Indonesia’s Digital Economy: Growth Prospects After 2020

Research by Google-Temasek suggests that Southeast Asia’s digital economy will grow beyond $240 billion in 2025. Moreover, as the largest and fastest-growing market in the region, Indonesia will very likely spearhead this growth. The gross merchandise value of this country’s digital economy might rise past $100 billion in 2025, contributing almost half of the region’s market value.

Here are a few examples of what might make this possible.

E-commerce will be a backbone of the economy.

The e-commerce sector has been growing all over Southeast Asia, and Indonesia will take the lead. Specifically, Indonesia’s e-commerce market size reached $12 billion in 2018; Google predicts that the market size will reach $53 billion by 2025.

Overview of the five largest e-commerce platforms in Southeast Asia, measured by online traffic. Source: The Map of E-commerce, iPrice Group, April 2019
Overview of the five largest e-commerce platforms in Southeast Asia, measured by average monthly traffic during Q1 2019. Source: The Map of E-commerce, iPrice Group, April 2019

The three largest Southeast Asian e-commerce platforms – Lazada, Shopee, and Tokopedia – all have a significant presence in Indonesia’s digital economy. Collectively, these three have grown over seven times larger since 2015, with other growing players like BukaLapak and BliBli not far behind.


Also read: The rising trend of unicorn startups in Indonesia


However, while there are already some big players, there’s still room for growth. Indonesian consumers popularly use e-commerce as a way to access commodities not available in local stores. As such, e-commerce adoption will continue to rise as long as this sector develops faster than conventional retail.

The top 10 largest e-commerce platforms in Indonesia, based on online traffic volume. Source: The Map of E-commerce, iPrice Group, April 2019
The top 10 largest e-commerce platforms in Indonesia, measured by average monthly traffic during Q2 2019. Source: The Map of E-commerce, iPrice Group, 2019

Because of this, aspiring new players should prepare for fierce competition in Indonesia. Moreover, with urban areas like Jakarta already heavily saturated, e-commerce platforms are likely to target second-tier cities and the rural regions where adoption is usually lower. Specifically, the relatively slow development of modern retail is a chance for e-commerce businesses to play significant roles.

Fintech adoption is rising.

Major players like banks or startups are seeing the potential in digital payment and point-of-sales platforms like OVO and Moka.
Major players like banks or startups are seeing the potential in digital payment and point-of-sales platforms like OVO and Moka. Image source: Kontan.

Indonesia has a moderately high fintech adoption rate compared to other markets in the region. With 64% percent of Indonesians aged 25 and older being unbanked, there’s a big opportunity for financial technology companies to step in. These platforms offer more convenient and flexible alternatives to conventional banking for Indonesians who need access to financial services.

Research by Catcha Group predicts that Indonesia’s fintech market size will double from $22 billion in 2018 to $54 billion by 2025. 

Two popular dimensions of fintech services in Indonesia are digital payments (such as OVO and DANA) and peer-to-peer lending (such as KoinWorks and UangTeman). Indonesia’s Financial Services Authority reports that online lending platforms delivered over $900 million in loans through 2018; about four times as much as the amount in 2017.

In the first half of 2018, the fintech sector collected over $500 million of funding; over twice the amount in all of 2017. Some of Indonesia’s largest banks are investing large amounts of money in developing their fintech solutions, including:

  • BTPN ($89 million),
  • Bank Mandiri ($22,4 million), and
  • Bank BCA ($15 million).

Healthtech is a promising new player.

Healthtech startups like Halodoc are working with local stakeholders to help support Indonesia's healthcare ecosystem.
Healthtech startups like Halodoc are working with local stakeholders to help support Indonesia’s healthcare ecosystem. Image source: Tech in Asia.

By 2018, Indonesia’s health technology market values at $20 billion; the second largest market share in Southeast Asia behind Singapore. In 2025, studies suggest that the market will grow about 18 times to over $363 billion.

Specifically, with only 134 thousand medical practitioners serving 260 million people, there’s a significant role for healthtech businesses. Tech platforms can help Indonesians get easier access to healthcare products and services, which is why this sector is becoming increasingly popular with users and investors.

Specifically, investments in healthtech are growing across Asia; funding for this sector reached $3,3 billion in the first half of 2018. Catcha Group also found that as much as 20 percent of local and foreign investors are looking to increase healthcare investments in Indonesia. For example, homegrown startup Halodoc recently raised $65 million in a Series B funding in March 2019.

What to do with this opportunity?

This is the right moment to hop on to the digital economy ship in Indonesia.

However, while Indonesia is a very prospective place to build a business in, it’s not necessarily a simple one.

When it comes to regulations, fields like e-commerce and technology have a few extra obstacles to tackle before being able to do business. Luckily, you don’t have to do it alone. Our network of consultants is here to help.


Greenhouse Connect is an online platform that allows you to book business incorporation services and connect with market entry consultants in your target markets.

We’ll connect you with experienced consultants on the ground who can help answer your questions about doing business in Indonesia.


 

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