Digital payments, which include cashless transactions from cards, account-to-account transfers and e-wallets, have reached an inflection point in Southeast Asia as they are expected to reach US$600 billion in gross transaction value (GTV) this year, according to a recent study.

The compound annual growth rate (CAGR) is expected at 10 percent to reach $1.1 trillion by 2025, according to the e-Conomy SEA 2019 study by Google, Temasek and Bain & Company. Accounting for just over $22 billion in 2019, e-wallets are likely to grow more than fivefold and to exceed $114 billion by 2025, the study states.

“Digital technology is the enabler of [wider] financial inclusion. As more and more people use smartphones and digital payment systems, it has the potential to be the game-changer for Indonesia,” National Committee for Financial Inclusion (DNKI) project management head Djauhari Sitorus said on Nov. 14.

Digital payment is the most popular type among fintech platforms, according to Fintech Report 2019 published by state-owned PT Bank Rakyat Indonesia (BRI) and conducted by DS Research in November.

As much as 82.7 percent of Indonesians are aware of e-wallet platforms, while 62.4 percent are aware of digital investment and 56.7 percent are aware of pay-later services, according to the study, which involved 1,500 respondents nationwide.

The study is largely in line with India-based management consultancy Redseer’s projection that the country’s e-wallet market was set to be the fastest-growing fintech segment in the country, growing from $1.5 billion in 2018 to $25 billion in 2023.

As such, 55.7 percent of the 6,695 respondents in all provinces of Indonesia already had formal financial accounts with banks, fintech companies or cooperatives in 2018, according to the 2018 Financial Inclusion Insights survey, published by the DNKI in November.

That figure marks a jump in financial inclusion from 35.1 percent in 2016 and moves the country closer to President Joko “Jokowi” Widodo’s target of 75 percent financial inclusion by the end of this year. Many, however, have doubted that the President’s target could be reached by December end.

In a bid to further promote financial inclusion and boost cashless transactions, Bank Indonesia has decided in 2019 that it would implement the Quick Response Indonesian Standard (QRIS), which will integrate existing QR-based payment apps such as GoPay and OVO at the start of 2020.

“With QRIS codes, there will be no more fragmentation or monopoly of the e-payment system,” Bank Indonesia payment system policy executive director Pungky P. Wibowo said in September.

The integration of a QR payment system into the central bank’s QRIS technology “is needed to encourage the use of online marketplace among MSMEs [micro, small and medium enterprises]”, he added.

Indonesia’s e-wallet industry is dominated by local players namely GoPay in the first position, followed by OVO, DANA and LinkAja based on monthly active users, according to App Annie’s Q2 2019 data published in August. 

Transactions made using GoPay reached $6.3 billion in February alone, nearly 70 percent of Gojek’s total transactions. Meanwhile, OVO’s rise this year as the new Indonesian unicorn — start-ups valued at over $1 billion — has largely been backed by LippoGroup and ride-hailing app Grab.

Backed by Chinese payments giant Ant Financial and Indonesian media conglomerate Elang Mahkota Teknologi (Emtek), DANA has managed to boost its popularity as it placed third on App Annie’s Q2 2019 data in the second quarter this year.

Furthermore, LinkAja, which was launched on July 30, already enjoyed a convenient position as it integrates payment services provided by state-owned banks, namely Telkomsel’s TCash, Bank Mandiri’s e-cash, BNI’s UnikQu, Telkom’s t-Money and BRI’s T-Bank. 

In light of the burgeoning industry, critics have called for more profit-and-loss-oriented business practices by technology companies around the world rather than focusing on gross merchandise value or gross transaction value, which has been an indicator for start-up valuations.

“If they rely only on raising funds, someday when there is a sudden shock in which funding is stuck, they will no longer be able to burn money and the impact will be systemic,” said renowned Indonesian economist Chatib Basri.

“If the business model continues to burn money, of course the model will have a limit.”

Lippo Group founder Mochtar Riady said the company sold over 70 percent of its stake in OVO citing its high level of spending. 

“We’re not letting go of our stake. We’re merely selling two-thirds of it. We’re retaining the remaining 30 percent of our stake […] we keep burning money. How are we supposed to be strong?” said Mochtar recently.

“We agree with those who say that we should stop burning money,” said Gojek co-CEO Andre Soelistyo on Oct. 24 when asked about a price war with GoPay’s competitors through cashback, adding that customer incentives would be gradually phased out to ensure profitability.

Despite criticism, Indonesia’s digital economy is expected to reach $40 billion this year from last year’s $27 billion, according to the e-Conomy SEA 2019 study. The study projected Indonesia’s digital economy could grow to up to $130 billion by 2025.

Digital financial services in Southeast Asia will generate about $38 billion by 2025 in annual revenue.

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