Challenges for growing Fintech & eCommerce markets in Indonesia

Indonesia, one of the biggest countries in the world, has its own unique challenges when it comes to financial and eCommerce services.

When talking about the world’s largest economies, people frequently consider only the usual suspects, such as the USA, Western Europe, China, and India. But only a little further down this list, there’s a country that is not usually considered in the same economic terms – Indonesia.

The fourth-largest country in the world by population, and the largest economy in Southeast Asia, Indonesia is the sixteenth-largest global economy with a population of over 270 million and an average age close to 30. The potential for further economic growth here is enormous.

In this context, it’s clear that Indonesia is a highly interesting market for new business opportunities generally. In the digital economy specifically, two areas are of particular interest: mobile money & eCommerce.

Rapid mobile penetration influences digital habits

In January 2020 there were more than 338 million active mobile subscribers in Indonesia, according to HootSuite’s report. On average, one in four people in Indonesia owns at least two SIM cards.

In addition, of more than 175 million internet users in the Indonesian market, more than 171 million access online services via their mobile device, either for social media and chat applications (99%), to consume streaming videos and music (99%) or to complete important tasks such as mobile banking services (33%) or online shopping (55%).

In a market where more than 97% of all mobile subscriptions are prepaid, the opportunities for direct carrier billing are limited. However, the potential for new and innovative services such as mobile money is significant, which clearly shows as more people in Indonesia have mobile money accounts than credit cards!

Fintech leads the way

In Indonesia, almost 180 million citizens are unbanked, with half of this number under the age of 30. This creates a population demographic highly open to innovative ways of satisfying their financial services needs.

The combination of a lack of banking infrastructure (partly due to the island nature of the country – there are around 6,000 populated islands in the country), accessible mobile infrastructure and increasing usage of connected mobile devices (figures from GSMA show 70% smartphone penetration in Indonesia in Q1 2020) has created huge potential for mobile commerce that many fintech companies are quickly taking advantage of.

In 2018 there were over 160 fintech companies in Indonesia offering a variety of services including mobile payment, lending, personal finance, crypto/blockchain, crowdfunding, insurtech, and point of sale (PoS). Within this ecosystem, payments (with 38% market share) and lending (31%) lead the way, providing citizens with many easy ways to access financial services.

However, fintech is not limited to consumers. Small and medium businesses, totaling almost 60 million organisations, need easier access to credit which they can’t obtain via banks due to the lack of a credit history system, or access to statements or other banking collateral. These SME businesses contribute 60.3% of total GDP to the Indonesian economy and need access to digital financial services as a platform for investment in their future growth.

The good news is that the Indonesian government is actively supporting and growing the fintech ecosystem, while consumers are adopting services – many signing up for two or more fintech services at the same time. In a competitive market user retention and loyalty are key, and those who want to survive will need to improve it.

eCommerce is strong and growing

With such a young population driving adoption and usage of digital habits, it is no wonder that eCommerce is very strong in Indonesia, with continued double-digit growth.

According to data gathered by Hootsuite, in 2019 the total eCommerce spend in the Indonesian market was in excess of US$ 32 billion – a 30+% growth from the previous year. Leading the way were travel and accommodation services with more than 13 billion US$, with Fashion & Beauty and Electronics & Physical Media a distant second and third with US$4.79and US$4.73 billion respectively.

In addition to this, 80% of Indonesian internet users completed an online transaction using their mobile phones in 2019, while only 25% did so using their computers. This rapid increase in usage provides another argument in support of the importance of implementing high-quality mobile authentication that will not only protect consumers from hackers but also significantly improve user experience

Mobile authentication as a competitive advantage

As an economy reaches the point where services become mobile-first, it is critical that mobile identity management (and the mobile authentication functions at its core) must be secure, providing trusted and high-performance user experience without threatening user privacy. Choosing the right solution here can create a crucial advantage over the competition, which is where IPification can help!

Any friction in the mobile shopping process can dramatically reduce the number of completed transactions and will drive shoppers to other stores. There are many things that eCommerce businesses can do to improve UX, but there is one critical element that can improve UX and security at the same time – mobile authentication.

What IPification brings to the table is a passwordless authentication process and fraud prevention tools that deliver security whilst removing complexity from user login and transaction verification processes.

Unlike unsafe and insecure SMS 2FA, an unreliable biometric authentication, IPification securely authenticates users without adding obstacles to the user journey. In turn, this improves user satisfaction, grows retention rates, and eventually leads to user loyalty. Is there anyone who doesn’t want more loyal customers?

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