Not commonly prevalent in the news, Rocket Internet’s venture Jumia (formerly known as Africa Internet Group) has managed to stay under the radar while slowly dominating one of the largest developing internet markets in the world.

Only after speaking with a team of Jumia Vendor Success Senior Managers was I able to realize the massive potential of the continent’s top ecommerce player, and how it is not so different from Southeast Asia.

“Like every other region, Africa has its own challenges but the internet users [in Africa] are more than that of the US, UK and actually, both of them combined,” said Gaurav Jain, Head of Vendor Success, Jumia Group. “The number is behind only India and China.”

ecommerceIQ

Source: Statista, Africa has over 360 million internet users

During a knowledge sharing session held at aCommerce fulfillment center in Bangkok, ecommerceIQ spoke with the Jumia team to understand the unique properties of their ecommerce ecosystem, and uncover why the company was more similar to Go-Jek than the commonly perceived Lazada of Africa.

Africa’s ecommerce behemoth: The sum of all parts

To understand the extent and ambition of Jumia’s business goals in Africa, it’s important to know that Africa is a continent broken up into 54 countries and according to the company, consists of 1.3 billion consumers and 17 million SMEs/merchants.

ecommerceIQ

Jumia, started in 2012, was initially an e-tailer selling only electronics and fashion items when it moved into a marketplace model in 2015. It has since become the largest internet player in Africa and first unicorn leading in six regions: Egypt, Ivory Coast, Nigeria, Kenya, South Africa, and Morocco.

The company not only operates in 23 countries, but has effectively squeezed out the ecommerce players that came before them, namely Kilimall and Konga.

It’s safe to say that Jumia Group is no longer a simple, horizontal marketplace and is responsible for pumping out ventures Rocket Internet is famous for copying and pasting in developing markets: Jumia Food (foodpanda), Jumia House (Lamudi), Jumia Car (Carmudi), Jumia Jobs, Jumia Deals, etc.

But launching online services in a region where ecommerce is only 0.5% of total retail sales is not cheap.

The company posted a Sh14.9 billion ($148 million) loss before tax and other costs in December 2017 compared to Sh11.3 billion the year before.

While it doesn’t paint the entire picture, severe losses was one of multiple factors that spurred the company to create the Jumia One app combining its top services in one place. The app launched in Nigeria earlier in March and allows customers to shop online, order food, buy airline tickets and pay cable and electricity bills.

ecommerceiq

“People like to shop on the mobile app. They prefer to have ecommerce handy so they can place an order on the go. The Jumia One app is growing, 42% to 56% in terms of mobile share.”

Other factors for launching Jumia One included:

  • It makes more sense to invest heavily into a single platform versus managing and marketing multiple brands
  • Consumers don’t have enough storage on their mobile phones to download multiple apps as mentioned by a user
  • Mobile penetration in Africa is expected to reach 50 percent in leading countries over the next five years – meaning over 300 million smartphones will be added to the market
  • The app is another revenue stream as Jumia marketplace merchants can buy advertising space for their products
  • It also allows the company to cement themselves as a strong payments player, vital for mass adoption as demonstrated by Alibaba’s Alipay

The company will dabble in micro-financing to merchants given its rich data. A win-win to give merchants more capital to invest in their online businesses and drive more traffic back to its platform.

“We know the patterns, the revenue, the number of orders. We lend out money so they can manage their shops,” comments Gaurav. “It’s a growth opportunity to accelerate their growth as fast as possible.”

“They can use mobile money, not only cash.”

The all-in-one app draws parallel to one of Southeast Asia’s unicorns. Jumia is becoming the superapp in Africa – a Go-Jek for 1.3 billion customers.

ecommerceiq

What are then the challenges holding back Africa’s enormous potential? The typical it turns out.

Challenges in Africa mirror Southeast Asia’s own struggles

Africa’s obstacles preventing exponential growth of ecommerce are the same that plague Southeast Asia’s internet economy.

