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Analysis: E-commerce: Purchasing financial products can be as easy as purchasing goods
We tend to associate e-commerce with purchasing goods online
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e tend to associate e-commerce with purchasing goods online. During the past year, however, e-commerce in Indonesia has branched out to several other activities, including financial services.
Loan applications, mutual fund investment, insurance purchases and other financial products or transactions are now available online on the same platform.
This is a trend perhaps best exhibited by the world’s leading e-commerce company — Alibaba.
As of May 2017, Yuebao, a mutual fund marketplace owned by Alibaba, has become the largest such platform in the world with approximately US$170 billion (Rp 2.26 quadrillion) in assets.
The platform’s growth was driven by the intensive use of Alipay, one of Alibaba’s payment platforms for the Chinese market, where people keep their money to execute transactions more easily.
Financial products, including Yuebao, are then offered to the user base.
Supported by an appealing rate of return in comparison to interest rates typically offered by Chinese banks, Yuebao quickly rose to prominence among users.
In Indonesia, such e-commerce services are relatively new, but they have received positive feedback from society.
A large section of the population that accesses financial products through e-commerce platforms is made up of young adults in the age group of 20-35 years and is mostly composed of new employees or young families, who are technologically savvy.
This group is one of Indonesia’s most promising consumer segments for the industry.
Combined with the demographic dividend that Indonesia is projected to have, the group will only become larger in number, which is inevitably a positive sign for e-commerce development in the future.
Undoubtedly, an important factor for propelling the development of financial e-commerce is ease of access, which can be achieved with the help of fintech.
Now people no longer need to visit a bank and fill in hard copy documents, sheet after sheet, to become a mutual fund investor. The documents have been replaced by short online forms.
The know-your-customer practice is still upheld, as people are still required to upload scans of their identity cards and present their e-signatures, but this swift registration process has attracted more people to sign up.
Another example is loan applications.
If an online merchant intends to submit an application and is a member of a certain e-commerce platform, the platform can access the merchant’s transaction record as part of the due diligence process.
Thus, a lender can complete the risk analysis much quicker.
Profiling of financial product buyers shows that they are generally beginner customers.
In the case of insurance sales through e-commerce platforms, people tend to gravitate to affordable packages, which are currently offered at premiums of less than Rp 100,000.
However, their profiles indicate that they are capable of spending millions of rupiah on the same e-commerce platform.
This shows that people are still experimenting with the product and testing the waters before they put more investment into higher-priced products.
A similar phenomenon can also be observed with mutual funds, with the monthly investment value pledged by individuals still typically below Rp 100,000.
This is a very small amount compared to the money they spend for purchases of other items, which can reach Rp 200,000 to Rp 300,000.
Despite the low investment value, the customers deserve applause for their efforts in trying to comprehend mutual funds and the benefits they may reap.
These beginners or non-sophisticated customers will potentially grow into sophisticated investors, putting in more money in the future and appealing to their peers to do the same.
The conditions outlines above illustrate a double-bladed sword that is both an opportunity and a challenge.
It is an opportunity for financial service providers and fintech companies, as there is still a massive pool of people that are unfamiliar with investment products, but it represents a challenge to infuse knowledge into society at large in order to attract people to invest their money through unconventional methods.
The key to gaining trust is ensuring that online transactions are legal, accountable, safe, comfortable and beneficial in terms of protecting people’s interests.
The standard operating procedures — how data is managed and how risks are hedged — need to be solidified in order to ring-fence consumers from fictitious investment practices that would ultimately embezzle their money.
People need to be encouraged to become more knowledgeable in selecting financial products that are genuine, compatible with their needs and beneficial for their future.
The role that financial e-commerce can play is to participate in introducing financial products that are best tailored for each segment of society, which will facilitate the formation of sophisticated investors.
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The writer is the Indonesian Fintech Association’s capital market division chief and the co-founder and CFO of Bukalapak.
