This article is written by Kameswara Natakusumah and was originally published on LinkedIn. Reproduced with the author’s permission here.

A Morgan Stanley study released this February showed that Indonesia’s annual value of digital transactions processed would be up to US$50 billion by 2027, from US$3.4 billion last year.

The potential is certainly enormous. The market is now dominated by a few leading players: GoPay (parent: Go-Jek), OVO (key shareholder: Grab), LinkAja (key shareholder: Telkomsel and State Owned Banks) and Dana (key shareholder: Ant Financial).

Which mobile payment giant is most likely to succeed? Let me share my opinion after spending more than two decades in the financial industry in Indonesia.

Key success factors

In order to succeed, a mobile payment system requires three factors: frequencyuse case and incentives.

A combination of frequency and use case is usually sufficient base to build a mobile payment system on.

In Indonesia, it is no doubt the most frequent online use cases are transportation (ride-hailing)food delivery, and C2C ecommerce.

B2C ecommerce in Indonesia, on the other hand, lacks the frequency compared to transportation, food or offline.

Offline transactions – at malls or warungs – also form a significant use base with good frequency, however, the challenge is that these tend to be more spread out, making it costly. Based on the experience in China (read Alipay and WeChat), ecommerce companies in Indonesia should only reach out aggressively to offline once it has secured a good user base through online use cases.

It is for the exact reason why the penetration of international payment systems, such as Visa and Mastercard, has been slow in many developing markets, including Indonesia.

OVO owns all of the four use cases mentioned above: transportation and food delivery via Grab, C2C via Tokopedia, and offline via Lippo’s malls and other offline retail assets/partnerships.

GoPay stems from Go-Jek’s use cases in transportation and food delivery, and is making its way offline; LinkAja has all the telco and bank applications. At the end of the spectrum, Dana seems to be disadvantaged here – Lazada, a B2C model similar to Tmall mentioned above, does not have high frequency while Bukalapak is behind Tokopedia in C2C.

Hence, It is not hard to see that if purely commercial and business considerations are factored in, OVO has a pretty good advantage over its competitors. It is therefore not surprising that a recent research by digital research firm Snapcart put OVO as the preferred mobile payment system.

Not the same as China 5 years ago

People often draw parallels between the current boom to what happened in China a few years ago – investors are putting in the money because they have seen what mobile internet enables in China and are afraid of missing out the same opportunity in Indonesia.

I was recently in Shanghai, China for Mobile World Congress and China-Indonesia Fintech Summit where I had the privilege to observe and discuss with participants and observers in different sectors of fintech in China.

A key difference between the current fintech boom in Indonesia, and what has evolved in China, is probably the payment infrastructure.

In China, when the fintech boom happened, digital payment was already prevalent in the cities. Mobile payment infrastructure not only enabled fintech, but also removed friction for many other internet-based business models.

In Indonesia, because of the keen investor interest, many of these business models are being developed while the mobile payment infrastructure is fast catching up. That creates very interesting dynamics.

OVO still has a lot of work to do to retain its success

However, with so many internal and external factors in its favour, OVO needs to continue to be cautious. There are still possible areas where things can go wrong.

First is its shareholding structure, with Lippo, Grab, Tokopedia and Tokyo Century – all strategic shareholders – on the cap table. While this gives OVO unprecedented strength in use cases and financial power, it is also important that these shareholders continue to be aligned in their vision and strategic interests for OVO.

Although to be fair, this situation is not unique to OVO, the other leading payment contenders, Go-Jek, LinkAja and Dana, also have a number of strategic shareholders.

Second is execution. It is not uncommon to see well-advantaged players fail in execution.

It is normal that in the initial development stage of this market, the leading players are burning money to take market share. However, the current craze of incentives and cashbacks will probably not last for very long.

When subsidies become subdued, companies will need to compete more on their execution: a combination of operations, marketing, product and partnerships. Alipay, for a long time, tried to arrest WeChat Pay’s growth by invading the chat/social networking space Tencent was in. It proved not only expensive but futile – the company never managed the execution right. That said, once it realised the mistake and went to stick to its core use cases, it actually managed to successfully defend its role in payment against Tencent.

Similarly, OVO will be better off sticking to its core use cases, continuing to build its loyalty/points system and user experience. Bearing in mind, GoPay has an advantage that it is perceived as “national brand” since it is founded by Indonesian.

In the meantime, the card-based system by international settlement organisations is falling behind. That trend does not seem to change.


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].