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Indonesia to Create Biggest Local Tech Group in SEA

An Indonesian ride-hailing and payments firm and an e-commerce leader are merging to create Indonesia’s biggest local tech group as rivals bulk up in the fast-expanding sector. The combined entity, which will span online shopping, courier services, ride-hailing, food delivery and other services in Southeast Asia’s largest economy, will be the biggest privately held technology firm in the region. It plans to list in Indonesia and the United States later this year, company executives said.

The merger is backed by several global heavyweight investors and comes amid a surge of competition in the ride-hailing and food delivery markets in Southeast Asia. Stay-at-home pandemic restrictions have stoked demand for food delivery, e-commerce and e-payments.

Sources familiar with the matter told news reports that the new tech giant was seeking pre-IPO funding that could enable it to raise about USD 2 billion followed by public market floats with a potential valuation of roughly USD 40 billion for the group. In a joint statement, the companies said their combined past valuation was USD 18 billion based on fundraisings done in 2019 and early 2020 and declined comment on future valuations.

Similarly, Southeast Asia’s largest ride-hailing and food delivery firm recently clinched a USD 40 billion mergers with a special purpose acquisition company and a Singapore-based regional internet firm that runs an e-commerce platform is also muscling into food delivery and financial services.

With its digital economy expected to grow to USD 124 billion by 2025, according to a 2020 study, its 17,000 islands are spread across an area bigger than the European Union, making it extremely costly. Of Indonesia’s population of 270 million, half lack bank accounts but most now have mobile phones.

Therefore, 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 USD 25.3 billion 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 USD 51 billion 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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