  1. People still want to visit offline stores for the look and feel to buy products
  2. Lack of trust by both customer and merchants who don’t believe in digital transactions
  3. Fragmented markets, different languages, customs
  4. Cash based society
  5. Underdeveloped infrastructure
  6. Shortage of digital talent and training/education

“They need to know that ecommerce is not a Ponzi scheme. Trust is a large issue. We show them how their products will sell, we show them the importance of visibility and assortment until they have confidence in us and they grow their business so it’s mutually beneficial,” says Gaurav.

“Sellers with offline shops aren’t used to waiting for payment. Cash flow is a problem with our vendors,” says Damola Ajayi, Head of Vendor Success, Jumia (Nigeria), when asked about his challenges. “We guarantee a 7 day payment cycle from day of shipment and even daily for our gold vendors.”

The company paved the way for other ecommerce players to come in, but currently there is no standout competitor apart from the expansion efforts of Chinese companies and the country’s predisposition for offline retail.

Creating the next 500 millionaires in Africa

What was most impressive about Jumia wasn’t its ‘superapp’ or the sheer size of the African market, it was the dedication and enthusiasm exuberated by each Jumia employee I met.

ecommerceIQ, Jumia

They understood the massive challenges ahead and were candid about how to tackle them.

Lack of vendor trust, digital skills or education?

  • Launch training 2 to 3 times a month to advise on marketing, pricing, and inventory management
  • Maintain a ‘fair’ playing field by enabling local businesses to offer COD (cash on delivery), whereas cross-border merchants don’t have this option
  • Spend heavily on marketing for its high performing vendors
  • Share insightful data with vendors on a weekly basis about top selling products across multiple categories, propose assortment and price forecasts

Lack of talent?

  • “The company brought in expats who managed senior roles and groomed locals to move up,” says Damola. “This was necessary for our early growth.”

Lack of cashless adoption?

  • Add convenience through JumiaPay allowing payment by debit card or bank accounts
  • Offering cash on delivery

ecommerceIQ

“We are able to cover the entire vendor journey,” comments Gaurav. “We offer services at every point the customer needs.”

So how are these band-aid solutions working out? At the knowledge sharing session, top performing Jumia vendors shared their experiences with me:

“If you dedicate yourself to Jumia in top product categories, mobile phones, there is no need for you to go offline. You can grow 70% [in sales] if you know what you’re doing.”

“Target the demands of the market and Jumia helps you focus. They will give you foresight.”

“We started with Jumia since 2013, we were selling a small number of products. During Black Friday, we sold 1,000 phones but for “Mobile Week” in March, we sold 15,000 Xiaomi phones, and broke the record for the Middle East.”

The company, while struggling with the perils of other companies prioritizing high growth over all else, is taking baby steps to expose its merchants to the world’s possibilities.

“We [Jumia] want to enable African customers to enjoy best products from the world at their doorstep,” shares Gaurav.

What can I say? The more the merrier.

 

Editorial comment: a quote was adjusted April 22 8:51am

If you’ve been in Thailand and toured its popular landmarks, it’s most likely you have passed by a store packed with Thais and tourists alike buying bags and bags of…well, bags. Crowded stores filled with unmistakable colorful patterns distinguish NaRaYa from other locally produced labels and its popularity among Chinese, Japanese and South Korean tourists speaks volumes.

The famous brand can be found at over 20 domestic stores scattered around Thailand and 13 international branches and after 30 years in the retail business, shoppers can finally go online to buy NaRaYa products.

ecommerceIQ sits down with the decision makers at Narai Intertrade Co,. Ltd. to understand what plans they have for 2018 and what their definition of successful retail is.

Obstacles to a fruitful online journey

For a brand that has enjoyed immense popularity among women in Asia across all age groups, it seems the company is actually late to the retail game given the prevalence of ecommerce in Southeast Asia.

A few factors explain why it took NaRaYa so long to finally focus on digital.

Narai Intertrade Co,.Ltd., the parent company of NaRaYa, is a family owned business established in 1989 and is the manufacturer, distributor and official retailer of its own brand, making the supply chain a tangled web of complexities.

But a common obstacle that keeps manufacturers and distributors from going direct to consumer is channel conflict. By selling online, the brand would be competing directly with its partners in other markets.

“Initially, we wanted to focus on selling traditionally in our physical stores, and on being a wholesaler for our overseas partners,” shares Mrs. Wasna Lathouras, President of Narai Intertrade Co.,Ltd.

