Among key ecommerce marketplaces in Indonesia, Shopee and Lazada have built own e-wallets: 

ShopeePay, the leading embedded player with more than 10 million monthly paying users in Indonesia in 2020, can be used for general payment (e.g.: at offline merchants) while Lazada wallet is used within Lazada ecommerce platform (some call it closed loop). 

However, why would ecommerce marketplaces want to build their own payment (e.g.: e-wallet), instead of leveraging third party service providers already existing in the market? We have explained this point in the newly launched Blooming Ecommerce in Indonesia Part 2.1: Ecosystem – Payment report.

To understand the inherent logic, we need to first figure out what is the importance of smooth payment to ecommerce platforms: 

Smooth payment system improves user experience, conversion and stickiness

In addition, payment system and ecommerce mutually reinforce in the following ways: 

  1. Offline to online: Payment system that spans across cash and cashless solutions help ecommerce onboard mass population, by catering to banked and unbanked population needs. 
  2. Online to offline: Ecommerce moves payment adoptions to offline use cases (For example, using ShopeePay for offline transactions). 

Ultimately, online and offline traffic push for continuous upgrades and ecosystem innovations to fulfill growing user needs for convenience, security and savings. 

So why would they want to build their own wallets? 

 

As marketplaces grows, big players start building own e-wallet

We have summarised the four key reasons: 

1.  Improves payment system stability, payment success rate and user experience, by cutting multi-intermediaries during the payment process. This also helps to account for massive traffic during shopping festivals (which happens almost every month e.g.: 7/7 sales). 

2. Reduce third party reliance, which cuts down massive third party transaction rate and lengthy refund and return process (a big no to motivate next purchase). 

3.  Incentivise purchase and maintain user stickiness, through an integrated incentive system that reminds users of the cash back and points you will get at every step of the purchase. 

4.  Lay groundwork for cross-verticals and ecosystem expansion (e.g.: lending, digital finance, local services), through accumulation of user base from online and offline use cases.

(Similarly, how Foodpanda promotes pandapay: Faster refunds)

Case in point: Payment can trigger flywheel of scale and customer retention

During our Blooming Ecommerce in Indonesia Briefing 1, we talked about how Shopee leverages on “Free Shipping” (Gratis Ongkir) to trigger flywheel of continuous scale effect and lower cost structure: 

Free shipping attracts mass traffic of customers, which attracts more sellers, provides better selections and customer experience (thus retention and scale). 

Now guess what else Free Shipping does? 

Accelerated ShopeePay adoption (Use ShopeePay at checkout to get free shipping). 

 

You can find more details and other information about the ecommerce-related payment ecosystem in Indonesia in  the full Blooming Ecommerce in Indonesia Part 2.1: Ecosystem – Payment report. We welcome any comments, suggestions and questions.

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 hello@mworks.asia.