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Indonesia e-commerce sector fortified with international partnerships

Indonesia continues to strengthen its e-commerce sector when one of its start-ups earned an investment of US$ 234 million or around IDR 3.4 trillion. This funding round was led by an international tech giant, Singapore’s sovereign wealth fund, and a media conglomerate based in Indonesia.

The Indonesian unicorn said that this partnership marks a deep collaboration with the international tech giant in a series of technology projects that will transform technology-based trading solutions as well as solutions and operations in Indonesia. Through this collaboration, the companies will work together on three initiatives:

The first is to build a strong infrastructure, one of which is for cloud computing. The second is bridging the digital divide, and finally, providing digital skills training for employees and traffickers. The start-up is optimistic that the technology will support the company that is serving each of the six million online Micro, Small and Medium Enterprises (MSMEs) partners and stalls, as well as 100 million customers in the country.

Recently, the unicorn also partnered with a multinational financial arm. This collaboration on the other hand will focus on digital banking services, with banking as a service solution programme. The start-up said that this partnership increases their enthusiasm for realising a fair economy in Indonesia.

There are at least two main focuses of the partnership. First, presenting innovations in the field of financial services and e-commerce. Both will offer a variety of innovative financial services through the start-up’s ecosystem. Second, encouraging financial inclusion in Indonesia.

MSMEs in Indonesia have a very important role in the national economy, where based on data from the Ministry of Cooperatives, it is noted that MSMEs are a sector that contributes 60.34% of national GDP and absorbs 58.18% of total investment in Indonesia. In the COVID-19 pandemic, Indonesia reports that 87.5% of MSMEs were affected by the pandemic. However, 27.6% of MSMEs that run their businesses online increased during the pandemic.

According to reports, Indonesia is a promising e-commerce market in Asia-Pacific, with several local and global players competing in the market. Rising Internet penetration, increasing digitalisation and the proliferation of websites have been driving e-commerce growth. The COVID-19 pandemic has further accelerated e-commerce sales in Indonesia, according to a data and analytics company.

An analysis revealed that e-commerce sales in the country were estimated to grow by 37.4% to reach IDR351.1 trillion (US$25.3bn) in 2020, compared to the pre-COVID-19 estimate of 22.2% for the same year. The figure is expected to rise at a compound annual growth rate (CAGR) of 19.2% between 2020 and 2024, to reach IDR707.6 trillion (US$51.0bn) in 2024.

According to financial experts, online shopping is gradually becoming mainstream in Indonesia with more consumers preferring due to the convenience it offers. This shift became even more prevalent during the COVID-19 pandemic with strict lockdown and social distancing rules being in place.

Also, to push consumer spending during the pandemic, the government collaborated with the Indonesian E-Commerce Association and rolled out programmes for around 2,500 SMEs, providing training on utilising e-commerce platforms for increasing sales.

While traditional payment methods such as bank transfers and cash are still widely used for e-commerce purchases, the use of alternative payments is on the rise. As per reports, for online purchases, utilising online bank transfers is the most popular payment tool with a 30.7% share in 2020. The COVID-19 outbreak is driving customers towards alternative payment tools. As a result, cash share is expected to decline from 98.0% in 2020 to 96.9% in 2024.

As Indonesia continues its digital transformation, the use of electronic payments, including cards and alternative payment solutions for e-commerce purchases, will rise as consumers are moving away from cash due to fear of getting infected with the virus.

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