Digital currency is an ever-growing part of finance in Indonesia, with more than 40 electronic money providers listed by the central bank of Indonesia. But two of the players, DANA and GoPay, both backed by foreign investors, are attempting to dominate the market as usage grows and the market diversifies

By Trisha Husada

China and the islands that today make up Indonesia have had a long and colorful relationship that goes back centuries. But the extent of trade and economic exchanges and integration are greater today than ever before and it’s only going to go further. And become more and more digital.

For several decades, Indonesia has been a very important source of raw materials for the Chinese economy including oil, natural gas and timber. But in recent years, the tables are turning, as China is now impacting Indonesia in a growing number of economic ways. From ecommerce to property development to tourism, Chinese investors have a hand in big Indonesian enterprises as they provide the funds and technology to support new projects. And one of the largest sectors that Chinese firms have invested in is Indonesia’s digital currency industry.

Digital money in Indonesia is part of a massive shift in the market as more and more people choose to use e-money or digital currency to shop and pay bills. The latest data from Indonesia’s central bank recorded there being 41 licensed e-money platforms in the country as of February 2020. Two of the key players in Indonesia’s financial tech sector are connected to the massive Chinese firms Ant Financial and Tencent.

The number of electronic money transactions in Indonesia’s retail market has skyrocketed—up 173% in January of 2020 compared to the same month in 2019. Around 53% of the country’s total population are now reported to be digital consumers in way or another.

In a joint research report conducted by iPrice Group and App Annie, the most used digital payment platform in Indonesia was GoPay with 58% of transactions, Ovo with 29% followed by DANA with 9%. Another report named the main players in digital currency as being Gopay, Ovo, LinkAja and Shoppeepay.

“Mobile payment services itself are up by 70% (over the past year), and according to data from Bank Indonesia, right now we have more than 38 e-wallets that already have received an official license from our central bank (Bank Indonesia),” said Steve Saraeng the Vice President of Communications at DANA Indonesia, one of the most prominent players in Indonesia’s race to digitizing money.

DANA Indonesia offers a digital payment platform offering an open platform model which can be used to do digital transactions through various applications, online or at conventional outlets.

Saerang said that DANA Indonesia already has partnerships with 200,000 micro small-medium enterprises and 1,027 online and major partnerships including international corporations such as Apple.

As of 2019,  PT Elang Mahkota Teknologi (EMTEK), an Indonesian technology, telecommunications and media conglomerate based in Jakarta, currently owns over 50 percent of DANA’s parent company, PT Elang Sejahtera Mandiri, with Ant Group holding a minority share. Ant owns China’s largest digital payment platform, Alipay.

“In terms of technology, we don’t share, we share the knowledge but we don’t share the platform,” said Saerang. “Because at the end of the day we need to comply with the Bank Indonesia regulations that all the data has to be executed and processed here in Indonesia. It cannot go abroad to other countries. That’s why we have a data center here in Indonesia.”

Soon after its launch in 2017, DANA was the target of widespread rumors that the e-money startup was a front for Alipay operations, which the company denies.

“If I told you that all your data is safe in Indonesia, we use our data center in Indonesia, it gives you a peace of mind right? The second one is if you know that the people behind the process of DANA are Indonesian, you feel this piece of mind as well because there are no foreigners involved processing your data and transactions,” Saerang added.

But DANA has taken a page out of Ant Group’s book when it comes to making it easy for customers and merchants to create accounts and use the platform with a simple user-friendly interface and the use of QR codes for various payments.

“We are currently working with Bank Indonesia and we launched earlier this year one code which can be used by a lot of players. So even if the customers use GoPay, Ovo, Linkaja, Shoppee Pay, they still can use the QR code that we present,” said Saerang.

Another major player in Indonesia’s Digital Payments is GoPay; an electronic money service—commonly known as digital wallet—owned by PT Aplikasi Karya Anak Bangsa, commonly known as Gojek Indonesia. Gojeck operates a multipurpose application service best known for its ride-hailing and food delivery operations.

