1. Payday loan bubble bursts.
Since July, OJK, Indonesia’s financial services regulator, has been tightening the enforcement on P2P licence, the main permit used by fintech companies to issue loans to SMEs and consumers.
Many, especially Chinese, players retreated after failing to obtain the registration for P2P licence. Many are still operating without a licence – though it is getting harder and harder to do marketing, credit analysis, and especially debt collection.
As we mentioned a few times throughout the year, the market potential is still there (and huge).
According to government figures, there was a US$73 billion annual credit gap in Indonesia, and throughout 2018 all the fintech players have issued a little bit more than U$1 billion worth of loans – i.e. less than 2% of the overall demand.
Momentum Works Emerging Market Tech Investment Index – Fintech in Indonesia shows that the real opportunities are still in early stages:
Risk for this sector is not small though:
Some of the (especially Chinese) players which did not manage to get P2P registration in Indonesia moved to Vietnam and the Philippines. However, the same market in those countries are less well developed compared to Indonesia.
2. Uber throws in the towel in South East Asia.
Nothing more needs to be said!
3. Ecommerce (and payment) continues to be fight between Chinese titans, with their local partners.
A few updates. Tokopedia bagged more money from Softbank, after the big round from Alibaba last year. JD’s operations in Thailand (joint venture with Central Group) have finally launched, and is apparently doing much better than its counterpart in Indonesia JD.id.
In addition, Ant Financial’s tie-up with Emtek on launching Dana doubtlessly raised speculations of the standing of Bukalapak, another Emtek subsidiary.
Shopee (with Tencent as the biggest shareholder of its listed parent) continues to grow, though many are questioning whether the growth or level can be sustained once they start charging.
It is hard to see anyone else competing against these big boys.
On the other hand, there are so many areas in the ecommerce ecosystem that is still relatively underdeveloped and opportunities abound for new and existing players. Momentum Works’s Indonesia Ecommerce report for the year highlights some of these opportunities.
Compared to fintech, the risks for ecommerce in Indonesia are actually much lower:
4. Chinese cross border ecommerce enter fierce competition
It is happening, though not as aggressively (yet) as we predicted. Despite the efforts of both Lazada and Shopee to bring Chinese sellers onboard, the volume of cross border ecommerce orders into Southeast Asia remains small – at least smaller than the number of orders Club Factory ships into India on a daily basis.
There are numerous challenges: the platforms (Shopee and Lazada most notably) have much smaller traffic (and basket size) compared to US players Amazon and eBay; to build independent sites or ads for this market, sellers need to deal with a suite of issues including diversity of languages (imagine translating descriptions of half a million SKUs into Thai, Indonesian and Vietnamese), lack of operational support (not many can navigate Indonesia’s customs effectively), and managing local marketing (Facebook and Google ad traffic saturates pretty soon).
The challenges Ezbuy (essentially a Chinese cross border company) faced in building its regional teams is case in point. It hired a strong team, alas, poor cultural understanding, lack of trust, and inadequate management has caused an exodus with hardly anyone left.
That said, with Amazon making lives difficult for many Chinese sellers and Trump withdrawing from the Universal Postal Union, more attention will go to developing markets. The success of JollyChic etc. in Saudi Arabia and rapid growth of Club Factory in India are also drawing other players into the emerging world.
Ultimately, Southeast Asia is much bigger than Saudi Arabia, and significantly richer than India.
5. GoPay will rapidly become the preferred payment method in Indonesia.
While many of the consumers we spoke with in Jakarta indeed prefer GoPay over other wallet options, the wallet has hardly become THE preferred wallet.
A number of factors caused this. First, the launch of GoPay for third party offline merchants were delayed for a number of times because of internal and external factors. Second, telcos, banks and retail giants are not willing to cede payment at their consumer points of sale to a third party. We have summarised the landscape and insights in our Fintech in Indonesia report.
Lippo is relentlessly pushing its payment solution OVO, which is also adopted by Grab and (recently) Tokopedia; Dana, launched by an Alibaba-Emtek joint venture mentioned above, is marketing aggressively towards the end of the year; Mandiri, Telkomsel etc. are not giving up their turf either.
