Are Super Apps the Path to Success for Indonesia’s E-Wallets?

Are Super Apps the Path to Success for Indonesia’s E-Wallets?

by August 2, 2023

In recent years, Asia has seen an explosion in the usage of e-wallets, particularly in Indonesia, where transaction values of 33.4 percent year-on-year (y/y) to IDR 407.53 trillion (approx. US$27.63 billion) in 2022.  

The popularity of digital wallets has reached such levels that even local family-owned businesses, known as warungs, have embraced e-wallet payments. 

Amidst this landscape, Gojek stands out as a real triumph, becoming Indonesia’s super app and first decacorn. Today, the company operates not just in Indonesia but also in Thailand, Vietnam, and Singapore.

Given these dynamics, it might be easy to think that operating e-wallets is a very lucrative business. However, that’s not the case in Indonesia. Customer and merchant acquisition costs are relatively high, while customer loyalty remains low.

The complex picture of e-wallets in Indonesia raises a big question: Will other players follow Gojek’s path to become super apps, or will they face challenges unique to the region?

The true cost of operating E-wallets

The central bank of Indonesia has enforced a fixed transaction fee of 0.7 percent on e-wallet transactions. 

Compared with China’s market – a two-player field with transaction fees of around 0.5 percent and no intermediaries – the imposed regulatory charges in Indonesia appear less feasible.

Indonesia’s e-wallet market, with its more fragmented nature, means a higher fixed transaction fee is divided among various stakeholders: operators, payment processors, and a consortium of major Indonesian lenders. 

As per DBS’s assessment, digital wallet players will likely remain in a cash-burning phase for several years.

Growth amidst struggle

Despite these challenges, the industry is projected to grow exponentially. E-wallet transaction value is anticipated to rise fivefold to US$50 billion by 2025. 

Yet, the reality is that many players will face intense cash burn. Take SeaMoney as an example. Due to heavy promotions, these digital payment providers lose almost US$10 per user on US$3 revenue.

Companies are employing different strategies to stay afloat. For instance, Indonesia-based Ovo is said to be merging with Dana to solidify its number-one position. But the fundamental question is, what fuels the frenzy for e-wallets if profit is not the primary driver?

The endgame for an e-wallet is often to morph into a ‘super app‘ – a single destination for a plethora of services like e-payments, e-commerce, ride-hailing, food delivery, and others.

The success of WeChat and Alibaba in China, Korea’s Naver, and Japan’s Line validates the feasibility of this model.

According to a report, total e-commerce sales in Indonesia for 2022 reached US$15.6 billion, representing approximately 3.4 percent of total retail sales, compared to China which was at 8.6 percent beginning in Q1 2023 with a total retail sale reaching US$529.21 million.

However, not all e-wallets necessarily want to become super apps. Some may expand into offering various financial services with a more significant profit pool, like providing fast loans and wealth management products.

Unpacking the challenges

However, despite these notable successes, the super app model might struggle to gain traction in Indonesia due to a host of challenges.

The first is regulatory hurdles—the central bank of Indonesia’s imposed transaction fee of 0.7 percent places considerable cost pressure on e-wallets. Moreover, the regulatory requirement for e-wallets to partner with banks or other licensed entities to offer financial services can inhibit innovation and flexibility.

The second challenge is market fragmentation. Unlike the duopoly of WeChat and Alipay in China, the Indonesian market is highly competitive, with nearly 50 e-wallet contenders. 

This competition translates into customers and merchants having less loyalty towards any single platform, necessitating increased spending on customer acquisition and retention, which erodes profitability.

Despite these developments, there are a couple of reasons why the super-app model might not take off in Indonesia. The first is Indonesia’s addiction to Google which in turn creates a supportive environment for best-in-class players rather than one-stop ones.

As of October, last year, Google led the search engine market in Indonesia with a 97.31 percent share of the market.

This sharply contrasts to China, where consumers search within platforms like Alibaba and WeChat, restricting external searches. Google’s absence in China and dominance in Indonesia disrupts the super app equation.

Secondly, unlike China, where leading e-wallets also control e-commerce or messaging, no such domination exists in Indonesia. The sustained engagement required for a super app is missing, further made complex by WhatsApp’s dominance in messaging without any monetization of its vast user base.

Thirdly, the lack of platform integration impedes e-wallets from evolving into super apps. A super app’s strength lies in offering different services within a single platform, creating a seamless user experience.  

However, in Indonesia, most e-wallets lack this integration or exclusivity with other services, reducing the differentiation of each e-wallet platform.

High-engagement verticals like e-commerce and messaging are crucial for super apps’ success. Yet, in Indonesia, these platforms don’t command the same dominance as in China, reducing e-wallets’ potential to build a super app on top.

Potential e-wallet winners in Indonesia

Currently, GoPay leads in user numbers, benefitting from integration with Gojek’s ride-hailing and food delivery services.

Meta’s investment in Gojek in June 2020 further bolstered its position, considering the company’s WhatsApp is the dominant messaging app in Indonesia, with about 100 million users.

The second contender is Ovo, which gained an edge in acquiring offline merchants thanks to its alliance with the Lippo Group.

It has also partnered with Tokopedia and Grab, making it a significant player. Following them is LinkAja, which leverages its connection to Telkomsel and Bank Mandiri to access large user bases and focuses on public services such as toll road fees and train fares.

Strategies for survival and growth

The pandemic has expedited digitalisation, providing a unique opportunity for e-wallet players to reevaluate their business models and prepare for a digital future

While transforming into a super app may seem like an attractive and obvious path forward for e-wallets, the road is laden with substantial challenges. The rise of a super app in Indonesia faces significant barriers from regulatory hurdles, market fragmentation, lack of platform integration, and low penetration of e-commerce and messaging services. 

Therefore, despite the allure of the super app model, the reality might necessitate e-wallets in Indonesia to pivot and adapt to the unique characteristics of their market to ensure survival and growth. 

The future of e-wallets in Indonesia is undoubtedly ripe with opportunities but also laden with challenges that will determine their evolution.