On my first visit to Indonesia nine years ago, I had to pay for my outbound airline ticket using cash (rupiah) at a travel agency because local carriers didn’t accept online payments. In fact, at that time, most cafes wouldn’t accept credit cards and online purchases were non-existent. Fast forward to today, and there are digital wallets accepted everywhere, from airlines to warungs (street-food vendors).
Investors love Southeast Asia because it’s a region where traditional societies are modernizing rapidly. For example, although wireless coverage remains uneven in far-flung rural areas, about half of ASEAN users now have access to 4G networks. Venture funding, once a large concern for the region, has now become a core strength. Last year, ASEAN’s internet companies raised a record $11 billion, according to Cento Ventures’ SEA Tech Investment Report 2018.
As Southeast Asia’s internet economy builds momentum, we have found that the growth in e-commerce has been, and will continue to be, a driving force behind growing consumer trust in the region.
As KrAsia points out, in 2019, e-commerce will play an important role in driving the internet economy. More importantly, the surge in e-commerce is part of a broader transformation, beyond just transacting online, by helping fuel growth in a fragmented cross-border logistics network, allowing offline retailers to list and sell products, creating a secure medium for everyday digital payments and consequently building trust in the region’s internet economy.
The e-commerce industry’s widespread impact is driven by its large scale and fast growth. The numbers are remarkable. The e-conomy SEA report from Google-Temasek, to which our Singapore-based VC firm contributed estimates that the value of goods sold online across six ASEAN countries more than quadrupled from 2015 to 2018. The compounded annual growth rate was a whopping 62%. Last year, the GMV (gross merchandise volume) of e-commerce sales in these countries topped $23 billion. The report projects that by 2025, this number could exceed $100 billion.
The growth in online business has on-the-ground impact. It’s making life in Southeast Asia more connected and convenient while building up the countries’ economic capabilities generally. Here’s a closer look.
Amid local differences, the internet is a unifier
The six ASEAN countries that we’re monitoring are a diverse group. Indonesia, a sprawling island nation, has great potential due to its sheer size (population 269 million), while Singapore (with 5.6 million people) is highly developed but tiny. Vietnam is a socialist republic where market-economy reforms have changed the chief export from rice to electronics. Malaysia, Thailand, and The Philippines differ radically in size, culture, and GDP per capita.
One common feature across the region is the popularity of mobile internet. Internet penetration in the six countries is now well over 50% and growing, and the e-conomy SEA report highlights Southeast Asia’s internet population showing the world’s highest mobile engagement rates. While smartphone owners in Western nations average 1.5 to 2 hours per day of mobile internet time, a typical Thai clocks in at 5 hours. The e-conomy SEA report estimates the Southeast Asian average is 3.6 hours.
Now these people are moving beyond “free” internet uses, like social messaging and visiting no-paywall websites, to uses that involve transactions. Online purchase of goods has grown fastest for several reasons. It gives buyers more choices, especially outside the big cities, where Western-style retail outlets are not plentiful and most stores have only limited selections of fashion items, tools or household gear.
For the many Southeast Asians accustomed to dealing locally, relying on distant, unseen e-commerce sources can be a reach. As I noted in a previous article, local and cross-border logistics services are growing, driven largely by demand for e-commerce deliveries. According to the 2018 e-conomy SEA report, e-commerce has drastically enabled the development of a far-reaching logistics network that builds trust in the internet marketplace.
We have seen almost 3X more deliveries across Southeast Asia in the past three years, with about 800,000 deliveries per day in 2015, to more than 3 million deliveries per day in 2018. The e-commerce network effect is simple–the more Southeast Asian’s purchase goods online, the more efficient cross-border logistics companies become, leading to more trust and ease when purchasing goods on the internet. Seeing neighbors get exactly the goods they ordered provides tangible evidence that online is O.K., and major shopping sites like Indonesia-based Tokopedia, Lazada (now owned by Alibaba), and Shopee score well in that regard.
E-commerce is growing quickly because most vendors accept payment in cash on delivery. This factor is a two-edged sword. On the plus side, it allows sellers to reach customers who don’t have credit cards or won’t use online payment systems. But for the internet economy to flourish fully, online payment must be widely adopted and easy to use, which right now is a challenge.
Meeting challenges and concerns
Southeast Asia’s online payment scene is still weak and fragmented, remaining one of the region’s greatest challenges. The e-conomy SEA research shows that less than one in two internet users in Southeast Asia have adopted digital payment services. Banks and other players have systems that work on some sites but not all. Currently, for example, Tokopedia lists over a dozen forms of payment it will accept in addition to credit cards.
Although many companies have invested in building their own digital payments solutions over the last few years–Go-Jek and Go-Pay, or DBS and PayLah!–e-commerce has created a medium for consolidating the use of online payments, allowing consumers to have an everyday interaction with digital payments and helping build trust in the system.
As a sector, e-commerce can continue to help build confidence in Southeast Asian’s online economy. By creating a backbone for everyday consumer interaction, e-commerce can drive sophisticated logistics networks across the region, provide access to any and every product, and help consumers feel comfortable making digital payments.