Momentum Works and CICC hosted a joint panel discussion titled “Post-pandemic Economic Restart and Restructuring” on 15 June 2022. Jianggan Li, CEO of Momentum Works, spoke with Shengyong Goh, Executive Director of Equity Research, CICC about the key players, in different industries such as ecommerce, logistics , fintech and Web3 across countries and the economic history of Southeast Asia. The session delivered insights into important happenings, and contextualisation of the Southeast Asian economic ecosystem, and we have split it into two blogs to convey the many interesting takes on key issues.

You can read Part 1 here. 


  1. We have Shopee express, Lazada and Gojek riders helping with delivery as well. With the 3PLs in the region, how do these play out eventually? Will the 3PLs eventually become a competitor of 1PL and vice versa? What do you think is going to change?

Currently, we see a symbiotic relationship between e-commerce and logistics players. I think once you get to a more mature stage, you start seeing the different parts of the value chain. Some players would have to become more vertically integrated, while others would have a combination of internal and external operations. I think this is normal, and at the end of the day, it depends on the market concentration of each part of the value-chain. If it’s more concentrated, the players would have higher negotiation power upstream and downstream. But I don’t foresee inhouse logistics companies wanting to cover all of Southeast Asia because that’s a tremendous task, involving a huge amount of assets and management. They (3PLs and 1PLs) will have to work with each other to a certain extent, and I think the dynamics will be interesting to watch.

  1. Southeast Asia could be a hybrid of ecommerce platforms having 1PL and 3PL – does this mean some of our ecommerce players will have to start investing in 1PL capabilities? What are your observations? Should ecommerce players invest better, and is there one country within Southeast Asia that is more developed in terms of 1PL infrastructure for these platform companies? 

I think the platform companies are doing well in many countries, but if you look at the fulfilment centres and collection points that have been built, you will see lots of interesting activities going on in Indonesia and Thailand. Indonesia is the largest country with the most consumers and Thailand is a sizable country with developed infrastructure and good spending power, so you see a lot of activity in these 2 countries. 

  1. Your thoughts in terms of platform companies investing in 1PL capabilities. How far along are they?

We did some estimates on what we saw on the ground and spoke with a few owners. In certain areas, you probably see 20-30% of Shopee’s volume in these areas. So, the question is whether they have done an efficient job, and if they will continue investing to improve their efficiency in the current market landscape. My sense is that it would help them improve their profitability, and I do think that the major players are on the path to make investments. But of course, that depends on how their management thinks.  


  1. Where do you see the trends in the next few years in terms of digital payment, lending, remittance, and what are the factors that can positively or negatively impact digital financial services (DFS) in Southeast Asia?  

There’s always a DFS element in business models in Southeast Asia, whether it’s offering their own financial services or partnerships with existing financial institutions. One thing we always hear is that people do not have access to adequate financial services. 50% of the people in Indonesia are unbanked, and credit card penetration is low. All these present opportunities, and of course DFS can be added to any financial services and platforms, be it cars, electronics, or services. You can always have a financial element to facilitate transactions and help stakeholders better manage their cash flow and inventory, which in turn increases their turnover across the whole sector. The question is how do we penetrate in view of the lack of access to financial services? Some people have been getting by in informal ways of financing and pooling resources to hedge against risk.

This is where tech players come in. How do they change the game and make it more efficient, and how do they become capable of making a profit from this without taking too much risk? So, when we look at digital financial services, we have companies doing lending and credit scoring. All the large platforms are getting into financial services for two reasons, it can help drive transactions across the platform, and secondly, there is profit to be made if you do it well. So, I would think that the large platforms would still have an advantage as they have access to customers, merchants, and riders. There are people in the ecosystem who need financial services in one way or another, and which would depend on the platforms. I do think they have a positive future in DFS. The question is how do they operate this efficiently and without taking much risk. For that, it is one area where they can learn from China, where things have evolved from many cycles and lots of experiences have been learnt and can be shared.  

  1. Do you think in Southeast Asia, there will eventually be one app or one digital payment platform that will be bigger than the rest, or could it be as fragmented as what it is today?