“Doing ecommerce would mean cannibalizing our partners.”

“If you notice on our website, you will be directed to the online websites of our overseas partners such as in Japan. If we were to go online, our cost would definitely be cheaper but reduce the opportunity of our partners to market and sell our products in their local markets.”

So how did they get around upsetting current partners?

Simple.

“We launch ecommerce in markets where none of our dealers exist.”

Channel conflict aside, the owners share a few factors that drove them to tilt the scales in favor of ecommerce. One, it was hard for the company to ignore the pressure to sell online, especially as the executives took to social listening to understand the needs of its customers.

“We have really high demand for our products from customers that don’t live in major cities in Thailand. Being online, everyone with a mobile phone can get NaRaYa products in a few days,” says George Hartel, the company’s Chief Operating Officer. “It opens a new market and opportunity for us.”

Two, they found a partner able to handle multi-channel retail and provide enough flexibility to expand across the region when the company was ready.

Left to right: aCommerce Group COO Peter Kopitz, Narai Intertrade Co,.Ltd. President Mrs. Wasna Lathouras, Assistant CEO Mr. Pasin Lathouras, COO Mr. George Hartel

“Both NaRaYa and aCommerce need to grow together. That’s why we need to have our backend and distribution center ready for offline distribution, while aCommerce will take care of the online distribution,” says Mr. Pasin Lathouras, Assistant Chief Executive Officer.

Three, they realized what online could mean for new retail opportunities in the US, India and China markets and expansion even within home market Thailand.

“I would say that 80% [online revenue] will come from overseas, and 20% from Thailand,” shared George. “This is because Thailand is a tourism based country and ecommerce is relatively early in Thailand so primarily people are still shopping offline.”

And four, given their existing footprint, could they reach retail’s pinnacle, omnichannel?

“We are starting an evolution with pure ecommerce in the beginning and in the future, we could roll out an omnichannel experience, for example, tourists can preorder at the airport and deliver to hotels.”

But George is very clear in stating: “We are not substituting offline with online.”

NaRaYa offline also gets a makeover

The evolution of retail isn’t a sign that companies should close down shop and open webstores. What the headlines and trends instead point to are the expectations of a new shopper generation.

What factors will nudge Thais to spend their newfound middle-class income?

Shoppers waiting outside the mall with their bright yellow NaRaYa shopping bags.

Part of creating a wholesome and attractive brand is greatly affected by the user’s sensory engagement in brick and mortar stores. As one loyal NaRaYa shopper put it,

‘Every time I visit NaRaYa, it makes me feel relaxed and free to choose my new bags with quality staff, if you want any help you can talk with them.’

Enter the rise of ‘smart stores’ and new technologies bridging offline and online channels like RFID tags, smart mirrors in change rooms and even robots handing out cards to act as virtual baskets in Sephora’s case.

While Thailand’s commerce industry is not ripe for robots, NaRaYa has plans to heighten its in-store shopper experience.

Mrs. Lathouras shares details of the brand’s newest two-floor flagship store at ICONSIAM, scheduled to open in October of this year and estimated to span 1,450 sqm.

Not only will the flagship introduce four new brands, making a total of seven sub-brands available for long standing fans, it will also incorporate a cafe serving local tea.

The cafe will accommodate customers waiting for friends and family browsing in stores and offer a palatable drink menu suitable for its typical Asian shopper.

The care placed in the customer experience is vital to building any successful business but creating a memorable shopping experience doesn’t come cheap. The company plans to spend up to 2 billion THB ($64M USD) on its distribution channels, existing and new, to not only expand its presence offline but also modernize its traditional brand image.

ecommerceIQ

New Lalama product line by NaRaYa freshen the brand

“We want to rebrand our look and feel to be less housewives and domestic. We want to look modern and international but remain a luxury affordable brand.”

The company’s soft launch online will be on Lazada Thailand next week and offer an initial 300 SKUs, while the official launch scheduled for May will look to imitate what is seen in physical stores.

“NaRaYa wants global recognition, ultimately. Of course, it is a dream to see NaRaYa in fashion capitals but we are very conservative when it comes to our goals,” closes Mr. Pasin.

