What to Expect from Indonesia’s Startup Landscape in 2019
7 January 2019
Indonesia’s startup landscape is one of the most dynamic in Asia. Google and Temasek project Indonesia’s digital economy to become the largest in Southeast Asia as its market value triples to from US$27 billion in 2018 to US$100 billion by 2025, promising more internet services for an emerging tech-savvy generation.
Today, Indonesia has thousands of startups and four unicorns. The potential for growth in the country’s digital industry makes it attractive to investors and entrepreneurs alike. Incubators and accelerators have also emerged in this landscape, making initial investments in startups. Daily Social reported that Indonesian startups have secured at least 51 investments in 2018, including 20 recorded transactions of seed funding, 14 instances of Series A funding, and 11 cases of Series B funding. Not counting the unicorns, Indonesian startups received a total investment of IDR4 trillion, or US$274 million.
E-commerce and fintech received the most funding, while AI-based services bolstered those platforms and others by creating chatbots for them. The only major announcement in the edtech sector was Ruang Guru’s grant from the MIT Solve Programme in May. Two NLP/NLU (Natural Language Processing/Understanding) platforms raised funds last year, namely Bahasa.ai that received seed investment from East Ventures in August, and Prosa that received funding from Kaskus.
The new retail sector holds promise, as Warung Pintar, which translates to Smart Kiosk, raised two investments in 2018—US$4 million from East Ventures in February, and then the same amount from Vertex Ventures, Pavilion Capital, and Line Ventures in August. The company claimed to have grown by 3,477%, with average monthly growth of 187% since its launch in January 2018. Integrating technology for Indonesian SMEs, the startup currently has 319 kiosks that are operated by over 500 micro-entrepreneurs across Greater Jakarta.
Fintech, especially P2P lending, has been arguably the fastest growing sector in recent years. The Indonesian Financial Services Authority (OJK) recorded the total financing channeled by technology-based lending service providers as US$951 million in the first three quarters of 2018, and projects the total loan figure to grow to US$2 billion by the end of 2019.
Among the startups that received massive investments in 2018, three belong to this sector. These include FinAccel (Kredivo), which raised US$30 million in Series B funding; C88, whose Series C round brought in US$28 million; and Moka, with US$24 million in Series C funding.
The growth of P2P lending startups has encouraged tighter supervision from OJK. In the past few months, controversy has surrounded the P2P lending boom in Indonesia. In November, the Jakarta Legal Aid Institute (LBH Jakarta), an NGO that supports citizens’ rights, approached OJK to file a complaint signed by more than 1,300 people who say they are victims of unethical debt collection methods. Regulators sprang into action to develop a system for oversight and sanctions. The Ministry of Communication and Information (Kominfo) has blocked 738 illegal fintech platforms that were not registered with OJK, including 211 sites and 527 apps in the Google Play store.
Aside from P2P lending, digital payment services also hold promise in Indonesian landscape. A study by MDI Ventures and Mandiri Capital titled “Mobile Payments in Indonesia: Race to Big Data Domination” predicts that the mobile payment market will reach US$30 billion in total gross transaction value by 2020, and reach a compound annual growth rate of 158% for the period between 2016 and 2020. The report indicates that two operators with the highest user bases are Go-Pay and Telkomsel’s TCash, while OVO also experienced significant growth. In OVO’s 2018 report card, the company claims that its user base has grown by 400% since November 2017.
What to expect in 2019
In 2019, fintech is expected to remain at the forefront of Indonesia’s digital industry landscape, with the potential of collaborations with financial institutions. Bhima Yudhistira Adhinegara—an economist at the Institute for Development of Economic and Finance, an independent research body in Jakarta—predicts that small commercial banks with capital less than IDR1 trillion (US$69 million) will need to collaborate with fintechplatforms in order to ensure that their services are up-to-date, while the bigger banks with more capital will develop their own fintech platforms.
Since Indonesia’s e-money market landscape is largely untapped, the country’s digital payment sector still has room for development. Major fintech players like TCash, Go-Pay, and OVO are seeing continuous growth, and the adoption of QR code technology will also address demand. Local media outlet Katadata quoted Bhima saying, “Payment trends with QR codes will be carried out by new players, especially from China, such as Alipay and WeChat Pay.” Fintech players will also need to form partnerships with merchants of various sizes, from small and medium enterprises (SMEs) to big businesses, to facilitate wider adoption. Insurance and wealth management also hold potential for fintech applications, as many Indonesians currently do not have insurance coverage of any form.
For e-commerce, the race between major platforms—Tokopedia, Bukalapak, Lazada, and Shopee—will be increasingly tense, so Bhima doesn’t expect new e-commerce platforms to emerge this year. The latest iPrice statistic shows that local players like Tokopedia and Bukalapak are far ahead of the competition. Yet Singapore’s Shopee recently claimed to be the largest e-commerce player in Southeast Asia and Indonesia in particular, signaling a showdown in 2019.
More SMEs are expected to be active on e-commerce platforms, as the market research agency Nielsen Indonesia estimates local products offered by SMEs accounted for 46% of product purchases during the national shopping day in December last year.
New sectors to rise
Startups in other sectors may also find a foothold in Indonesia this year, as suggested by Yansen Kamto, initiator of the 1000 Digital Startups movement in Indonesia. “I am very hopeful with new sectors like healthcare and educations,” he said to KrASIA. “We can expect new unicorns coming from these two sectors in 2019, and I’m also particularly excited with the food-related ecosystem, including delivery, grocery, agriculture, supply chain, as well as a payment solution.”
This is in line with what was stated by the Minister of Communication Rudiantara last year. He projects that Indonesia will have more than five startups each valued over US$1 billion in 2019, with healthcare and education being the most promising sectors for new unicorns in Southeast Asia’s biggest economy. To support Indonesia’s digital ecosystem, the government has developed several programmes. These include Nexticorn, which aims to provide startup founders with access to suitable investors; SMEs Go Online; and Farmers and Fisherman Go Online. The government also promises to strengthen its e-commerce roadmap and digital certification this year.
In terms of funding, Indonesian startups remain popular among investors. Yansen mentioned that the country’s funding ecosystem was “super active” in 2018, with many investments driven into Indonesian unicorns. “This year, I am confident that there will be more fundings from Southeast Asia and China investors for early-stage startups, especially seed, pre-Series A, and Series A,” Yansen added.
As regional players enter Indonesia’s startup scene, new opportunities for collaboration and expansion may emerge for local firms, both within their home country and across the region.