At some point, more than 800 digital wallets were promoted in Southeast Asia, showing how fragmented the market was. Of course, everyone was asking if Southeast Asia would evolve into something like China with only 2 dominant players for digital payment. I’m a bit sceptical about whether this would be the path, as what evolved in China is highly unique. In addition to payment, Alibaba and Tencent, over the last ten years, have developed a whole ecosystem of use cases which people can transact on. They have also aggressively gone to the offline merchants not controlled by rivals of Alibaba or Tencent. In Southeast Asia, what you typically see in many countries is that you have conglomerates that have multiple business lines, retail, cinemas, education, commercial real estate etc. Many of them have their own payment needs and developed their own payment systems and digital wallets. In most countries, it would be difficult to see things evolve in the way that China did. 

One thing which could change the landscape, but also further differentiate it from China is the emergence of the government sponsored clearance systems. In Singapore, you now have Paynow; although I think the interface can be improved, the functionality is there. In Malaysia, you have DuitNow, and in Thailand, you have Prompt Pay. I think similar systems like Snap in Indonesia will take a few years to develop, and these can make cross-border settlement possible. The question is whether Southeast Asia will evolve into something like India, where you have UPI, with many different players operating different platforms, but they are interoperable. If that happens, the market landscape will be drastically different from China. 

  1. What do you think about these e-wallet platforms against cash? Do you think it’s going to be quick, or something which will take a slightly longer period of time, because most of the e-wallet companies we talk to, say that their largest competitor is actually cash, so what are your thoughts on this?

 I think that it is just easier for companies to mention cash as a competitor. But we do think that despite years of driving the adoption of e-wallets and digital money, cash still dominates many markets. In fact, the proportion of cash used for ecommerce in Indonesia over the last 2-3 years has increased.  This is not because cash is taking over digital wallets, but because ecommerce players are reaching out to segments of society that do not have access to digital payments, and for the ecommerce players to serve these communities they must deal in cash. From a government point of view, it’s beneficial to build cashless societies as it helps them collect tax, avoid financial crises, and collect better data about the economy, without having to rely on statistics which are a few weeks late. So, the question is how to make it happen and who bears this cost. If you look at the initiatives in Indonesia trying to drive bank account adoption, they were quite aggressive until 2018, and the penetration of bank accounts increased from 11% to almost 50%, but once you try to go beyond that, it becomes more difficult. You have people who don’t see the need to use non-cash payment methods, and also people who were previously only using the bank account because of government incentives. Although they receive their pay through their bank account the first thing they do after receiving their pay is to go to the ATM and withdraw all the cash. We have been to a few 2nd and 3rd tier cities in Indonesia and have seen this happen on the ground.

So, how do you create enough incentives for people to use digital payments, and who bears the cost of these incentives? Nowadays, there is a controversial company coming out of Vietnam called Sky Mavis. They have developed a Play-and-Earn game called Axie Infinity which has become very popular in the Philippines, with around 1.5 or 2 million people using it on a daily basis, and many of them actually make  real life transactions using the coins they have earnt there. This is controversial because whatever they earn in the game is not legal tender and is not supposed to be used for real-world transactions, but it offers some food for thought on how you should design and develop programmes and incentivise users to convert to cashless. Simply giving them one-time incentives will not last, instead you must give them something more sustainable.

  1. What are thoughts on this lift now, pay later and buy now, pay later, and the prospects of it in Southeast Asia. 

 If you look at BNPL, it serves 2 purposes. One is to give credit to the consumer, and second is for consumer traffic immersion. From a functional point of view, it’s not that different from a credit card. The difference is that access to BNPL is easier than that of credit card. People in China should know the journey of Ant Group’s BNPL product which issues credit to people who have no credit history to get credit cards approved by the bank, and they also help people who already have credit cards to access some goods that were previously not feasible to be paid for in instalments. The question is that when you move to different countries in Southeast Asia, would that business model sustain on its own. And there is also always the issue of timing.  When the market is positive, you can try different business models to find out what works. When the sentiment is bad, you are forced to find a quicker pathway to profitability. What I see is that offering a kind of credit is good, but this area needs to be regulated; maybe not as much as credit cards, but there needs to be certain boundaries so that it does not get out of control. As for the merchant fees, it is less sustainable. If you look at what Klarna in Sweden does, they work a lot with high margin merchants where a significant percentage of their margin goes into marketing. So, the fees can be justified as marketing costs. But for necessities, such a high margin would hardly work. Is there enough market for BNPL players? This is the question which the players need to figure out. I think at the moment, there are too many BNPL players for the market to digest, but that is the same for any emerging sector with different players, and eventually 1 or 2 of them will figure out how to do the game well.  