Talk to most experts in Southeast Asia about the potential of ecommerce in the region and they’ll find common ground: the real bottleneck towards growth lies primarily in logistics that can’t keep up.

Decrepit infrastructure, outdated customs processes, and the sprawling landscape all add up to a scenario notoriously murky to navigate. Indonesia, for example, is the largest internet market in Southeast Asia and it’s expected to drive the bulk of growth in ecommerce. Economic indicators are rosy and consumers have higher disposable incomes.

The problem? It’s a massive archipelago consisting of 17,000 islands. Ecommerce deliveries can take up to a week if delivery is even offered at all, leaving customers frustrated and uncertain whether they’d engage in a purchase again.

It’s a similar story in the Philippines, which has over 7,000 islands. Countries like Thailand may be geographically easier to navigate but it’s not without its own set of challenges: the Kingdom witnesses the second-highest road accidents in the world, just marginally behind Libya.

But simply adding more delivery vehicles and hiring people to drive them won’t instantly solve the problem. Within the logistics industry, there are issues such as fuel pilferage, lack of adherence to safety rules and regulations, and rash driving. These problems entail an inherent cost for fleet operators ordinarily passed on to end consumers in the form of delivery fees. And that’s a cost which can be avoided.

Thai company Drvr is trying to tackle these challenges head-on. It uses telematics, which allows devices to send and receive information across large distances, to track vehicle performance, driver behavior, unscheduled stops, and so on. Drvr installs an array of sensors inside vehicles to help managers keep track of the fleet and also provides a SaaS platform that displays an overall dashboard. It can be modified and tweaked according to client requirements, of which Mercedes Benz is one.

CEO and co-founder David Henderson, who hails from Seychelles, first moved to Thailand in 2014 following a stint at a telematics firm in Australia. The challenges of solving mammoth problems in Asia was the primary motive – he had originally pitched the idea to his previous employer but they were far too risk-averse for his liking. So he decided to quit and branch out on his own.

“The product we had two years ago was simply a GPS tracking product,” David tells ecommerceIQ. “We’ve matured significantly as a company since, and it’s fair to say that we have one of the most advanced fleet management and IOT platforms in the world now.”

The Drvr analytics dashboard

Why start in Thailand?

David explains that his target market isn’t just the logistics sector, but any business that owns and operates a large fleet of vehicles. This could entail players in transportation as well as construction. Such businesses need to keep a keen eye on the health of their vehicles to make sure that drivers and support staff aren’t running amok.

“Thailand is a natural market for us because there are over 3 million vehicles manufactured here annually with commercial vehicles accounting for half that number. That’s the primary reason we’re based here,” he explains.

Drvr’s core solution aims to make fleet operators operate efficiently. It achieves this via a number of ways – the first, as mentioned earlier, is via the predictive analytics platform it offers. The driver version of its app also combines gamification elements to help coax drivers into following the rules. There are rewards every time they adhere to a certain standard such as the maintenance of an average speed or keeping unscheduled stops to a minimum – these could be in the form of cash bonuses or enhanced performance reviews, but is agreed mutually between the fleet manager and driver. The company says this helps reduce the element of confrontation between them and HR.

“One of our immediate use cases that we can prove to our customers is in the case of fuel theft. Fuel theft is a major issue, not just in Thailand but right across the world in fact. It takes on different forms in different areas – [in Thailand] it tends to be siphoning but in Australia and other places […] people tend to fraudulently buy fuel or fill up their own car with the company credit card. We can detect these scenarios and prevent them from happening,” says David.

Before Drvr came along, the common solution to this issue was that companies would simply pay their drivers lower. These would lead to distorted economic incentives – drivers would simply shrug their shoulders and pilfer more fuel from the vehicle in order to sell it for cash. And the cycle would worsen.

David doesn’t disclose how many customers he has but does say that the startup turned a profit last month. While they’re based in Thailand, the largest market is currently Myanmar in terms of volume. However, both Indonesia and the Philippines are high on his list of priorities.