Indonesia’s finance and banking industry remains relatively undeveloped but the digital revolution is speeding up inclusion of previously excluded groups amongst the country’s 270 million citizens. According to a 2019 National Financial Literacy survey, Indonesia’s financial inclusion rate stood at 76.1 percent, up from 50 percent in 2013. The inclusion rate is expected to top 80% this year.

“Indonesia has a large unbanked population and low credit card penetration, but it also has strong smartphone penetration,” said Budi Gandasoebrata, Managing Director of GoPay. “This therefore, presents a good opportunity for industry players like GoPay to develop digital payments and financial services solutions that meet the people’s needs and accelerate financial inclusion in the country.”

As Gojek has grown from a local startup into a global company, it has attracted global investors. The shareholders of GoPay are a diverse and global group, none of whom have a major stake in the company. They include China’s Tencent Mobility Limited with 3.58% and Google Asia Pacific with 2.94%, Gamvest PTE Ltd, a US-based real estate company owns the largest stake of the company at 8.82%.

“While we have worked closely with our global investors and drawn on their expertise, we have also remained deeply aware of the local context in Indonesia and Southeast Asia. Any products and services that we introduce are designed specifically to address the issues in this region and meet our users’ needs, and this will always be the case.” Gandasoebrata stated.

But he noted that China’s fintech industry is a great success story, especially in terms of how digital payments have become widely adopted and used in the country.

“While there are learnings that can be gleaned from China’s experience, it is also crucial to ensure that our solutions suit the context of Indonesia and Southeast Asia, as every market has its own unique set of needs,” said Gandasoebrata.

China’s Digital Currency Penetration in Indonesia

Aside from local fintech companies, Chinese firms have also been partnering with Indonesian e-commerce players such as Tokopedia and Lazada, which allow for transactions using China’s currency, the renminbi (yuan), through WeChat or Alipay.

“If you send yuan to your WeChat or Alipay account, then you can immediately use it make a transaction on Tokopedia,” says Zehan Pricilla, an Academic Researcher on China-Indonesian Economic Relations from the Institute of Economics and Social Research at Universitas Indonesia. “Actually many are using it that way too.”

Pricillia explains that Chinese firms tend to invest in Southeast Asian companies because they want to penetrate a huge potential market which is quite diverse compared to the more saturated Chinese market.

“They are looking for markets that are still under development, and one of them is Indonesia. They want to replicate the strategy that has been done by China, because they see the similarities between market demographics and characteristics that can be replicated with the existing model in China. So, they are looking at what they can upgrade with the companies they are investing in now,” said Pricilla.

She said she believes that while companies like DANA and GoPay as local players have large appeal and public trust, Indonesian consumers are for the most part pragmatic when it comes to choosing between local or foreign brands.

“Even though you know that, for example, you have a payment service from China, but you can get 100,000 cashback bonuses from it, then ideology is set aside as long as they can still get the benefits,” said Pricilla.

She also noted that Chinese branded mobile phones including Vivo, Xiaomi dominate the Indonesian market, and rumors about foreign involvement in Indonesian companies tend to die down once they realize such firms offer more benefits.

“As long as they can get or enjoy the benefits, it doesn’t seem like it really matters,” she said.

Asked how long it will take for Indonesia to fully transition into a cashless society, Pricilla said it was still a challenge given the country’s dispersed geography. Many remote parts of Indonesia don’t have access to stable internet connections, while digital “literacy” in the country is still low.

She also noted that in China firms can rely on government support in creating the infrastructure needed, such as nationwide internet coverage.

“For urban areas, it seems like it could be a few years, if companies actually have the budget for it. But for remote areas it will be difficult. I just don’t know how long it will take,” she added.

Twin surveys by foreign business groups reveal the impact of China’s virus outbreak on British and American companies operating in the country, which complain of revenue losses, disrupted staffing and added compliance costs, reported Caixin.

More than half of 126 British companies surveyed by the Beijing-based British Chamber of Commerce in China said the outbreak had a significant negative impact on their business, while almost all had been adversely affected in some way.

More than a quarter could not predict when they would return to business as usual, while 23% expected normal operations to resume by the end of the month and 31% by the end of March.

