEMASEK report and EDC analysis.

18 J.P. Morgan 2019 Payments Trends – Global Insights Report: Data has been provided to J.P. Morgan Merchant Services by Edgar, Dunn and Company via World Bank, 2017.

19 Wikipedia.org, March 2019. ‘Economy of Indonesia.’ Accessed March 2019.

20 J.P. Morgan 2019 Payments Trends – Global Insights Report: Data has been provided to J.P. Morgan Merchant Services by Edgar, Dunn and Company via EDC Analysis, 2017.

21 J.P. Morgan 2019 Payments Trends – Global Insights Report: Data has been provided to J.P. Morgan Merchant Services by Edgar, Dunn and Company via Statista & EDC analysis.

22 Export.gov, February 2019. ‘Indonesia – eCommerce.’ Accessed March 2019.

23 J.P. Morgan 2019 Payments Trends – Global Insights Report: Data has been provided to J.P. Morgan Merchant Services by Edgar, Dunn and Company via Statista & EDC analysis.

24 Aseanup.com, June 2018. ‘Top 10 e-commerce sites in Indonesia 2018.’ Accessed March 2019.

25 InvestorPlace.com, February 2019. ‘JD.com Stock Set for a Long-Term Boost From Focus on Indonesia.’ Accessed March 2019.

26 J.P. Morgan 2019 Payments Trends – Global Insights Report: Data has been provided to J.P. Morgan Merchant Services by Edgar, Dunn and Company via ecommerceIQ: ‘What are shoppers looking for across borders in SouthEast Asia’ & EDC Analysis, 2017.

27 J.P. Morgan 2019 Payments Trends – Global Insights Report: Data has been provided to J.P. Morgan Merchant Services by Edgar, Dunn and Company via Acapture Cross-Border report, 2017.

28 J.P. Morgan 2019 Payments Trends – Global Insights Report: Data has been provided to J.P. Morgan Merchant Services by Edgar, Dunn and Company via eShopworld, 2017.

29 J.P. Morgan 2019 Payments Trends – Global Insights Report: Data has been provided to J.P. Morgan Merchant Services by Edgar, Dunn and Company via CIA World Fact Book, 2017.

30 Export.gov, February 2019. ‘Indonesia – eCommerce.’ Accessed March 2019.

31 EmbassyofIndonesia.org, 2019. ‘Facts & Figures.’ Accessed March 2019.

32 EmbassyofIndonesia.org, 2019. ‘Facts & Figures.’ Accessed March 2019.

33 EmbassyofIndonesia.org, 2019. ‘Facts & Figures.’ Accessed March 2019.

34 EmbassyofIndonesia.org, 2019. ‘Facts & Figures.’ Accessed March 2019.

35 Economist.com, January 2019. ‘Indonesia binges on e-commerce.’ Accessed March 2019.

36 Bloomberg.com, November 2018. ‘Think Your Postal Service Has Problems? Try Delivering to 18,000 Far-Flung Islands.’ Accessed March 2019.

37 Reuters.com, January 2019. ‘Indonesia cracks down on e-commerce to raise tax collection.’ Accessed March 2019.

38 Reuters.com, January 2019. ‘Indonesia cracks down on e-commerce to raise tax collection.’ Accessed March 2019.

39 J.P. Morgan 2019 Payments Trends – Global Insights Report: Data has been provided to J.P. Morgan Merchant Services by Edgar, Dunn and Company via McKinsey report on ‘The Digital Archipelago’, 2017.

40 J.P. Morgan 2019 Payments Trends – Global Insights Report: Data has been provided to J.P. Morgan Merchant Services by Edgar, Dunn and Company via Tech In Asia/Jakpat report: ‘Indonesia Ecommerce Habits’, 2017.

41 J.P. Morgan 2019 Payments Trends – Global Insights Report: Data has been provided to J.P. Morgan Merchant Services by Edgar, Dunn and Company via EDC Analysis.

42 J.P. Morgan 2019 Payments Trends – Global Insights Report: Data has been provided to J.P. Morgan Merchant Services by Edgar, Dunn and Company via EDC Analysis.

43 J.P. Morgan 2019 Payments Trends – Global Insights Report: Data has been provided to J.P. Morgan Merchant Services by Edgar, Dunn and Company via EDC Analysis.