“We see Indonesia as the critical market in Southeast Asia – volume-wise, it’s just one with huge potential. Margins are a bit lower, admittedly, but there are big opportunities there,” he adds.

“At the same time it’s very tricky to get a foothold – we’ve failed a couple of times because of the difficulty of finding a reliable local partner. If you’re successful in Indonesia, it’s a massive tick on your profile.”

What trends does he notice?

Fleet analytics companies aren’t exactly mindblowing tech and there’s a few of them around already such as Cartrack and Coolasia. For David, however, they’re trying to set themselves apart in terms of the sophistication of their platform and the clients.

Mercedes Benz trucks, one of their key clients, actually ships all vehicles in Myanmar with Drvr sensors pre-installed. This provides a certain degree of validation when pitching to other companies. Drvr is also helping facilitate the growth of a subscription vehicle model – whereby fleet owners ‘rent’ vehicles from manufacturers as opposed to simply buying it outright and then allowing it to depreciate over its lifecycle.

This scenario – which David claims is already happening in markets like Australia – necessitates razor-sharp analytics so manufacturers know how to charge on an hourly or monthly basis. Analysts need to understand costs specifically and it’s simply not possible to do that without carefully monitoring existing vehicles to figure out when it’s liable to break down, what the fuel costs are, and other predictive analytics.

He claims Drvr is working with manufacturers interested in this model – the sensors and analytics will help them build a financial model – but doesn’t name names.

Will IOT engulf Asia?

Some people might scoff at the idea of high-tech commercial vehicles plying the backwaters of Asia given how cheap labor costs are, but David doesn’t believe it’s so far-fetched. He agrees on the fact that the economic imperative, for now, is missing but says the costs of devices and provisioning the service is “much lower than what it was in the past.”

“If you’re in ecommerce or logistics, the reality is that customers expect goods to be delivered the same day or as quickly as possible. In order to facilitate that you can’t have drivers sleeping on the side of the road or stealing fuel. It damages your brand and the perception of your service. Even the most old-fashioned Thai companies are beginning to realize that,” he explains.

When Singaporeans shop online, they tend to buy products sourced from outside the lion state.

Overall, it’s estimated that 55% of all ecommerce transactions in Singapore are cross-border – meaning the items were listed on etailers in the US or China, for example – and then shipped to their eventual destination.

The statistic is higher than corresponding figures for cross-border online trade in Japan, South Korea, and China.

This is undoubtedly strengthened by the fact that the overwhelming majority of ecommerce purchases in Singapore are prepaid with credit card and Singaporean consumers are exempt from GST and import duties as long as the total value of their order is below S$400.

Singapore is also a high-income country, meaning residents can afford to splurge, while also bereft of the same logistical challenges that stymie higher adoption of ecommerce in countries like Indonesia and the Philippines. Next-day delivery is the norm.

In 2016, the World Bank declared Singapore the fourth-best country for logistics infrastructure in the world noting it’s an important hub for regional and world trade, located conveniently in the heart of major shipping lanes.

There are other factors at play, too. Amazon and Singpost have a collaboration to facilitate the delivery of overseas purchases within three days – roughly the average time it takes to deliver a domestic order in Indonesia.

Despite the fantasized utopia of a truly open world economy – a scenario where goods and services can move unhindered to where demand is – the reality is that cross-border flows still involve a great deal of friction.

Cutting down cross-border fees for Singaporeans

The first problem is that there’s a high degree of financial inefficiency, with banks and payment processors trying to capitalize on arbitrage opportunities to bump up their own bottom line. Foreign exchange rates also work against consumer interest with banks routinely charging far more than official rates. And lastly, consumers are simply unaware of the available discounts and promotions that may be applicable to their purchase.

Jake Goh, CEO of RateX.

“Consumers are still paying unnecessary fees when they shop online, e.g. they pay 2%-5% in transaction fees on top of the price of the goods they purchase due to the frictions in existing payment networks,” explains Jake Goh, CEO and co-founder of RateX, a Singaporean payments startup that’s trying to iron out these inefficiencies and level the playing field.

RateX, which recently raised a US$2.3 million pre-series A funding round, has built a free browser extension – currently available on Chrome and Firefox – where users can get the lowest exchange rates for overseas purchases on Amazon and Taobao.

