This weekly newsletter chronicles top digital themes and trends playing out in SE Asia, especially Indonesia. We will decode policy and regulatory changes affecting digital economy sectors, crunch earnings data of top players, track developments related to gig economy workers and attempt to piece together ecosystem buildouts in some of the fastest-growing, venture-backed plays. You can access the previous editions of the Vantage Point weekly posts here.
Executive Summary
- GoTo: The transition is underway
- Digital payments scrambling toward profitability
- Sea Ltd’s Maribank: A measured start in Singapore
- Blibli dives deeper into wealth management
GoTo: The transition is underway
Focusing too much on the headline numbers of GoTo, which reported its fourth quarter (Q4) and full-year 2022 earnings last week, belies what is going on underneath the Indonesian tech giant. The company is moving towards a more sustainable cost base and creating, what GoTo’s management refers to as, foundational products.
There is evidence that the platform is moving away from traditional monetary promotions, and towards more value-added services for merchants and customers. There is also a greater focus on attracting customers who can spend more on services.
GoTo reported that its net loss for the year 2022 widened by nearly 56% year-on-year (YoY) to 40.4 trillion rupiah ($2.6 billion), despite net revenues more than doubling to 11.3 trillion in the year.
For the three months ended Dec. 31, 2022, the group booked 19.5 trillion rupiah in net loss, nearly double of the 10.2 trillion rupiah loss posted in the corresponding period a year earlier.
GoTo, formed from the union of Gojek and Tokopedia in 2021, is still in transition in terms of ongoing efforts to speed merger-related synergies. This has resulted in one-off goodwill write-offs and restructuring costs in 2022. Taking these charges out of the equation, the company’s net loss in Q4 2022 saw a 36% YoY improvement to 6.5 trillion rupiah, which is encouraging as it suggests the company is making larger strides towards profitability.
The moves to cut back on promotional spending were pronounced in Q4 2022, with incentive and product marketing costs declining by 34% YoY.
This undoubtedly had an impact on growth, which slowed across the platform’s key verticals, with on-demand services, including ride-hailing and food delivery, growing only 2% in terms of GTV in Q4 2022, versus 22% YoY in the full year.
On a more positive tack, the company improved take rates in Q4 for its on-demand services — ride-hailing, food delivery etc. — which increased from 20.8% to 23.1%, reflecting lower promotional spending. This segment was also the first to generate a positive contribution margin at 1.3% in Q4.
The management also highlighted that e-commerce should also be contribution margin-positive in Q1 2023. Tokopedia’s GTV increased 13% YoY in Q4 and 18% in FY2022 as a whole, reflecting less of a slowdown, and this segment also saw a slight improvement in take rates to 3.4% in Q4, and 3.1% in FY2022.
Tokopedia continues to offer more value-added services to merchants including fulfilment and logistics as well as advertising, which has significant potential.
The platform’s fintech business, GoTo Financial (GTF), will probably take longer to swing to profitability given that it is predominantly made up of digital payments, which have very low take rates. GTF take rates were impacted by the stronger growth recorded in merchant payments in Q4, which have lower take rates than consumer payments.
On a positive note, the division grew loans by 40% QoQ through its instalment pay-later products, where average loans are profitable.
GTF continues to develop its credit rating abilities using significant data available from across GoTo’s ecosystem. It is initially targeting those with mid- to high- credit scores, although they may experiment on a product basis on those with a lower credit score.
GoTo has merged the merchant-facing businesses at GoTo Financial, as well as streamlined its supporting businesses, which resulted in the recent lay off of a further 600 people, after 1,300 people were laid off in November last year.
There is a key focus by GoTo on more profitable users. GoTo saw resilient growth in profitable consumers of 19% YoY for both on-demand services and e-commerce with more profitable users making up 60% of GTV.
The management admitted that there may be a slowdown in GTV in H1 2023, but the company remains optimistic about long-term growth prospects.
The immediate focus for GoTo is on becoming more profitable. In order to do this it is focusing on investing in more foundational products and services to drive higher engagement from profitable users. GoTo is combating new low-end competitors with GoRide and GoFood Hemat to deliver more affordable services in more localised areas.
Given the mix of cost savings and reduced incentives and sales and marketing spending, the platform’s cash-burn has declined significantly by 60-65% during the first two months of 2023, which will help to extend the runway to operating cashflow breakeven.
GoTo remains upbeat on the outlook, given its optimism on meeting its guidance to hit Group Adjusted EBITDA positive by Q4 2023.
Management highlighted that the monthly adjusted EBITDA improved by 40% in the first two months of 2023 vs Q4 2022.
It also saw its monthly average fixed operating expenditure reduce by 20% in Jan-Feb 2023 versus Q4 2022, while its monthly average incentives and product marketing reduced 20% in 2M 2023 versus Q4 2022.
Although headline GTV growth is likely to moderate considerably in H1 2023, take rates and profitability should continue to improve. There will also likely be ongoing underlying improvements to the longer-term cost base.
The fact that the management has underlined that the company should be able to hit operating cash flow breakeven without requiring external funding should engender greater confidence with investors.
