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Over the last few days, major moves have been made by a handful of top ecommerce players in Southeast Asia in efforts to cement a position in payments. Each company is already well aware: if you want people to buy or use your services, it makes sense to have direct influence over their spending.

Owning the payments chain has become so important (thanks to what was witnessed in China), that Amazon announced it would pass discounts to retailers if they used its online payment service.

Earlier this week, ShopBack, a cash back ecommerce aggregator, acquired Singaporean personal finance startup for an undisclosed amount. The stated reason being it wanted to help millennials ‘better handle their money‘, but with a new team of developers, no doubt the company is looking to optimise its existing system.

What was more interesting this past week were the new discoveries made by Go-Jek and Grab users in Southeast Asian markets.

Go-Pay

The on-demand market leader in Indonesia has expanded its reach to the most unexpected locations – street food vendors.

Tweet translation: “Interesting find this afternoon: Some street vendors on the alley beside Bank BNI Kebon Sirih have accepted payment with Go-Pay. When I bought ayam penyet [fried chicken] at my regular place, I just have to scan a QR code, show the payment slip, and that’s it. So cool!”

ecommerceIQ

The popularity of Go-Jek in Indonesia is almost legendary and this example shows how far its reach goes. The difficulty for Go-Jek will be expansion outside of Indonesia to other markets in the region, where similar on-demand companies exist.

GrabPay

With Uber officially out of the picture, Grab is doubling efforts to increase the adoption of its e-wallet, GrabPay. On a trip to Manila May 7th, an ecommerceIQ Community member shared with us app screenshots of Grab promoting a new cash ‘top up’ feature. Riders can add money to their Grab accounts by simply handing their drivers cash.

This is hardly innovative as Go-Jek has offered cash top ups since 2016, a large contributing factor to its success in Indonesia, but it shows Grab’s seriousness in evolving its payments product to the local market.

 

ecommerceIQ

 

This new feature follows Grab’s launch of three other services the company introduced to the Singapore market: GrabAssist, GrabCar Plus, and GrabFamily.

“Grab’s vision is to be an everyday app for consumers,” said Tarin Thaniyavarn, country head of Grab Thailand.

Regulations stand in the way of Grab’s vision in Southeast Asia as most countries lack any solid regulations to ride-hailing companies. Currently, the company is unsuccessfully trying to acquire a microfinance licence from the Bank of Thailand.

What drives the adoption of new technology?

Grab is targeting hawker stalls in Singapore, Go-Jek has already successfully penetrated local vendors in Jakarta. Grab is offering cash top ups, Go-Jek has been doing so for the past two years. They both offer on-demand services, taxis, cars, bikes and the technology and mechanics of an e-wallet are not all that different player to player. They are essentially going toe to toe, what is going to push further adoption?

The real winner will be the company’s capability in effectively communicating the benefits of its payments service to users. How aware are users of its existence and its importance? How can it make their lives easier versus using good old fashioned cash or swiping a credit card?

In developed markets like the US, Apple Pay, Samsung Pay, Google Wallet have single digit adoption rates compared to credit card usage. Why? Because the country already fares well with credit cards, there is no reason to change habits.

The same case can be made for relatively cash-less markets like Singapore. The real opportunity to dominate payments is in developing markets like Indonesia and Thailand, where credit card ownership floats around only 4 percent and majority of the population owns a smartphone.

ecommerceIQ

 

“To enhance awareness, you really need advertising — one thing that’s not well understood [by consumers] about Samsung Pay is that it has more utility the Apple Pay; you can use it at a non-NFC terminal and that’s a huge advantage I don’t think Samsung is doing a good job of promoting.”

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.

ecommerceIQ, together with Sasin SEC, created the Leadership Ecommerce Accelerator Program (LEAP) to provide the fundamental knowledge and skills needed to successfully run an ecommerce business in the world’s fastest growing market.

As ecommerce widely becomes second nature around the world, developing countries must take charge with new models, mindsets and regulations to assist businesses in catching up with their consumers. Thailand has long been making moves towards a new economic model – Thailand 4.0.

In the ninth week of LEAP, global payments unicorn, Adyen, shared insights on the region’s check out habits and Korn Chatikavanij, former Finance Minister of Thailand, discussed the country’s much needed progression to new policies and attitudes.

1. Why a Payment Can Fail?  

Bradley Riss, Adyen Head of Business Development APAC

 

ecommerceIQ, LEAP

Not many students in the room or across the Southeast Asia for that matter have heard about Adyen, but that’s because the global payments provider works in the background for clients such as: Uber, ofo, MANGO, Spotify, Dropbox and ZARA.

While the concept of payments may seem extremely simple for those accustomed to digital transactions, in a region where bank accounts and credit cards aren’t trusted, facilitating ecommerce payment can be tricky.

