Indonesia’s eCommerce market value stood at US$ 32 billion in gross market value in 2020, growing from US$ 21 billion in 2019. Google, Bain, and Temasek estimate it could grow to US$ 83 billion in 2025.
(Update 17th Jan: Updated with the latest statistics for 2020)
Indonesia’s eCommerce market value stood at US$ 32 billion in gross market value in 2020, growing from US$ 21 billion in 2019. Google, Bain, and Temasek estimate it could grow to US$ 83 billion in 2025. This makes Indonesia the biggest eCommerce market in Southeast Asia as shown by this table compiled from the e-Conomy SEA 2020 report below.1
More Indonesians than ever are shopping online. Wearesocial and Hootsuite’s report mentions that Indonesia has 138.1 million people who have shopped online before.2 But what’s driving this growth?
Drivers of eCommerce growth in Indonesia
Four major factors have driven the eCommerce surge in Southeast Asia’s most populous country:
A growing middle class with high internet and mobile penetration rates - to help people gain an understanding of Indonesia’s economy
Growing numbers of fintech and alternative finance options
eCommerce Tech Investment in Indonesia
1. A Growing Middle Class with Growing Internet Penetration
Indonesia has been noted by multiple organisations to be an economic powerhouse in Southeast Asia, driven by its large population, decreasing poverty and rising middle class. These figures may have changed following the pandemic’s impact on Indonesia, but for now we can use this as a base to understand Indonesia’s eCommerce economy.
According to the Worldbank, “over the past 50 years, Indonesia has sustained an average annual growth rate of 5.6 per cent in GDP, with strong economic growth and substantial decreases in extreme poverty, which as a result enabled the country to achieve a middle-income status.3
The World Bank notes that at least 52 million of the country’s 273 million-strong population are now part of the middle class.4 The Boston Consulting Group puts this number higher at 115 million. They have 2 different types of middle class - emerging middle class (65 million in 2017) and established middle class (26 million). When these two are combined with the affluent class (24 million), they make up 115 million Indonesians in the middle and affluent class (MAC) in 2017. BCG estimates this will hit 222 million middle and affluent class Indonesians by 2030.5
According to Oxford Business Group, 45% of Indonesians are no longer vulnerable to poverty and that household consumption rose 5.5% in 2018, up from 4.9% in 2017. This is reflected in what Wearesocial and Hootsuite reported in 2019 - Indonesians spent 23 per cent more on online consumer goods in 2018 compared to 2017.
Most of the middle-class eCommerce shoppers are located in metropolitan areas like Jakarta Bogor Depok Tangerang Bekasi (Jabodetabek a.k.a Greater Jakarta Region), which have better infrastructure like logistics facilities and internet connectivity, according to Google and Temasek’s 2019 e-conomy report.6
Quite a number of Indonesia’s middle class is spread out, too, with at least 52 cities and regencies (typically rural areas that encompass multiple towns) having more than 500,000 MACs. According to Google and Temasek’s 2019 report, 46% of all searches come from non-metro areas.7 This has been picked up by some of Indonesia’s local eCommerce giants, with the same report mentioning Tokopedia’s intention to ‘go rural’ by signing a memorandum of understanding to develop “digital villages” together with the West Java administration.
It’s not only upper and middle classes shopping online, though. Rising rates of smartphone and internet penetration have given people across different socioeconomic classes access to online shops, marketplaces, social media sellers, and apps.