44 J.P. Morgan 2019 Payments Trends – Global Insights Report: Data has been provided to J.P. Morgan Merchant Services by Edgar, Dunn and Company via Tech In Asia/Jakpat report: ‘Indonesia Ecommerce Habits’ 2017.

45 J.P. Morgan 2019 Payments Trends – Global Insights Report: Data has been provided to J.P. Morgan Merchant Services by Edgar, Dunn and Company via EDC Analysis.

46 Aseanup.com, June 2018. ‘Top 10 e-commerce sites in Indonesia 2018.’ Accessed March 2019.

47 Export.gov, February 2019. ‘Indonesia – eCommerce.’ Accessed March 2019.

48 Bloomberg.com, November 2018. ‘Think Your Postal Service Has Problems? Try Delivering to 18,000 Far-Flung Islands.’ Accessed March 2019.

49 TheAseanPost.com, November 2018. ‘The rise of e-commerce in Indonesia.’ Accessed March 2019.

50 J.P. Morgan 2019 Payments Trends – Global Insights Report: Data has been provided to J.P. Morgan Merchant Services by Edgar, Dunn and Company, 2019.

51 J.P. Morgan 2019 Payments Trends – Global Insights Report: Data has been provided to J.P. Morgan Merchant Services by Edgar, Dunn and Company via BIS.

52 TransferWise.com, July 2018. ‘ATMs in Indonesia: Credit cards and fees.’ Accessed March 2019.

53 J.P. Morgan 2019 Payments Trends – Global Insights Report: Data has been provided to J.P. Morgan Merchant Services by Edgar, Dunn and Company, 2019.

54 J.P. Morgan 2019 Payments Trends – Global Insights Report: Data has been provided to J.P. Morgan Merchant Services by Edgar, Dunn and Company via World Bank, 2017.

55 J.P. Morgan 2019 Payments Trends – Global Insights Report: Data has been provided to J.P. Morgan Merchant Services by Edgar, Dunn and Company, 2019.

56 J.P. Morgan 2019 Payments Trends – Global Insights Report: Data has been provided to J.P. Morgan Merchant Services by Edgar, Dunn and Company, 2019.

57 J.P. Morgan 2019 Payments Trends – Global Insights Report: Data has been provided to J.P. Morgan Merchant Services by Edgar, Dunn and Company, 2019.

58 J.P. Morgan 2019 Payments Trends – Global Insights Report: Data has been provided to J.P. Morgan Merchant Services by Edgar, Dunn and Company, 2019.

59 J.P. Morgan 2019 Payments Trends – Global Insights Report: Data has been provided to J.P. Morgan Merchant Services by Edgar, Dunn and Company, 2019.

60 FintechNews.sg, January 2018. ‘It’s Becoming Increasingly Difficult For Newcomers To Enter The Mobile Wallet Space In Indonesia.’ Accessed March 2019.

61 TechinAsia.com, October 2017. ‘Indonesia’s ‘ewallet freeze’ slows down partnership between Uber and Tokopedia.’ Accessed March 2019.

62 FintechNews.sg, January 2018. ‘It’s Becoming Increasingly Difficult For Newcomers To Enter The Mobile Wallet Space In Indonesia.’ Accessed March 2019.

63 J.P. Morgan 2019 Payments Trends – Global Insights Report: Data has been provided to J.P. Morgan Merchant Services by Edgar, Dunn and Company via White & Case, 2018.

64 J.P. Morgan 2019 Payments Trends – Global Insights Report: Data has been provided to J.P. Morgan Merchant Services by Edgar, Dunn and Company, 2019.

65 J.P. Morgan 2019 Payments Trends – Global Insights Report: Data has been provided to J.P. Morgan Merchant Services by Edgar, Dunn and Company, 2019.

66 J.P. Morgan 2019 Payments Trends – Global Insights Report: Data has been provided to J.P. Morgan Merchant Services by Edgar, Dunn and Company via World Bank, 2017.

67 eMarketer.com, April 2017. ‘Cash on Delivery Still Wins Out Among Digital Shoppers in Indonesia.’ Accessed March 2019.

68 J.P. Morgan 2019 Payments Trends – Global Insights Report: Data has been provided to J.P. Morgan Merchant Services by Edgar, Dunn and Company, 2019.

69 Indonesia-Investments.com, May 2016. ‘Online Scams in Indonesia: 26% of Consumers Become Victim of Fraud.’ Accessed March 2019.

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