NB: This is a guest article by Graham Hills, managing director for Wego in Indonesia.
Ecommerce-related companies are flocking to Indonesia of late, with online travel companies no exception, eager to take advantage of a youthful and connected market.
There’s a healthy mix of local and international companies setting up their local operations and Wego is no exception, recognising the opportunity for a local presence quite early.
Some background
Indonesia is a large and rapidly growing market. It has a population of around 250 million, 50% of which are aged under 30, and internet users reported at 50 million-plus.
And, if you judged the whole of Indonesia based on what you see in a local Jakarta Starbucks, then you’d incorrectly assume everyone in the country has a smartphone.
For the travel industry specifically, disposable income is increasing with GDP growth for Indonesia the strongest in Asia.
Low cost carriers are expanding their presence, connecting more cities and educating users to go online for their travel bookings. It’s been well reported that LionAir recently placed Boeing’s biggest order ever.
Indonesian users are quick to adopt new technologies and, until recently, Indonesia topped usage for services like Facebook and Twitter outside of the US. Indeed, it has only been in the last couple of months that countries like India have caught up and overtaken.
Local users actively buy and sell online. Local site Kaskus is one of the most visited sites in the country with its buy/sell forums accounting for a significant portion of its page views.
This prompted the launch of an eWallet product, Kaspay. Former social network Multiply, now headquartered in Jakarta, pivoted to social commerce based on a large base of users in Indonesia and Philippines using the site to buy and sell online.
All of these factors contribute to increased investment into the local internet scene, especially ecommerce.
There is a "but"
As big as the growth is in online shopping, transactions may originate online, but cash and goods are largely exchanged face-to-face.
Last week’s StartupAsia conference, organised by Techinasia, saw some interesting discussions take place surrounding the problems being faced in the ecommerce space.
The trade of physical goods is bound to cause some challenges in emerging markets, but which of these is most relevant to the online travel market?
Anyone who has spent some time in Indonesia will understand that this is a cash economy. People only spend what they have and they pre-pay based on planned short-term consumption.
The local mobile phone market, for example, is 95% prepaid with users choosing to access data with the ability to choose packages for a day, week or month. Even electricity can be purchased on a prepaid basis.
Indonesia is home to only 40 million bank account holders - that’s only 16% of the population - and the number of credit cards are even fewer with penetration in the lowly 5% range. Local magazine Tempo recently said online banking is slowest in Indonesia amongst ASEAN countries.
What does that mean for online travel?
If your payment strategy is credit card dependent then conversion is going to be a challenge. This is one area where I feel local companies have a strategic advantage.
Research from tech blog DailySocial showed 80% of respondents prefer to pay for online transactions via bank transfer. PayPal is not widely used and local users often complain about the poor exchange rate.
For local businesses, which are largely SMEs, there’s a lack of options for payment related products prompting an increasing number of startups to focus on this area. Several eWallet based products have already launched and several payment gateways are setting up.
Visit any new local travel startup in Indonesia such as Tiket, PegiPegi, Tiket2, Rajakamar et al and you’ll see one thing in common - logos of the major local banks through which users can pay by bank transfer either at the bank, online or at the ATM.
Look further into some of these companies and you’ll see they also heavily promote their call centres, which in the case of Rajakamar, runs 24 hours and is manned by hundreds of staff.
One thing is clear in Indonesia, the internet and industries revolving around it are quickly gaining pace, but for companies only offering credit card payment there are some clear challenges ahead.
NB: This is a guest article by Graham Hills, managing director for Wego in Indonesia.
NB2:Indonesia cash image via Shutterstock.