LEAP2017, Payments

According to the World Bank, over 150 million adults above 25 do not have a bank account and based on Adyen’s data, these are the top reasons why a payment can fail:

LEAP2017, ecommerceIQ

The “Do not honor” or Invalid Service Code messages indicate that the customer’s card issuing bank will not validate the transaction and provide an authorization code or the credit card being used for the transaction has been rejected by the bank.

To resolve the issue, the shopper must contact their credit card issuing bank and obtain a verbal authorization code for the transaction. Once obtained, the transaction can be captured manually.

A student asks, “if my customers haven’t adopted online payments yet, what can I do as a business to facilitate transactions?”

Bradley’s reply?

You can only offer a local solution. For example, work with convenience store providers like 7-11 and allow them to facilitate transactions.”

2. Korn Chatikavanij: Technology is Coming to Save Us

Korn Chatikavanij, President of Thai Fintech Club

 

LEAP2017, ecommerceIQ

The former Finance Minister of Thailand started with encouraging words about the country’s development such as the country’s national income per capita has grown by 300% from 1986 at $800 to $2,500 at 1994. But he also highlighted certain issues that have caused the government to decide that it requires a new economic model in order to keep up with the world.

The income inequality between the richest 20% and the poorest 20% has remained at a 13 times difference for the last 30 years. And while this means that the entire Thai population has benefited from the booming economy, 13 times is severely high in even the most unfair circumstances. This is especially true when looking at a developed economy such as Japans, which has an income gap of only 3 times.

What is the best solution Korn believes can tackle this problem?

Access to good education and technology.

Urbanisation in his eyes is a good thing. When farmers become city dwellers, they will have more money in their pockets because economic opportunity is better in cities. And when people have more money to spend, their behavior changes to that of an urban middle class – more leisure travel, more consumption.

 

And even if more farmers move to the city, the country has enough natural resources to sustain itself and for export but without technology, the Thai people cannot capture and utilize its full potential.

The way we manage a key source as a country that calls itself an agricultural center is damning.”

He is referring to the amount of natural rainfall that occurs in Thailand. If the quantity is scaled to 100 droplets, the country only uses four out of the hundred.

ecommerceIQ

Korn concluded with a word of advice for the entrepreneurs and C-levels in the classroom,

Consumers don’t change just because your tech is better. They change because the service provider has not adapted to their needs.”

My Thai channel provider stopped providing me with HBO, so it was only then I finally decided to switch to Netflix and now I’m hooked because their technology is superior.

The final class of the 10-week program will conclude on Thursday November 16th, with a tour of a fulfillment center to understand how 11.11 and 12.12 campaigns impact day to day ecommerce operations. Stay tuned for next week’s takeaways and keep up with learnings from the last eight weeks.

[LEAP Week 1] eIQ Insights: The New Ecommerce Opportunity in Thailand
[LEAP Week 2] eIQ Insights: Refinement of an Ecommerce Channel Strategy
[LEAP Week 3] eIQ Insights: Market-Product Fit First Before Anything
[LEAP Week4] eIQ Insights: Central Marketing Group’s Shares Phase II of Digital Strategy
[LEAP Week 5] eIQ Insights: Startups Need to Have an Independent Source of Income to Survive
[LEAP Week 6] eIQ Insights: In Mobile Commerce, App Install is Only the Starting Point
[LEAP Week 7] eIQ Insights: Logistics and Fulfillment, The Other Side of The Ecommerce Coin
[LEAP Week 8] eIQ Insights: Looking to Succeed in Fulfillment and Logistics? Start with Data and People

POST SPONSORED BY SEAMLESS ASIA: THE FUTURE OF PAYMENTS, ECOMMERCE & RETAIL

Seamless is one of Asia’s largest conference organized by Terrapinn that focuses on cards and payments,  including a dynamic summit and large-scale exhibition bringing together the converging worlds of ecommerce, retail and payments.

The Seamless Asia team spoke to Padmanabhan Ramaswamy, former head of business intelligence analytics at online marketplace GEMFIVE about recommendation engines to find out how they are brilliant in improving sales for eTailers but are not always perfect.

Read more

Credit cards. Not a thing in emerging Southeast Asia.

Fintech is quickly becoming the next big thing in Southeast Asia. According to recent data from Tech in Asia, the number of venture capital deals in fintech has outpaced ecommerce for the last two quarters – something that hasn’t gone unnoticed by the big players.

Alibaba is on a mission to bring in Alipay and Ant Financial into Southeast Asia through its $1 billion Lazada acquisition. Indonesia’s Go-Jek recently launched Go-Pay and Grab is said to be raising a massive $1.5 billion round to fuel its nascent payment platform.

Despite an increasing influx of money into the payments ecosystem in Southeast Asia, cash-on-delivery (COD) remains the most popular payment method in emerging Southeast Asian markets. Aggregated data shared by aCommerce indicates that the share of COD orders has increased over the last 12 months.