Digital payments scrambling toward profitability
Indonesia’s digital payments landscape continues to evolve with key players — GoPay, ShopeePay, OVO, DANA, and Link Aja — trying to find their own niches or developing other more lucrative businesses such as lending.
GoPay, the most important part of GOTO Financial, is key in providing discounts across GoFood, Gojek, and Tokopedia apart from collating vast tracts of customer data.
The data enables the company to potentially whitelist existing customers who can be tapped as potential borrowers. GoPay is now by far the largest digital payment method on Tokopedia, with ith 95% share of digital payments on the platform.
GoPay also launched GoPay Coins as a rewards currency across the GoTo ecosystem, as well as other select merchants including Cinema XXI, Hypermart, and Blue Bird, among others.
GoPay is already an open-loop digital payment method with increasing use cases outside the GoTo ecosystem.
The other advantage of GoPay is its e-wallet licence that enables users to automatically transfer funds from designated bank accounts.
GoPay’s long-term game plan is to create a standalone app that will act as a wealth management type of ecosystem, allowing customers to manage their day-to-day finances in one place.
ShopeePay is building up in Indonesia with the added bonus that the group’s digital financial services arm, as a whole, is profitable, with the integration of SeaBank Indonesia.
Sea Ltd continues to add new products in lending including Buy Now Pay Later for its e-commerce business and insurance and wealth management to provide financial services to the underserved of Indonesia.
The company underlined the fact during its last results that it remained focused on healthy growth in its loans rather than going all out for growth and this is reflected in its relatively stable NPLs.
OVO remains an unproven force among digital payments players since it lost out to GoPay following the merger of Gojek and Tokopedia. This is because Tokopedia had been by far its largest customer.
At the same time,OVO platform is probably the most successful open-loop player in Indonesia, with the most third-party use cases, as it seeks to replace the business lost from Tokopedia with third parties.
With Grab as its controlling shareholder, OVO is still obviously tied to that ecosystem but has sought to extend its reach to more third-party platforms includingLazada, BliBli, Zalora, Sociolla, and others.
OVO’s main challenge is that its availability of funding has been scaled back, and that means it cannot resort to aggressive cashback deals to grow its base at this time.
DANA is at an interesting juncture given the entry of Sinar Mas Group and the backing of Alibaba through Lazada. DANA now has access to the ecosystem of another e-commerce platform, on top of its connection with Bukalapak through Emtek.
DANA increased its transaction values significantly last year, and now boasts over 120 million users, with around 10 million transacting users per day, edging ahead of OVO
The platform aims to move more aggressively into lending insurance and wealth management, areas where it can draw assistance from Sinar Mas, with Lazada potentially providing a rich ecosystem in areas such as BNPL and lending to MSMEs.
Sinar Mas is involved in a variety of businesses across property, telecom, insurance, and banking, providing a range of potential extensions and use cases for its ecosystem.
DANA follows an open-ecosystem strategy that allows third-party services to integrate their services with its e-wallet. It also provides QR as a method of payment for offline merchants. Over 23 million merchants already use its QR payments service. It has also extended QR for use overseas in Thailand, after the initiation of cross-border QR payments by the governments of Indonesia and Thailand.
DANA looks like the dark horse amongst the digital payments players in Indonesia with the additional financial wherewith from last year’s capital injection, its more recent connection with Lazada and its open ecosystem approach,
The last player on the digital payments pitch is LinkAja, which is a combination of the digital payments operations from Indonesian state-owned banks along with other state-owned enterprises including Telekomunikasi Indonesia, Pertamina, PLN, and Jasa Marga.
It does, however, also have investments from both Grab and GoTo, which look strategic in nature in that it allows for use of LinkAja on both platforms.
Having this rich backing gives LinkAja a natural advantage of a captive ecosystem of multiple use cases across areas of bill payments, toll roads, as well as buying mobile vouchers.
The platform is more of a closed-loop operator in the sense that its services are mainly through forced use and it will tend not to provide promotional deals in the same way as its privately owned peers.
The platform has been making efforts towards greater profitability, as seen in its recently announced results. It has reduced its sales and marketing expenditure by 90% YoY and operating and maintenance expenses by 30% YoY in 2022.
LinkAja managed to increase its revenues by 30% YoY last year to 162.5 billion rupiah whilst halving its operational expenses during the period. The company is expecting to grow revenues by 80% YoY in 2023, with a greater emphasis on increasing its product offering to include more lending products.
It looks likely that LinkAja may look at raising additional capital in April or May this year to drive its growth into the lending space but it is likely to be contained by its closed-loop focus, and government backing.
Players with the largest captive ecosystems are likely to be the near-term winners, with ShopeePay already demonstrating the signs. GoPay probably has the most long-term potential given the breadth of its ecosystem. OVO and DANA are playing more of an open ecosystem approach, with DANA having the most potential to come from behind.
Sea Ltd’s Maribank: A measured start in Singapore
The euphoria over digital banks in Singapore has died down somewhat amid the changed macroeconomic context. As licence winners go about strategies to lengthen their runways, treading cautiously on new investments seems to be the priority.
