How businesses can overcome the payment hurdles in Indonesia

Access Indonesia is a series by Teoh Minghao, Tech in Asia’s business development head specializing in market access to Indonesia. He aims to help foreign companies learn more about Indonesia’s tech landscape and strategic partners who can accelerate your growth in the country.

Many entrepreneurs spoke of the allure of venturing into Indonesia due to its strong economic growth and the large number of internet users (143 million as of 2017).

They built their companies, launched well-designed, mobile-friendly, and localized websites with credit card payment support, and expected the entire country to buy from them. To their disappointment, they saw dipping sales instead of a skyrocketing business. What went wrong?

Every market presents its own set of challenges. For Indonesia, one key challenge tech companies face is payment.

Payment hurdles

According to a 2017 KPMG report, businesses face the following challenges when expanding into Indonesia:

• A large unbanked population: Only 36 percent of Indonesians have a bank account and just around 1 percent own a credit card. Payments through cash and bank transfers still dominate the market.
• A fragmented payment infrastructure: Bank Indonesia issued limited e-money licenses. Each license holder developed their own domestic payment products and, in some instances, forged exclusive partnership with merchants to keep out competitors.
• A lack of trust in electronic payments

Despite these challenges, Indonesian unicorns (Tokopedia, Go-Jek, Traveloka) are still recording strong growth. How are they able to overcome?

Don’t rely on credit cards

As mentioned, only 1 percent of the population owns a credit card, and these people belong to the more affluent class. To sell to the masses, businesses must localize their payment methods and pricing strategy.

“Founders should evaluate the target audience of their business,” says Danu Wicaksana, CEO of Indonesia-based fintech app TCash. “If you are targeting the affluent but small group of users, credit card payment will work. However, if you wish to target the masses, you must explore other payment options that are commonly used by the locals: cash-on-delivery, bank transfer, direct debit, e-money, and cash payment through convenience stores.”

Let’s take a look at two unicorns as examples. Traveloka is a flight- and hotel-booking platform handling high-ticket purchases. It offers bank transfer as the primary payment method, followed by credit cards, direct bank debit, and ATM payment. It also allows customers to pay with cash at any branches of Indonesia’s two largest convenience store chains: Indomaret and Alfamart.

Similarly, Tokopedia doesn’t offer credit card payment as the primary mode of payment. Instead, the main options are e-payment through Ovo and offline payment through Indomaret and Alfamart.

Other payment options include bank transfer, direct bank debit, credit card, and lastly, cash through other convenience stores.

Does the subscription model work in Indonesia?

Horizon ahead