The extension also aggregates coupon codes, applying it directly to applicable sales. It leverages partnerships with Sephora, Zalora, ASOS, and more.

The extension is currently only available for consumers in Singapore, but the team expects to add Taiwan and Indonesia to its roster later this year. The long-term goal like most companies is to dominate the region.

“Southeast Asia is the world’s fastest-growing internet market. Gross merchandise value of ecommerce will rise to US$65.5 billion by 2021, up from US$14.3 billion in 2016,” outlines Jake referring to a study by Frost & Sullivan.

Jake claims RateX has helped shoppers save S$500,000 in both foreign exchange conversion fees and coupon codes since launch. He adds that they’re expanding at 30% month-on-month but doesn’t specify whether that’s in terms of users or transaction value.

A cursory examination of the website reveals the number to be actually S200,000 though.

Leveraging blockchain

The founder accepts that while the ultimate goal is to simplify cross-border commerce for all of Southeast Asia, a key hurdle the company faces is siloed infrastructure when it comes to payment and settlement mechanisms. There are significant overheads and fees involved when dealing with multiple currencies and paying merchants in different countries.

So what’s the solution to this problem? Jake believes blockchain can minimize the intermediaries involved in cross-border settlements. The team’s already working on the Rate3 token – a proprietary payment network built on top of the Stellar horizon platform that specifically looks to solve problems in fintech.

“This significantly reduces the risk and fees associated with different banks in various countries […] RateX eventually leverages on [it’s] own payment network to scale in a much more efficient way compared to existing methods,” explains Jake.

The eventual aim is for the Rate3 token to be used pervasively across the ecommerce ecosystem, bridging together shoppers, merchants, 3PLs, wholesalers, and manufacturers.

“We believe that blockchain technologies are key to creating this [enabling network],” affirms Jake.

The key challenge for the team will be convincing the disparate players in the ecosystem to come onboard by accepting this token as a payment mechanism. It’s unclear what the incentive structures will be for them to move away from existing structures towards Rate3.

At the moment, however, the primary mode of monetization is via affiliate sales, where merchants give RateX a commission of the sales it brings to them. The RateX browser extension will suggest products as users browse sites and the site has an updated list of trending deals.

“This business model allows us to give consumers zero markup on exchange rate conversion fees and transaction rate fees,” outlines Jake.

Singaporean shopping preferences

The startup’s been facilitating shoppers in Singapore for a couple of years now. What has it noticed about trends in the country?

Jake reiterates the view that Singaporeans are one of the top cross-border shoppers in the world. Despite a thriving mall culture, the sheer variety of international brands and fast-fashion trends means that all products cannot be found in local stores. Even when they are, it’s sometimes cheaper to purchase from overseas via online shopping even after factoring in shipping fees.

The two largest segments for its user base are consumer electronics and appliances – which are primarily sourced from either the US or China – as well as clothing and fashion brands that haven’t established a presence in Singapore yet.

The dynamic goes some way in explaining why Amazon set up shop in Singapore as well as the decision of Lazada to offer merchant goods from Alibaba’s Taobao marketplace. Consumer purchase intent is marked and vivid, why not double down to make the process even more seamless?

Jake also notes that most RateX shoppers display a tendency to purchase things late at night.

Online activity spikes between 10PM – 1AM in Singapore.

Mobile shopping is on the upswing, Jake says, but it’s still not the dominant channel particularly when it comes to big-ticket purchases. Desktop browsing and shopping are deeply ingrained in the Singaporean consumer psyche, a factor that Jake believes is due to the better product comparison features on a larger screen.

Singaporeans are also incredibly plugged in. The average resident has over three connected devices and the overall internet penetration rate is about 85%, one of the highest in Asia, but Singapore isn’t a mobile-first country like Indonesia or the Philippines. Consumers accessed the web on desktops and PCs before the smartphone revolution engulfed the region. It doesn’t seem like these preferences are going away anytime soon.

Indonesia is arguably the most important internet market in Southeast Asia as a result of its sheer size, emerging middle class, and digitally savvy population.