This is reflective of the more cautious start to digital banking rollout by players in Singapore.
Grab Holdings and Singtel launched GXS Bank in Singapore in August 2022, initially with limited capital. GXS is slated to have a potential addressable customer base of up to 3 million customers across the combined ecosystems of its shareholders.
Standard Chartered and FairPrice Group also launched their digital offering under Trust Bank, which is also available to retail customers, with a potential ecosystem of 1 million customers.
These digital banks operate entirely online, without any physical branches, with customers able to manage their finances through an app supported by 24-hour helplines. These digital banks do not generally impose any minimum balance requirements for their savings accounts.
Sea Ltd’s MariBank – the latest digibank rollout – is no exception to the cautious approach, with the launch of its services to the public on an “invite only” basis, according to its website. It had already been offering its services to employees since Q3 2022.
Maribank is initially targeting savings accounts rather than offering lending products at this stage. However the bank does not require a minimum deposit, salary crediting, or minimum spending but accounts can only be offered to Singaporean residents aged 18 and above.
The initial offering on deposit rates is at 2.5%, which is credited to the customer’s account on a daily basis. This rate is quite attractive relative to local banks given the lack of conditions attached to receiving that rate of interest.
DBS offers rates of up to 4.1% on balances below S$100,000 but the lowest rate is only 0.05% and higher rates are only achieved by multiple conditions such as salary payment and transacting in numerous product areas. OCBC’s rates are also quite similar ranging from 0.05% to 4.0% but with higher rates demanding multiple conditions.
The fact that MariBank is offering savings accounts on an invite-only basis suggests that this is a form of whitelisting customers, who may be suitable for additional products over time.
MariBank offers the most attractive flat rate at 2.5% versus GXS Bank at 0.8%-3.48% and Trust Bank at 1.5%-2.5%.
MariBank aims to be deeply integrated into the Singapore digital economy through young consumers and SMEs, plugging into its three key platforms including Shopee, Garena, and SeaMoney. MariBank is only offering savings accounts and does not yet offer a debit card.
There has been some surprise and possibly disappointment that both GXS Bank and more recently MariBank have not been offering any attractive upfront incentives.
This may be partly due to the current era of frugality or that both banks are not yet prepared to launch their products to the broader market as the rollout currently covers only select users. It may also be that under the Digital Full Bank (DFB) framework, digital banks should not engage in value-destructive competition to gain market share.
Trust Bank, however, does have more attractive sign-up rewards, offering a S$25 NTUC e-voucher on the first card transaction plus a 21% discount on FairPrice Group spending along with a S$10 NTUC e-voucher for each new referral.
Both GXS Bank and MariBank do have some restrictions over the first 1-2 years of operations, including deposits being capped at S$50 million, and an initial paid-up capital of S$15 million. This means that this will be a relatively slow-burn banking business but it will be interesting to see which player comes out on top within the constraints being imposed on their expansion.
Blibli dives deeper into wealth management
Blibli stands out from its e-commerce peers in a number of ways, the first being its focus on more affluent consumers. Therefore, it is not surprising that it is launching a new feature on its app to allow users to invest in mutual funds and gold.
The company is collaborating with investment platforms Pluang and BiBit.id for a new feature called BliBli Invest, where customers can start investing in digital gold with as little as 10,000 rupiah. The services are mainly targeted at younger clientele to provide them with a rewarding investment experience.
However, BliBli is not the first to do this, with the likes of GoTo, Bukalapak, and Shopee also offering wealth management services.
The advantage, though, that Blibli may have over its peers is the investment apps it is collaborating with are well-established and have a good reputation.
Pluang is one of the most active gold traders, being a pioneer in digital gold investment in Indonesia, and is regulated by the Commodity Futures Trading Supervisory Agency.
Bibit.id, on the other hand, is the largest mutual fund trading firm in Indonesia, with over 4 million users, and is regulated by the OJK.
KSEI data for February 2023 show that out of 10.6 million investors in Indonesia’s capital markets, 93.6% invest in mutual funds, making it one of the most important asset classes. Investing in mutual funds, which are managed by professional investors, tends to be the first port of call for new investors, given that it helps diversify risk.
Blibli is a very different animal compared with its listed peers, given its omnichannel approach and large 1P business plus a substantial private-public institutional B2B business.
The company collaborates with more than 27,000 stores that serve the Blibli InStore and Click & Collect features. It is supported by a robust supply-chain infrastructure, including a nationally developed warehousing and logistics network.
Blibli sees synergies between its major operating entities as its customers use more than one service across the platform given that its verticals are relatively high-frequency use-cases across groceries, travel, lifestyle, and fintech. This provides rich data on users, which in turn allows the company to provide more personalised services.
The addition of BliBli Invest adds another string to its bow in terms of services, which it can feed into its existing ecosystem and potentially increase returns from existing customers as well as potentially attract new customers to the platform.
Angus Mackintosh, a consulting editor with DealStreetAsia, is responsible for the publication’s Southeast Asia digital economy weekly newsletter and its monthly research reports. Angus is also the founder of CrossASEAN Research and publishes on Smartkarma.