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RI leads world in digital adoption
The country is ahead of the game in digitalization amid the rapid growth of its start-ups
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The country is ahead of the game in digitalization amid the rapid growth of its start-ups.
According to a study by American consulting firm McKinsey & Company published Monday, alongside India, Indonesia has outrun the world in digital adoption amid an investment shift in start-ups to Asia over the past five years.
Indonesia itself boasts three unicorns — start-ups valued at more than US$1 billion — and one decacorn valued $10 billion.
The firm’s chairman overseeing Asia, Oliver Tonby, said Indonesian businesspeople’s risk-taking and entrepreneurial attitudes had fostered an ecosystem that allowed such digital economies to rise.
Oliver added that growing domestic spending had fueled the digital economy’s growth. The study projected that the country would generate tens of millions of newly prosperous consumers to Southeast Asia, as the region was set to double its spending class from 80 million households in 2014 to 163 million households by 2030.
“It’s impressive to see the country’s growth. I expect to see more unicorns coming out of Indonesia,” Oliver said on Tuesday, last week when explaining the embargoed report.
With such growth, McKinsey maintained the projection from its 2016 study that Indonesia’s digital economy was poised to contribute $150 billion to the economy by 2025. Oliver said Indonesia’s fast digital deployment had helped the economy grow by boosting productivity in trade and value chains, especially since Indonesia took up a “sizeable” 8 percent of the world’s export and manufacturing goods in 2017.
The 2016 study also showed that Indonesia could expect its data traffic to increase sixfold by 2020 as around 50 million new internet users were expected to enter from 2015 to 2020.
Indonesian Fintech Lenders Association (AFPI) managing director Kuseryansyah said the financial technology (fintech) community had enjoyed the digital boost, as the sector had grown in number from 88 registered firms in December 2018 to 113 as of May 15.
Data from the Financial Services Authority (OJK) also showed that fintech’s peer-to-peer lending had experienced a whopping growth of 834 percent from 2017 to 2018. As of last May, the OJK indicated over 81 percent year-to-date (ytd) loan growth as both borrowers and lenders had shown sharp increases in numbers since the beginning of the year.
Indonesian E-Commerce Association (idEA) chairman Ignatius Untung shared the same outlook as recent studies painted a rosy picture of the sector. A 2019 study published by United Kingdom-based research firm Merchant Machine, Indonesia topped the e-commerce ranking last year with a growth of 78 percent, driven by around 100 million shoppers in 2018.
A 2018 study by McKinsey had also projected that the online-commerce market would reach between $55 billion to $65 billion by 2022.
Despite Indonesia’s digital economy scaling rapidly, both McKinsey and the two associations agreed that several opportunities had yet to be maximized. Oliver of McKinsey, for instance, called for more business-to-business (B2B) start-ups that could provide technological solutions to companies in reducing manufacturing costs and heightening productivity, whether through 3D printing, automation technology or artificial intelligence.
Kuseryansyah agreed with McKinsey, saying that loan for micro, small and medium enterprises (MSME) had left a large gap for fintech to fill in the B2B space. Still, the AFPI managing director noted that fintech adoption was still particularly low compared to other countries as a 2019 survey by EY Fintech Adoption placed Indonesia in the below 30 percent category, lower than China, South Africa and India, which had fintech adoption rates of above 75 percent.
Ignatius begs to differ as B2B market is significantly smaller than its business-to-customer (B2C), making the overflow of B2B e-commerce unhealthy for the sector. Instead, the idEA chairman pushed for better high-quality internet access in less concentrated areas, which he said the lack thereof had hindered e-commerce players outside Java in developing their platforms.