  1. Development of Web3 and how it will impact the digital financial sector landscape in Southeast Asia. Your thoughts on Web3?

We have a part of the team doing full-time research on Web3 as this is an area that has a lot of potential, especially when NFTs were popularised over the past year and a half. There are a lot of possibilities of NFTs, and it allows people to authenticate ownership of digital assets and maybe even some physical assets as well. So, we know the direction, we know something might emerge from it, but we don’t know what. Now, we see a lot of entrepreneurs experimenting, and investors giving out cheques to these entrepreneurs. We are in an interesting phase where we are trying to see which use cases will eventually emerge to be visible. One thing we have discussed internally is that whatever happened in the crypto world is a bubble before the real use cases of web3 emerge. So now we are at an interesting junction. I would really encourage everybody to try to understand the potential of NFTs, applications, and learn the economics of a few players who have made waves, like Axie Infinity, STEPN etc.  It does not mean these companies will last, but they have done some interesting innovations, and we think that entrepreneurs will build on top of that to have something more interesting. It is very hard to predict the precise direction, but we know generally things will happen, and it is good to keep your eyes on it and study that. 

  1. Do you think NFTs could impact the way we do shopping online and the impacts of the growing NFT market? Any thoughts on that?

 We have seen a lot of attempts for online groceries in Southeast Asia, we see a wave of 15 minutes delivery, community group buy, which is popular in China, and once popular in Southeast Asia, but nobody can prove that this model worked. The problem with such business models is that you have a platform which aggregates everything and takes all the risk and hidden costs. So, it is very difficult to turn a profit. We have been discussing with a lot of entrepreneurs in this area, and some of the interesting thought experiments were about how to design this in a decentralised way. Instead of trying to replace the small merchants, the truck drivers etc., we would bring them into an ecosystem that lets them benefit and share part of the cost. NFTs can be used as an entry ticket for them to participate in the ecosystem, but the question asked is, are truck drivers sophisticated enough to understand NFTs and ownership. Well, if the villagers in the Philippines can use Axie Infinity, we should not be too pessimistic about their (truck drivers) ability to adapt to new technology if it benefits them. But this remains a thought experiment; it has not been implemented. But we do see the potential of that happening.  

  1. I heard that you have a book that you are about to publish in a couple of months. Do you mind telling us more about your book?

For the last 3 years, I was guest lecturing in INSEAD, for a course called China strategy, because lots of people are trying to understand how to get into China, but of course the narrative has shifted a little bit since 2018. The global narrative shifted from going into China to how we deal with all these Chinese companies who are everywhere. So, once we were hit with the lockdown, I was discussing with Professor Guo Li Chen of INSEAD, why not put some of the case studies that we have used over the years into a book to help with the systematic understanding of the China players and their global journey, including what we can learn from them and the lessons they themselves have learnt. We spent a few months talking with the people we know or used to work with, and we put everything together.  Previously, I talked about leadership, people, organisation, and product, these are the common things that we have found through all these interview very often, the success of tech business models does not really depend on the product, which is what you see on the surface, but how you steer the organisation, who you choose to work with, what mental space you have as a leader, and how you make decisions. So, we wrote a book, and got a contract with Wiley very quickly. The book is called “Seeing the Unseen – Behind Chinese Tech Giants’ Global Venturing”. It has lots of case studies and historical references, and it’s coming out in September after almost a year and a half of work We hope that the book would be useful for the audience who are either from China, looking at how they can adapt themselves for the global market, and also for people to learn about these companies who might become their employers and competitors. The book is up for pre-order on Amazon, so feel free to make an order, and if you have any disagreements or questions after you have read the book, feel free to reach out to me.

If you are interested to find out more about this event and to learn about the developments in the Southeast Asian industries, you can watch a replay of the event here.

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].