Indonesia’s internet usage has also grown steadily. In 2020, it was estimated that there were 175.4 million internet users.8 In 2021, it’s estimated that there are currently 202.6 million internet users in Indonesia. Indonesia can be considered mobile first, as nearly all internet users in Indonesia (195.3 million) connect to the internet via their smartphones.9
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2. COVID-19's Influence
With more people taking safe distancing precautions, even more Indonesians shifted to online shopping. Google, Temasek, and Bain’s e-Conomy SEA 2020 report estimates that by the middle of 2020, 37 per cent of all digital service users in Indonesia were new users.10
eCommerce usage across the board increased by 110 per cent during the pandemic in Indonesia. After the initial spike, it stabilised at 70 per cent above pre-pandemic levels in the country. From those surveyed, 93 per cent of these users intend to continue using the services after the pandemic ends.11
These users spent more time during the early parts of the pandemic and were also purchasing more online than before. The average time spent online per day in Indonesia was 3.6 hours before the pandemic, jumped to 4.7 hours during the lockdowns and was still above the pre-pandemic average at 4.3 hours when restrictions began easing.12
With such a large push, the growth in eCommerce usage in Indonesia was enough to keep Indonesia’s internet economy growing despite the decline in online travel sales. The internet economy includes non-physical services, such as travel. Indonesia’s internet economy grew from USD 40 billion in 2019 to USD 44 billion in 2020. Out of the USD 44 billion, USD 32 billion came from Indonesia’s eCommerce sector.13
We’ll provide more details about how COVID-19’s has impacted consumer behaviour in our Indonesia’s online shoppers
3. Increasing use of Digital Payments in Indonesia
While the link between alternate payment methods availability in Indonesia and its effect on eCommerce is not directly clear, knowing about the payments landscape in Indonesia will help you identify which payment methods you should offer to make the most of your expansion into Indonesia’s online shopping market.
Indonesia still has a relatively high unbanked population at 42 per cent, which makes cash a primary payment method for them.14 Driven by the government and the private sector, the usage of eWallets has been rising in Indonesia with Euromonitor’s Digital Consumer Survey 2020 showing that 30 per cent of Indonesian respondents use digital wallets for both in-store and online payments.15
The Asian Banker reports that the value of electronic money transactions reached USD 13.95 billion in 2020, growing by 38.62 per cent from 2019. eCommerce transactions make up 15 percent of this transaction volume.16
Euromonitor mentioned that Indonesia’s government introduced a regulation that allows consumers to top up their digital wallets with cash without the need for a bank account or financial card. Another early 2020 initiative is the launch of a standard single-code QR system (QRIS) as part of the government’s Indonesia Payment Systems Blueprint 2025.17
Similar to the impact USB standardisation had, this simplifies the set-up of mobile payments for merchants and consumers which boosted the use of digital wallets for other payments. Another potential driver for e-wallet uptake in Indonesia is that they offer better rewards than debit card payments.
Currently local eWallet players in Indonesia are dominating the digital payments space, with popular options being OVO, LinkAja, ShopeePay, and Dana among others. More details on Indonesia’s payment landscape will be covered in our Indonesia Online Shoppers piece.
Another rising force in the payments sphere is buy now pay later (BNPL). Buy now pay later allows shoppers to purchase the item while settling the full payment in installments within a few interest-free installments within the agreed time-frame. Owning a credit card is a luxury in Indonesia but the access to smartphones and being able to digitally manage their finances online provides a larger percentage of Indonesians to grab hold of alternative opportunities such as what BNPL offers.18
The agent-to-consumer method is also popular, in which shoppers would pay for purchases via sales agents’ e-wallets, and pay the agents in cash. In 2017, there were around 400,000 of these digital finance agents in the country, serving over 10 million accounts.19 One of the earliest players in this space was Kudo, which Grab acquired in 2017.20
4. Increasing use of Alternate Payments in Indonesia
Indonesia’s tech landscape was also powered by investors looking to ‘blitzscale’ operations in Indonesia, powering multiple players with a spate of major foreign investments into Indonesian platforms in the past years. After Indonesia’s government loosened investment rules in 2016, investors haven’t been shy in making headways into Indonesia.21
While recent years have seen investors look instead for sustainable and profitable growth, the effect of these investments on Indonesia’s eCommerce industry is apparent. Below is a quick summary of investments prior to 2020:
All these investments were being channelled to help out Indonesia’s eCommerce scene. Flushed with cash, Go-Jek, Tokopedia, and Traveloka were able to team up to invest in PasarPolis, an insurtech company.24 This paves the way for partnerships, such as selling insurance plans on eCommerce platforms and providing insurance to SME online sellers.