A survey by the AmCham Shanghai released on Friday found 87% of 127 US companies operating in China expected their 2020 revenues to suffer as a result of the outbreak, with almost a quarter expecting them to drop 16% or more. About 10% expected to relocate jobs out of China.

By: Ashley Galina Dudarenok

 

These days, Chinese consumers aren’t as target-oriented and purpose-driven as they used to be when shopping in physical spaces. Since they can very quickly and easily find specific items while shopping online, they don’t go to stores with the same mindset except for grocery shopping. They care more about exploring physical locations at their leisure. 

When consumers go to a shopping mall, they don’t normally go to buy specific brands. Instead, they go to have fun with their children, learn things, and have experiences like dining out or going to a movie. Despite this, physical stores haven’t yet mastered the art of creating unforgettable consumer experiences that keep consumers coming back.

New Retail, when done well, does. But what is New Retail? 

New Retail, which Jack Ma defined as “the integration of online, offline, logistics and data across a single value chain.” uses technology to merge online, offline, logistics, big data, cloud computing, entertainment, news and social media into a seamless shopping experience. Ma introduced the term in 2016 along with New Technology, New Manufacturing, New Finance and New Energy.

Many of the technological advances and digital business approaches of New Retail were well underway in many other markets as far back as 2005 or earlier. Within China, JD.com and Tencent have their own versions of it which they call Boundaryless Retail and Smart Retail respectively. 

It includes initiatives like omnichannel retail, experiential retail, integrated social media, click and collect, same day or one hour deliveries, unstaffed stores, fully automated warehouses and more. It enables people to, for example, purchase an item online at a discount using a code from an online influencer, pick it up from a smart locker the next day and then take it to a physical store 3 months later for repairs. 

Internationally, brands and businesses that are excelling in this area include John Lewis, Waitrose, Amazon, Walmart, Carrefour, IKEA, Target, Tesco, eBay, Nike and Decathlon as well as smaller brands like Warby Parker, Orvis, Welden and Value City Furniture.

New Retail is consumer-centric and driven by data to improve a shopper’s experience and save them time and money. However, it also improves operational efficiency and results in cost savings for the retailer.

“The essence of new retail is to solve two problems: first, whether the consumer experience is improving; second, whether the operating efficiency of merchants is improving. If not, it is fake New Retail.” (新零售本质要解决两个问题，第一消费者体验是不是往上走，第二商家运行效率是不是往上走，如果不是，都是伪新零售。)

—Xiao Lihua, Vice President of Alibaba group

So, a New Retail mindset can spur brands to create unique consumer experiences, personalize shopping while collecting data to further improve service and achieve a leaner bottom line for retailers.  

Now, the New Retail approach is going beyond retail to hospitals, parks and even bathrooms. Here are a few examples.

The New Reality

More and more companies are focusing on consumer-centric innovations, cashier-free technologies, mobile services and AR/VR technologies. This requires a high level of collaboration between all participants and Chinese consumers are gradually getting used to becoming co-producers and co-creators of their favorite products and services.

 

•  Meituan’s “Joint Recommendation” Function

 

Meituan cooperated with brands to test a new function called “Joint Recommendation”, which recommended food to users based on their preferences. At present, the function covers lots of brands, including KFC, Burger King, Pizza Hut, Yonghe King, CoCo, Häagen-Dazs and many other brands.

According to big data from Meituan, users are more willing to buy ice cream, a traditional summer best seller, if it’s priced under RMB 6. This led KFC to reduce the price of a classic ice cream flavor from RMB 6 to RMB 4.9. Sales increased and when consumers went to KFC locations to pick up their ice cream, it increased the likelihood that they would buy more food there. 

KFC sold 150,000 ice cream cones in 33 days.

 

• The world’s first intelligent bathroom

 

Tmall cooperated with Hangzhou Xihu Yingtai Mall to launch the world’s first intelligent bathroom. The bathroom has a Tmall retail vending machine where users can scan codes to buy personal care products. The bathrooms also have virtual makeup mirrors. “Magic Mirrors” using augmented reality and filters to show different makeup looks. If users like the look of certain makeup items, they can buy them through vending machines or order them to be delivered to their home.