Bank Indonesia, the central bank, seems to have deviated from its moratorium of payment/wallet licenses, by issuing an e-money licences to Chinese company Bluepay.
So highly likely, the payment market will still stay fragmented for the next year. Perhaps Indonesia will never see a dominant player, like Alipay in China.
6. Vietnam and Philippines receive more attention.
This is happening indeed – especially Vietnam, which has seen many investor field trips and some actual investments. Both Ant Financial and Tencent have made investments in Philippines’ fintech space.
That said, it will take some time for the ecosystem to develop to a state to support enough good quality deal flows.
7. Investors still struggle to find the next billion dollar opportunity.
Still the case – that’s why some of the subprime companies have been able to receive significant B & C rounds (you know which ones we are talking about).
There is chatter in the market about Series B crunch. However, there are a number of Series B focused investors in the market. They will tell you that the challenge is many Series A funded companies just failed to grow enough to justify typical Series B valuations.
That said, now you start seeing senior executive of unicorns coming out to create their own startups. Uber’s exit has littered the region with good talent as well. Sooner or later, a healthy ecosystem will flow, with more unicorns emerging.
8. Corporate innovation goes to the tangibles – with bold moves
Unfortunately it has not happened yet.
New innovation labs and corporate accelerators are still being set up in the region, while many existing one become quieter than they were in the past few years.
An accelerated corporate innovation trend is expected as corporates start to realise that they are more likely to succeed through acquisitions or partnerships. They either set up a fund to acquire or a separate business to partner others with strong synergies. Singha, for example, has launched a $25m fund to invest in Series A rounds. Siam Cement Group, a fellow Thai conglomerate, seems to have given AddVentures, its VC arm, more autonomy.
We see two big hindrances to the success of corporate innovation/venture capital programmes: structures of the corporates as well as talent. When none of the entrepreneurs-in-residence hired by a corporate innovation lab as advisors have built real high-growth companies, you know something is wrong.
That said, we remain optimistic about corporate innovation for the next few years. Once a corporate succeeds in a sector, their peers will follow suit quickly. Banks have demonstrated that, other sectors can achieve the same as well.
9. Bitcoin reaches $100,000, and blockchains enter the mainstream.
We made this prediction based on the assumption that crypto currencies will be quickly accepted as an asset class by global investors, with bitcoin being the most commonly accepted among all cryptos.
This has not happened – the price of bitcoins has fallen drastically from the beginning of the year, and the downward trend has not stopped, it seems.
We thought the underlying technology, blockchain, would overcome (at least partially) the hype and become adopted in real use cases.
That has not happened either. Those who want to use blockchain for transactions are still struggling with matching the speed of existing transaction systems; on the other hand, blockchain for tracing is pretty much proven to be too expensive to be practical, at least in most cases.
Just like in VR and AI, the period after the hype is extremely painful for proponents and practitioners of blockchain. The next 1-3 years will be a severe test of investors’ confidence (and patience).
10. Deep tech remains elusive for the region.
Indeed – government-funded deep tech accelerators are still poaching people from local deep tech companies that are struggling to find people themselves. You also see that new batches of companies coming out of deep tech accelerators are not that ‘deep tech’.
On the other hand, big boys step up the talent grab, especially in Singapore. Life will be harder for standalone deep tech, especially AI, companies, in the region, we reckon.
We therefore believe a much more practical approach is for the region’s enterprises (and governments) to look at how to adapt AI effectively to help their business, rather than to develop/foster AI startups in the region.
=====> So how did we do?
We got six out of 10 predictions accurate, three wrong, and one hard to call. Overall we consider this scorecard not too bad.
Ultimately we are living in a world of uncertainties, and working in a sector that is harder to predict, where pivoting is the norm.
If you play poker you would know that right decisions do not necessarily lead to good outcomes – nonetheless you still need to make the right decisions. Over time, your odds of success will be amplified.
Watch this space for our 2019 predictions!
Thanks for reading The Low Down (TLD), the blog by the team at Momentum Works. Got a different perspective or have a burning opinion to share? Let us know at [email protected]