The annual global digital ecosystem report by We Are Social says Indonesia has 132.7 million internet users, which points to a penetration rate of 50% of the population. 130 million of these use some form of social media, showing how plugged in Indonesians are when it comes to documenting their lives online or using platforms like YouTube to consume content.

Source: We Are Social

With half of the Indonesian population still offline, there’s massive potential for ecommerce ventures, smartphone manufacturers, as well as brands building products to appeal to millennials in the country.

Other countries in Southeast Asia – Malaysia, Singapore, Thailand, and the Philippines for example – may have higher internet penetration rates but their smaller populations can’t compete with Indonesia in terms of volume.

It’s these numbers that have forced investors to take notice.

study by Google and AT Kearney indicated that venture capital activity in Indonesia has grown 68X in the past five years, driven mainly by growing interest in ecommerce and ridesharing.

Total VC activity in the first eight months of 2017 was recorded at US$3 billion – more than double the number for the entirety of 2016, which was US$1.4 billion.

The same study predicted the volume of investments in Indonesia will continue to grow in the foreseeable future because VC investment as a percentage of GDP in Indonesia is actually lower than its Southeast Asian counterparts.

Source: Google / AT Kearney

What are Indonesians doing on the web?

Indonesian residents love the internet. 79% of survey respondents in the We Are Social report said they logged on to the web at least once a day. The average daily time spent online was almost 9 hours with approximately 5 hours dedicated to social media and streaming music.

Source: We Are Social

The majority of web traffic in Indonesia comes from mobile phones, facilitated by the availability of cheap smartphones to the Indonesian population coming online for the first time; sidestepping desktops and PCs directly.

Access to mobile has also caused excitement around fintech as only 36% of Indonesians possess bank accounts and only 3% have credit cards. If e-wallet platforms get it right, there are 125 million mobile internet users waiting for easy banking.

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Indonesians are also increasingly using the internet to embark on their product buying journeys. 45% of Indonesian netizens search online for a product or service to buy with a similar number landing on an online store and 40% make ecommerce transactions at least once a month.

Source: We Are Social

Fashion & beauty categories attract the highest amount of spend online, almost double that of electronics despite having a lower basket size than consumer appliances like mobile phones, cameras, and wearable gizmos.

It was estimated that Indonesians spent close to US$10.3 billion online in 2017.

Source: We Are Social

Dizzying statistics aside, the Indonesian market still has plenty of space to grow.

Expect heightened competition in the years to come as incumbents jostle for space and keep raising large war chests to outmuscle opponents. VCs, especially with an entrenched position in the market, can’t afford to back down now – there’s too much skin in the game for them to consider any hasty exits.

Recent developments already demonstrate how investors are taking a long-term view of the market. Alibaba injected over a billion dollars in local ecommerce marketplace Tokopedia last year. JD.com, Alibaba’s direct rival in China, has opened fulfillment ccenters across Indonesia with a view to keep expanding. And homegrown unicorn Go-Jek is rapidly transforming into a Wechat-esque ‘super app’ with users able to do everything from hail motorbikes to get their plumbing fixed, and pay for it via e-wallet.

In 2015, Thailand’s insurance sector was valued as the 8th largest in Asia, with an annual growth rate of 4.5%. Thai residents spent approximately $334 on insurance every year, accounting for an overall penetration rate of 5.5%.

Life insurance accounts for the largest segment within the insurance industry in Thailand. These are annualized premiums paid out in the event of death or permanent disability; or after reaching a certain age. If you subtract life insurance from the overall industry pie, premiums decline considerably to $100/capita.

Photo credit: Thaire.

And this is where the largest potential for growth lies.

Thailand is already considered to be an upper-middle income country by the World Bank, with a GDP per capita of $6,033. When you combine that with a rosy economic outlook, it’s straightforward to predict that the size of motor and travel insurance will rise, too. Higher disposable incomes will lead to a greater outlay on cars and vacations – and the insurance industry is bound to benefit.

But one of the problems currently plaguing Thailand’s insurance sector is that distribution channels are antiquated and riddled with inefficiencies. To purchase an insurance plan, you normally have to arrange for a broker to meet you, prepare an unwieldy amount of paperwork, and wait for the bureaucratic red tape to churn its wheels.

