JAKARTA (TheInsiderStories) – The coming e-commerce market in Indonesia has become a strong temptation for any business player. With more than US$5.3 billion in turnover envisioned, the online shopping market is projected to reach US$130 billion by 2020. A number of acquisitions by big investors – both foreign players and hungry local conglomerates – reveals how they smell blood, particularly in an era when retail seems to be in a lingering coma.
Some know nothing about the internet but just see big share booms with mergers and acquisitions (M&As) as a quick return on their investment. Once they begin to grow, conglomerates launch new funds and perform IPOs to invest Other People’s Money into fresh startups, some quite dodgy, as unlimited optimism. cycles through the ecommerce business.
In the last decade, many fledgling startup companies have disappeared, eaten up by the big fish swimming into the ecommerce business landscape. We could name many players, including Media business conglomerate-Emtek Group, that owned bobobobo.com, PropertyGuru Pte. Ltd, Bridestory Pte. Ltd., Hijup.com, Kudo – including further investment in Bukalapak.com.
Also Venturra Capital, the re-incarnation of Lippo Digital Ventures, the heavily-bleeding startup (remember mataharimall?) that once owned Sociolla and Ruangguru as well as Malaysian transportation online Grab. In addition, tobacco money is escaping a dying industry: Djarum conglomerate GDP Capital owns blibli and tiket.com.
Having made and lost numerous fortunes over the years (including nearly $200 million playing swaps & derivatives) Salim Group purchased Elevenia from telecommunication operator PT XL Axiatama, which has itself been handed around from owner to owner.
Completing local conglomerates, Alibaba Groups Ma also joined in and invested in Tokopedia, as well as Lazada, integrating a payment gateway (Alipay and Doku) and backed up by logistic operator China Smart. Alibaba has built infrastructure fulfilled by Lazada – a 60,000 SQM warehouse in Cimanggis, West Java. Alibaba contender Tencent, moving in from gigantic enterprise in China, also owns ecommerce hopefuls such as Shopee, JD, as well as traveloka.
Tencent, through Jd, has injected more capital in transportation-based startup Go-jek and is eyeing Gojek payment infrastructure Go-PAY, the largest e-wallet in Indonesia. JD started building their distribution Center warehouse in Jakarta.
Many issues, including lack of funding, little experience, IT snafus and infrastructure network glitches have dragged local startups down; one by one they were taken over by fat conglomerates, or they burned through startup money and had to shut down because of lack of operating capital.
President Director XL Axiata Dian Siswarini admitted that since big players entered the Indonesia e-commerce Industry, namely, Alibaba, they have already considered withdrawing from the business.
“Many new big players coming in have tightened competition, and there is less certainty about profitability” she recently complained. According to her, a company needs to invest a huge capital base, similar to what Alibaba did with Tokopedia and Lazada in order to compete more successfully in the industry.
Meanwhile, Jack Ma shared comments during a recent meeting in Beijing with the current Indonesian Coordinating Minister for Economic Affairs, Darmin Nasution, and Minister of Communications and Informatics, Rudiantara. He identified inadequate logistics infrastructure as the key challenge impeding the growth of the ecommerce industry in Indonesia.
According to him, Indonesians live across more than 17,000 islands, so putting in place a comprehensive logistics network is a key challenge faced by the country’s ecommerce industry. To overcome this, two basic infrastructure issues need to be resolved with regard to the information network and logistics network.
In accordance with that statement, a 2016 World Bank report also stated poor logistics infrastructure is one of the primary issues stunting the growth of the Indonesian ecommerce sector. It states, “It is cheaper to ship a container of Chinese mandarin oranges from Shanghai to Jakarta than to send similar freight from Jakarta to Padang in West Sumatra, even though the distance between the two Indonesian cities is one sixth of the distance between Jakarta and Shanghai,” the report said.
Minister of Communications and Information Rudiantara has affirmed that in a recent e-commerce roadmap, government support for startups will grow. Government will raise fund until US$1 billion to create 1,000 new startups. He hopes to raise all the funds sometime within this year, and that he’s already received several “pledges” from major local players. While financial pledges and actual investments are two very different things, Rudiantara remains optimistic. Based on last decade experience, conglomerates tend to control startups ownership, not merely help them to grow together.
“I’ve just started, and I’ve already approached some conglomerates, but there will be more information to come on that later,” said the minister. Rudiantara made it clear that the funds raised would not just go toward Indonesia’s ecommerce startups, despite the sector’s vibrant growth in the archipelago.
Meanwhile, Indonesia’s regulations for IT-based lending services introduced in December 2016 stipulate that P2P providers cannot engage in balance sheet lending. Since then, Indonesia Financial Services Authority (FSA) has awarded permits to a total of16 fintechs thus far.
Of these, eight companies have had loans of Rp1 trillion in total disbursed. Regulators want to drive fintechs to reach border customers as well. In addition, there are 44 companies that are already in the process of applying for permits, while 35 other fintech companies have expressed interest in applying.
FSA also will issue regulation borrowing contracts and risk management for failure of pay debts for application-based technology companies in financial services (financial technology / fintech) to be clarified through a Circular Letter (SE). It will concentrate on fintech peer-to-peer lending (P2P) or fintech-to-service borrowing, Hendrikus Passagi, Director of Fintech Licensing and Supervision, explained recently. It aims to bridge funding for startups.
Other than that, regulations will also face of ‘know your customer (KYC) fintech mechanisms. According to him, KYC used by fintech must rely on the same technologies in their business as they do at present. “We want to encourage fintechs KYC to use applications,” he stressed.
The application uses features including digital signatures, facial scans, fingerprints, biometrics and videoconferencing. This feature will meet the public requirement for KYC needs. FSA hopes this regulation will be issued by the end of this year, anticipating fintech business that has been growing rapidly.
The Financial Services Authority (OJK) is becoming more serious in regulating the business of financial technology (fintech). After asking the fintech company to register, OJK will issue a Circular Letter (SE) regarding the guidance of fintech loan contract borrowing.
Fintech OJK Licensing and Oversight Management Director Hendrikus Passagi explained that the circular will govern loan and lending contracts in case of debt default. “In the lending and borrowing procedures will be arranged in detail the contract sound and how to handle the risks,” he said.
OJK will also set the mechanism of know your costumer (KYC) fintech. According to Hendrikus, KYC that will be used fintech must use technology such as the current business domain. “OJK wants to encourage KYC fintech to use the application,” he said, Tuesday (8/28).
These applications include digital signatures, face scans, finger prints, biometrics and video conferencing. This method, according to Hendrikus, is able to replace the KYC that has been required.
OJK hopes this circular will be issued no sooner than in the next year. “We are still looking for the right time, but certainly soon,” said Hendrikus. Especially now, the fintech business is growing quite rapidly.
OJK has given 16 fintech permission. Eight companies have disbursed financing of Rp 1 trillion. “For us the value of financing is not important, the most important is the reach of fintech in the distribution of financing,” said Hendrikus.
In addition, there are 44 companies that have registered but still not completed the verification process. Meanwhile, as many as 35 other fintech companies have submitted a letter that contains their interest to register.
Writing by Yosi Winosa