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Indonesia’s Startup Ecosystem: Pioneers, Trends and Post-Covid-19 growth

In recent years, prominent Indonesia-based startups like Gojek and Tokopedia have been putting the archipelago on the map for start-ups and innovation.

Home to the region’s largest population (270.6 million), and economy, it is no surprise Indonesia is now prime real estate for entrepreneurs with solutions to local problems, like its largely unbanked population, its underdeveloped internet infrastructure and more.

Your Guide To Indonesia’s Startup Ecosystem

The government has also thrown its support behind encouraging startups, especially tech-related ones that will power Indonesia’s advancement into a digital economy. Another sign of the promise Indonesia’s startup scene holds: Indonesia raised one of the highest amounts of venture capital in the region in the first quarter of 2020, second only to Singapore.

Future-proofing Indonesia’s warungs

When COVID-19 first broke out in Indonesia, Agung Bezharie Hadinegor, co-founder and CEO of smart kiosk startup Warung Pintar, saw a big shift in the country’s community-driven culture.

Across Indonesia, it is common for folks to catch up over a teh botol (bottled iced tea) and nasi goreng (fried rice) at the neighbourhood warung, or multi-purpose kiosks selling everything from individual coffee or shampoo sachets and cigarettes by the stick, to prepaid SIM cards and cheap guitars.

For the youth, the warung was where many would gather to play cards and mobile games; for taxi drivers and office workers, a spot to take a break and grab a cold drink or cigarette.

That all changed in a matter of months, as COVID-19 forced everyone to stay at home. For Warung Pintar, which remodels and digitises warungs by providing owners with access to technology that includes a digital POS, free Wi-Fi, an LCD screen for displays, power bank chargers and more, that was the end of business as usual.

But it was also the beginning of a new and innovative chapter for Warung Pintar and other smart startups involving harnessing the Indonesian culture of socialising at warungs to conduct e-commerce.

Going virtual

Launched in January 2018, Warung Pintar aims to empower street vendors in Indonesia. Since then, it has upgraded at least 32,000 warungs in Jakarta and Banyuwangi, and helped them raise their incomes by more than 40%.

With less customers frequenting the warungs, owners, after complying with COVID-19 safety protocols, started visiting their regulars at home to deliver basic necessities ordered via text message, said Agung.

And that’s when people in the community, even those less inclined to adopting technology in the past, started getting on WhatsApp and Facebook groups to order basic items and continue socialising with their former cliques at the warungs.

“In the last couple months, we’ve been trying to improve business for kiosk vendors such as [introducing] e-commerce to them and helping them organise more home deliveries and manage orders from text messages. We are also helping them manage their inventory better,” said Agung.

“We can see how social media and group messaging has gone up in the last couple of months. We’ve been riding on that momentum as well.”

When needs drive mindset change

Importantly, the pandemic has triggered Indonesians to change their mindsets towards technology, convincing both vendors and consumers at the grassroots level of the importance of social media and e-commerce in moving forward amid COVID-19.

“So far, the majority of them are very open to discovering or trying out new things. During this time, people [know] that they have to change somehow or they have to move on and learn or do something new,” said Agung.

Hendra Kwik, co-founder and CEO of Payfazz, an Indonesian fintech platform of banking agents who distribute mobile banking solutions to the unbanked, says he’s observed similar trends, too.

Despite a drop in transactions due to weaker consumer purchasing power, agents are now thinking about novel ways to make money. “We’ve seen them exploring new stuff, and they asked us to provide these services on our applications,” said Hendra.

In fact, many Payfazz agents are warung owners themselves. “We built Payfazz services on top of the warungs because it’s the place where all the unbanked spend their time. Building the banking services on top of this location is very smart because you target the very people that you want to help. It’s a very effective distribution channel when it comes to serve the unbanked,” Hendra pointed out.

Now, Payfazz agents have grown more accepting of using technology and taking things online. According to Hendra, even though Payfazz can help raise incomes by at least 22% to 25%, customers were hesitant to explore new ways of banking before the pandemic.

“But under this new situation where everyone needs to get extra income, they are more open to trying new things. Now we see our apps growing faster than ever,” Hendra said.

Promising growth potential in the new normal

This new environment and mindset may well give Indonesia the push it needs to fully transition into e-commerce and build up a full-fledged digital marketplace.

While e-commerce in the country has been growing fast, market penetration is still low, particularly for payments. According to Achmad Zaky, founder of the Indonesian e-commerce unicorn Bukalapak, 95% of Indonesians still conduct daily transactions offline through the warungs.

“But now that people are forced to order from home, there’s a lot more adoption for e-commerce and that creates stronger demand. It’s an inflection point [in the] growth for companies. And that’s the same thing that happened with our agents,” said Hendra.

To be sure, Payfazz agents are now asking for help to promote their products and services online. These include mobile cash transfers and payment services – which are the missing blocks in Indonesia’s e-commerce sector.

“Because people [who would otherwise visit warungs] will now stay at home with their phones, we are trying to help our agents promote their services and reach customers on their smartphones through communication channels such as Facebook, or by texting them directly,” Hendra said.

Payfazz now also enables its agents to extend their services to customers on a digital IOU basis, and that’s helping the payments system and culture in the country to evolve. “Customers say when the lockdown is lifted, they would like to pay for the services. So we enabled agents to [digitally] give the financial services and products first and take note of who hasn’t paid so they can collect the payment later,” Hendra said.

For Achmad of Bukalapak, the pandemic will not only weed out inefficiencies that had held companies back in the past, it will also mark a new era where startups with new e-commerce solutions for current problems can flourish.

He adds that the situation is “a kind of transit for 95% of the population. They can use platforms like Bukalapak to interact before they use the real e-commerce. That’s the thing right now and we’re pushing that initiative,” he said.

He added that Indonesia has the biggest percentage of small and micro businesses and the lowest e-commerce penetration rates in the world. “We already have 5 million customers. But there is also [more] potential that we can capture. The idea is how we can open up the e-commerce market to the millions of customers in the country,” said Achmad.

For the e-commerce startups and warung owners of Indonesia, the outbreak of a global pandemic may well have triggered a new era of growth.

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