The entire process is frustrating from a consumer standpoint and expensive for insurance companies too; broker commissions can eat into premiums and the process is only scalable by hiring a greater number of agents.

In 2016, a total of $5.1 billion in non-life insurance premiums were solicited via brokers, agents, and bancassurance channels. Precise figures for online distribution aren’t available, but the channel did grow by 25% as compared to 2015.

One of the startups that’s trying to simplify the insurance acquisition process is Frank. It offers motorcycle, car, and travel insurance direct to consumers in Thailand via its website. Consumers apply for their insurance product of choice, receive an instant quote, and for certain products, can have the policy in a few seconds. It’s fairly hassle-free.

Frank’s co-founder Harprem Doowa admits they’re still a small player in a very “traditional industry” but he affirms their product is largely positioned towards millennials and future Thai generations who are far more comfortable transacting online and will continue to carry these preferences along with them.

“This will take time,” he adds, referring to overall adoption of Frank’s product.

Harprem ecommerceIQ

Harprem Doowa, Co-founder and MD of frank.co.th

Innovating the insurance value chain

Another key challenge for Frank is ensuring that all parties involved in the transaction are equally adept and comfortable with technology. At the end of the day, it’s another distribution channel and isn’t inherently marketing its own product.

Frank’s policies are underwritten by companies like Bangkok Insurance and AXA – large, unwieldy, and geriatric organizations resistant to systemic change and constant reinvention.

“Insurance companies themselves are still not ready with the backend to underwrite policies immediately. Most still require manual approvals,” explains Harprem.

Another problem is that many potential customers opt out of the process because they’re unfamiliar and uncomfortable with scanning and uploading documents. They require the support of an agent or customer support advisor to complete the transaction – driving up costs and somewhat negating Frank’s value proposition in the first place.

The third aspect hampering progress in insurtech are Thai regulations: Harprem explains that while they protect consumers, there’s a real bottleneck towards online conversions because of the multiple in-person verifications required.

Value-add Partnerships

The fledgling insurtech company has experimented with a number of ways to make it more visible and enticing to customers. One of these is partnerships with popular ecommerce players like Lazada, Grab, honestbee, and foodpanda.

ecommerceIQThis may seem like a contrasting list of partners – how does quick food delivery equate to online insurance? – but Harprem is upbeat about the benefits its brought to the table.

“Doing partnerships with many companies increases our exposure 30X and when [consumers] go and search online for insurance, they see Frank. It wouldn’t be the first time and therefore they are more likely to buy from us,” he explains.

That’s a critical takeaway – startups aren’t flush with the kind of cash that large organizations have, they have to stay lean. By leveraging relationships with online companies, even something unsexy like insurtech can be galvanized into a winning brand.

“The more customers see your brand, the more likely they are to buy insurance from you at a later stage,” exhorts Harprem.

Where do the opportunities and threats lie?

Of course, it’s possible that large insurance companies eventually sidestep players like Frank and start selling direct to consumers via web channels but this will involve channel conflict.

Specifically, it will alienate the vast number of brokers who currently provide the bulk of insurance revenues. Another complication is the sheer time insurance companies take to make decisions, hampered by bureaucracy and lengthy internal approvals processes.

Harprem says the team is completely aware of this but isn’t overly worried. Frank’s nimbleness means it can continue innovating and pivoting as and when the need arises.

“It took one of our partners two years to update their home page.”

There are two additional areas which, if done right, could provide considerable value in the coming years. One is ‘microinsurance’, or insurance for low-income households that provides protection for health risks, property damage, or other specific perils.

Harprem says there’s definitely a business case for it in Thailand but adds that it’s not a priority for Frank right now.

The other opportunity is changing fintech from just another distribution channel to overhauling the entire product in itself. That’s where technologies like blockchain have the greatest potential.

In Singapore, this is already becoming a reality. Electrify, which allows users to buy electricity on the blockchain, closed a $30 million ICO yesterday. Insurtech company PolicyPal, which is powered by blockchain technology, allows underbanked consumers to purchase products like agriculture, property, life, and personal insurance.

“This, in my humble opinion is true fintech,” says Harprem.