 

• Taking the pain out of car shopping

 

Alibaba launched “auto vending machines” with Ford in the bustling southern city of Guangzhou and plans more in the near-future. The machines, which function in a similar way to vertical elevator car parks, allow users to scan their face to get the car keys after they register and pay a deposit online.

Customers can browse car models with their app, choose the car they want to test drive, pick it up from an unmanned vending machine and drive it for up to three days. After experiencing the car in a no-pressure situation, they can make an appointment to visit a dealer if they decide to buy it.

2019’s New Trends: Social New Retail

Social New Retail focuses on private social networks and community operations. Social New Retail can take various forms. It might be a brand offering exclusive early offerings of its newest products only to customers who have a brand membership. It might be doing surveys with followers of the brand’s social media account. It could also involve special products that are created with or curated by an online influencer who controls the sales channel. 

Private Social Network: These are online traffic resources that are exclusive to an individual or enterprise. For individuals, it may be their own friends and relatives. For an enterprise, it may be long-time loyal customers and other peripheral traffic. Online retailers usually choose to set up shop on large platforms such as Taobao, Tmall, and JD.com and rely on the huge traffic of these large platforms.

Community Operations: These are the constant communications with existing customers through social media groups, providing the necessary information they need and turning them into loyal customers.

As an example of a brand leveraging a private social network, cosmetic brand Perfect Diary has two retail stores in Guangzhou which see foot traffic from more than 2,000 people every day. Service assistants encourage customers to add the account of Perfect Diary’s Key Opinion Customer (KOC), Xiao Wan Zi, when they buy items in stores. If people make purchases online, they send coupons and recommend that they add their KOC as a friend so they can receive more coupons. 

Xiao Wan Zi publishes 2 to 3 posts every day on her WeChat Moments about her daily life. The experience is like following posts from a friend that you trust. 

Xiao Wan Zi also has her own WeChat group where she introduces different campaigns to engage with consumers, such as lucky draw campaigns, sales campaigns and live-streaming. She also has her own mini program for customer service which also functions as a kind of personal beauty coach. 

Perfect Diary reaches customers easily through WeChat Moments and WeChat groups, increasing their conversion rate and repurchases.

“Confronted with new opportunities, people tend to lose out in four ways:

they don’t see it coming, they turn their nose up at it, they don’t understand it, or they’re too late to adapt.” (很多人输就输在，对于新兴事物，第一看不见，第二看不起，第三看不懂，第四来不及。） —Jack Ma 

In an era of rapid internet and 5G development, people can easily get loads of information from various channels. Social New Retail allows customers to build a trusted connection to a brand, decrease the effort they put into product comparisons and selection and save money by cutting down on purchases of unsuitable items. 

Both New Retail and Social New Retail are surpassing traditional concepts of retail and marketing and establishing a connection between people, goods, and ideal experiences.

The future has come, and New Retail provides a new opportunity in the Chinese market.

 

Learn more about the New Retail in my latest book co-authored with Michael Zakkour New Retail: Born in China Going Global, available on Amazon starting July 18th. [for online edition, kindly include a hyperlink to book’s Amazon https://amzn.to/2XUh2Bt%5D

 

Ashley Galina Dudarenok is an entrepreneur, professional speaker, bestselling author, vlogger, podcaster, media contributor and female entrepreneurship spokesperson. She is the founder of several startups, including social media agency Alarice and training company ChoZan. She runs the world’s largest vlog about China market, consumers and social media on YouTube and AshleyTalks.com.

Amidst the gloom of China’s auto market over the past two years, electric vehicles (EV) have been surging ahead to the point where companies that are slow on the uptake are facing disaster.

In the past decade, China has gone from being a middle market player to the world’s largest, with sales now exceeding those of the United States. China also accounts for over half of all the EVs sold globally, followed by the US which accounts for a fifth. Last year, 1.2 million battery-powered vehicles were sold in China while the US only accounted for 361,307.