Of course, the data is limited to the orders processed by the regional ecommerce enabler and skewed by individual client preferences, but given their size and reach, offers a good representation of the market.

What then could explain the increase in COD share in markets like Indonesia, Thailand and the Philippines? One hypothesis could be that as ecommerce continues to gain widespread adoption, new users are the late majority and laggards. These groups are less likely to have access to credit cards and some won’t even have bank accounts. This means COD will still be essential for continued ecommerce growth in emerging Southeast Asia.

Indonesia - Orders by Payment Method

wdt_IDwdtcolumnID - ATM / Bank TransferID - Cash on Delivery (COD)ID - Credit CardID - Debit Credit CardID - Credit Card on Delivery (CCOD)
12016-49,2047,4043,500,000,00
22016-510,3048,9040,800,000,00
32016-66,9050,6042,500,000,00
42016-79,6057,6032,800,000,00
52016-810,4060,4029,300,000,00
62016-911,6061,6026,800,000,00
72016-1010,1060,8029,100,000,00
82016-1113,6070,9015,400,000,00
92016-1213,8061,3024,900,000,00
102017-114,7062,5022,800,000,00
112017-213,9065,3020,700,000,00
122017-317,0065,6025,400,000,00
272017-455,0043,002,000,000,00
282017-553,0045,002,000,000,00
292017-641,0057,002,000,000,00
302017-736,0062,002,000,000,00
312017-850,0048,002,000,000,00
322017-954,0045,001,000,000,00
332017-1058,0040,002,000,000,00
342017-1145,0053,002,000,000,00
352017-1244,0054,002,000,000,00
362018-145,0052,002,000,000,00
wdtcolumnID - ATM / Bank TransferID - Cash on Delivery (COD)ID - Credit CardID - Debit Credit CardID - Credit Card on Delivery (CCOD)

Thailand - Orders by Payment Method

wdt_IDwdtcolumnTH - ATM / Bank TransferTH - Cash on Delivery (COD)TH - Credit CardTH - Debit Credit CardTH - Credit Card on Delivery (CCOD)
12016-40,0057,5042,000,500,00
22016-50,0066,5032,900,600,00
32016-60,0069,9029,300,800,00
42016-70,0079,2019,900,900,00
52016-80,0076,2023,500,400,00
62016-90,0083,7016,000,400,00
72016-100,0076,1023,500,400,00
82016-110,0050,1048,601,300,00
92016-120,0073,2026,200,600,00
102017-10,0077,8021,400,700,00
112017-20,0078,7019,000,300,00
122017-30,0079,3025,000,100,00
232017-40,0079,0021,000,000,00
242017-50,0068,0032,000,000,00
252017-60,0071,0029,000,000,00
262017-70,0067,0032,001,000,00
272017-80,0065,0035,000,000,00
282017-90,0062,0038,000,000,00
292017-100,0061,0039,000,000,00
302017-110,0060,0040,000,000,00
312017-120,0062,0038,001,000,00
322018-10,0059,0041,001,000,00
wdtcolumnTH - ATM / Bank TransferTH - Cash on Delivery (COD)TH - Credit CardTH - Debit Credit CardTH - Credit Card on Delivery (CCOD)

Singapore - Orders by Payment Method

wdt_IDwdtcolumnSG - Cash on Delivery (COD)SG - Credit Card
12016-70,00100,00
22016-80,00100,00
32016-90,2099,80
42016-100,00100,00
52016-110,00100,00
62016-120,4099,60
72017-11,2098,80
82017-20,6099,40
92017-30,9099,10
232017-41,00100,00
242017-51,00100,00
252017-60,00100,00
262017-70,00100,00
272017-80,00100,00
282017-90,00100,00
292017-100,00100,00
302017-110,00100,00
312017-120,00100,00
322018-10,00100,00
wdtcolumnSG - Cash on Delivery (COD)SG - Credit Card

Philippines - Orders by Payment Method

wdt_IDwdtcolumnPH - ATM / Bank TransferPH - Cash on Delivery (COD)PH - Credit CardPH - Debit Credit CardPH - Credit Card on Delivery (CCOD)
12016-49,2047,4043,500,000,00
22016-510,3048,9040,800,000,00
32016-66,9050,6042,500,000,00
42016-79,6057,6032,800,000,00
52016-810,4060,4029,300,000,00
62016-911,6061,6026,800,000,00
72016-1010,1060,8029,100,000,00
82016-1113,6070,9015,400,000,00
92016-1213,8061,3024,900,000,00
102017-114,7062,5022,800,000,00
wdtcolumnPH - ATM / Bank TransferPH - Cash on Delivery (COD)PH - Credit CardPH - Debit Credit CardPH - Credit Card on Delivery (CCOD)