Since attaining unicorn status (a valuation of at least $1 billion), both Bukalapak and Tokopedia have announced the creation of research and development centres (or ‘innovation centres) for eCommerce.25 & 26 Both aim to support local SMEs and develop capabilities in machine learning and drone delivery, which will shake up the local Indonesian business scene.
Go-Jek, one of Indonesia’s ride-hailing tech giants, launched a marketplace for deal vouchers, and created an interest-free virtual credit card PayLater27 along with its own eWallet GoPay. Producing more alternative payment methods for Indonesians can also help encourage more of them to try out online purchases, which can further fuel Indonesia’s eCommerce growth. This happened before Go-Jek and Tokopedia’s merger.
In 2020, Google, Temasek and Bain noted that tech investors in Southeast Asia are cautiously optimistic. They’re looking out for sustainable growth and profit as opposed to the earlier blitzscaling approach.28
Based on the e-Conomy SEA 2020 report, tech investments in Southeast Asia continued to flourish with the number of transactions increasing by 7 per cent between 2018 and 2019, and by 17 per cent between 2019 and 2020. On the other hand deal value declined since 2018, primarily driven by a slowdown in big-ticket unicorn investments.29
The report continues to state that Transport and Food along with eCommerce sectors received the lion’s share of funding between 2016 and 2019. Both of these sectors are considered mature and are largely consolidated around a handful or late-stage champions, as seen with the GoTo merger described below. Google, Temasek and Bain expect investment focus to shift towards profit levers for an eventual exit.
Ride-hailing giant Go-Jek and Indonesian eCommerce marketplace Tokopedia have merged to form GoTo Group.30 Together, their products span the following services:
Tokopedia, along with its other services
On-demand services such as mobility and logistics and food and groceries
Financial service like Gopay, Paylater and others
While all this is spurs growth of eCommerce in Indonesia, we'll also need to be conscious of factors that could be hindering its potential as well.
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People worry about delivery times, especially for items purchased abroad. But even locally bought products may take a longer time to reach certain parts of the country. Potential shipping delays also need to be handled well.
For instance, to deliver a product from Jakarta to Tanjung Selor in North Kalimantan on the island of Borneo, one needs to first use an aeroplane, then a speedboat.31 And in an archipelago with around 18,000 islands, Tanjung Selor is hardly an exception.
There are still many Indonesian online shoppers who are also wary of fraud and scams from online purchases. They are concerned about not being able to tell a product’s quality before purchasing it, as they can’t touch and test it. They bemoan the inability to return a product it if it falls short of expectations.32
Buyers are also concerned about the security of online payments and delivery reliability. It’s definitely a legitimate concern—a report by JP Morgan in 2019 found that Indonesia still has significant rates of online eCommerce fraud.33
For certain groups of consumers, especially those in Medan and Surabaya, the reason for hesitating to shop online is simply that they don’t know how. This problem is most prevalent both among households earning less than IDR1 million (US$68) a month and those earning more than IDR10 million (US$684) a month, according to Deloitte.34 (Indonesia’s middle-class households are typically described as having monthly incomes of IDR3 million to IDR10 million.)35
What can merchants do about these roadblocks to eCommerce?
To address these problems, eCommerce and fintech players have provided no shortage of digital payment options. Try looking up which options are worth offering for your target audience in Indonesia before offering these as payment options for your own store.
If you're aiming to enter the Indonesian market, you should also seek out an international shipping partner with a wide network across the archipelago. When working with your shipping partner, you'll also need to be transparent about delivery times and product return policies and invest in educating consumers on online shopping.
You can also implement various strategies to prove product quality, such as encouraging customer reviews, producing product videos and demos, and using an online-to-offline approach to allow buyers to see and try out the items in real life.
With Indonesia’s rising middle class, internet penetration, and developments in its tech scene, it’s going to continue being a hotbed for eCommerce action the next few years. To capitalise on this, making sure you have the right plans and the right shipping partners will go a long way in helping you leave your eCommerce mark in the country.