China’s growing obsession with EV is largely the byproduct of Beijing’s master plan to turn the country into a global leader in high-tech sectors under the “Made in China 2025,” weaning China off reliance of any foreign technology. Cleaning up the environment and reducing oil consumption are also issues.

EV is far more important in China than other countries in the world with the strategic direction helping China companies to leapfrog other global players. The Chinese government has for years now incentivized automobile companies to develop this area by providing generous subsidies for EV manufacturers, as well as perks for consumers purchasing alternatively-powered vehicles.

Battery electric and plug-in hybrid vehicles present both a challenge and opportunity for auto companies as China demand continues to grow fast and many current models do not reach the necessary levels of efficiency.

Global auto leaders including BMW, Daimler, Volkswagen and Tesla have identified the inevitability of EV and are rushing to make the transition from the internal combustion engine. Foreign companies are initiating partnerships with Chinese battery and auto companies for research and development, building manufacturing plants for mass production, and designing new EV lines to adhere to the new and sophisticated demands of Chinese consumers.

BMW has partnered with Contemporary Amperex Technology (CATL), China’s number one electric battery company, and plans to sell an electric version of the X3 sport utility vehicle in China by 2020. BMW’s new X3 will be the first model the company will make in China and export to other markets in substantial volumes.

Daimler, the parent company of Mercedes-Benz, and China’s Geely announced their  joint venture in March to create a fourth generation of the Smart brand of electric cars and sell them on the global market. The new and improved electric Smart car will be designed by Mercedes-Benz and engineered by Geely. The new line will aim to revitalize the Smart brand, going on sale in 2022.

Tesla and Volkswagen are not far behind, as they set up new electric car factories in Shanghai and Hefei, China.

Tesla’s Shanghai gigafactory will be the first fully foreign-owned car factory in China, with a 500,000 vehicle capacity, due to open in 2020. Volkswagen’s new plant with Chinese partner JAC Motors will have the capacity to build 100,000 electric cars annually. The partnership will also expand its operations by building an electric sports utility vehicle for the China market and eventually export it, taking on the market leader, Tesla’s Model X.

Domestic companies have had an advantage in China with huge government subsidies and funding. The subsidies along with tax breaks given to consumers to purchase EV has led to market visibility, high sales and wide variety in Chinese-made EVs, giving domestic companies a leg-up over international companies that are just now switching their focus.

Numerous brands have quickly gained consumers’ attention for their EV quality and style at reasonable prices. Some of the larger companies are BYD Auto Company Limited, Geely, Beijing Automotive Industry Holding Inc (BAIC Group) and SAIC Motor. Each company has already released EV lines in China with plans to release more up-scale models in the next few years. Chinese EV startups NIO, Byton, WM Motor, and Xpeng Motors have also made a splash in the market this year, releasing their first products for sale.

One thing domestic companies still lack is the experience and manpower to create high quality batteries. But this will soon change due to partnerships and the technology transfer. Domestic car companies will then have the capability to create products that meet international standards and may be more successful than foreign competition, already having an established consumer base.

It is evident that it is no longer good enough for foreign car companies to show up to China’s auto market. It is crucial for companies to revaluate strategy or face the consequences of becoming obsolete. Brands like Volkswagen and Daimler scurry to take the necessary measures, but for some foreign auto leaders that to date have been successful in China’s market, there is a chance their efforts might be too little too late.

Today most of the cars on the road of major cities in China are foreign branded. But with the rush to electricity, what will be the situation in five years time? Possibly very different.

 

By Prof. Oliver Herkommer

China began gaining momentum in the area of digitization in 2015, and in some areas it has already overtaken Europe, including Germany. Even the US, with its seemingly unbeatable Silicon Valley, can now feel the hot breath of a pursuer on its neck. China is prepared to overtake. It is only in the area of fundamental research into AI that American companies still have a certain advantage, although the Chinese are trying their best to make a breakthrough.

As noted in a recent edition of the German business newspaper Handelsblatt, four factors are crucial here: data, entrepreneurs, researchers, and regulation. In fact, China has been the world’s largest Internet nation for quite some time: over 800 million online users generate vast amounts of data. To be frank, the processing of this data is not heavily protected, which makes it easier for companies to use state databases. Another possible reason why the Chinese are succeeding in the catch-up race is that they have simply skipped the “traditional” Internet age with PCs and laptops.

Germany’s strengths and weaknesses

Germany, the largest economy in Europe, has drawn its strength  from innovation in a range of technical fields. However, service culture is an area that has never been especially strong in Germany. The economy has therefore rarely stood out for outstanding B2C business models. When thinking of successful products, Germany conceives first and foremost “solid, traditional hardware” – cars, machines, equipment, and so on. What Germany often lacks is an instinct for innovative and integrated product service ecosystems.

It would make sense for the “German way” to be based on the continued promotion of “traditional areas of expertise” while complementing these with intelligent digital strategies. To this end, it is essential to make strategic use of existing data resources. In this way, it may be possible to sustain a lead in those industries where Germany is traditionally strong. Indeed, as long as Germany is one of the world’s most expensive countries for production, it will inevitably have to defend a clear productivity advantage in these industries.

Industry 4.0 success factors

It is obviously not enough for Germany to be just as good as others in core industries if it is to ensure prosperity. The questions at hand are which factors are crucial for Industry 4.0, the term for the current trend of automation and data exchange in manufacturing technologies, projects aiming to digitize value creation systems and to what extent the development of these factors promises success.

In the new millennium, today’s Internet giants continue to drive developments, leading to the universal use of an AI application for the first time in 2011 with Apple’s Siri assistant. The ability of the Chinese competitors Alibaba and Tencent to catch up so quickly is linked to the significantly larger availability of data, which can be used to train their self-learning algorithms. This means that without state restrictions in place, the smart systems that will increase their intelligence the fastest are those that have the largest amount of data available.

An AI industrial environment

How can European countries develop an industrial environment that uses AI in a competitive way without resorting to Internet giants – which they do not have. Take the automotive industry for instance, where missed opportunities are especially obvious in future-oriented topics such as autonomous driving. Volkswagen CEO Herbert Diess recently stated that his company was 1.5 years behind the Google subsidiary Waymo. The latter probably has an even stronger head start. Whereas people in Germany are still working on the basics, Waymo is building a new factory in Detroit and plans to launch a self-driving vehicle as standard in 2019.

Launched by Peter Altmaier, the German Federal Minister for Economic Affairs and Energy, a strategy to develop and apply “AI made in Germany” could provide an opportunity to establish an AI industry in Germany or Europe. It would then be interesting to see how various artificial intelligence systems would differ. After all, Chinese companies are only allowed by the local government to use Chinese AI services, which means the market is insular – albeit enormous.

By contrast, Peter Altmaier points out that German companies, especially small and medium-sized enterprises, prefer “cooperation with providers from Germany or Europe when using AI”. In many cases, though, he notes that providers are unaware of their advantage in terms of location. According to a study by the Federal Ministry of Economics, Germany is in a good position by international standards with respect to quality control, intelligent automation, intelligent sensor technology, language recognition, speech processing, and the modeling of cognitive characteristics. Identified barriers include a lack of skilled workers and the slow rate of transfer between research and the business world.

It is becoming difficult for people in Europe to generate a wide range of AI applications given that data is simply a prerequisite for effective machine learning. Europe will have the most opportunities with “small” ideas that generate innovations to fill gaps without the need for vast volumes of data. For example, researchers at the Technical University of Munich have recently succeeded for the first time in creating artificial cell groups that communicate. The goal is to use these as mini-factories to produce biomolecules or as sensors in micro-robotics.

Future productivity and competitiveness will depend on expertise in AI and the availability of AI technology. Europe catching up with China is not likely in the short term because, in contrast to its Industry 4.0 and AI initiatives, the “Made in China 2025” program has a much broader scope, leading up to 2030. It is a core element of the state-organized development strategy that aims to restructure the entire economy. The goal here is no longer to “keep pace” among equals – China clearly aims to lead the world.

 

Prof. Oliver Herkommer is the CEO and owner of the Ingenics Group, a global digitization and management consultancy.