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South-east Asia's Internet economy poised to hit US$300b by 2025: e-Conomy report

South-east Asia's Internet economy poised to hit US$300b by 2025: e-Conomy report

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5 -min read
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SOUTH-EAST Asia’s Internet economy is on track to hit US$300 billion by 2025, as the region’s Internet economy soared to US$100 billion in 2019 and more than tripled in size over the last four years. 

According to fresh figures from the e-Conomy report by Google, Temasek and Bain & Co released on Thursday, the US$300 billion projection is US$100 billion higher than the report’s initial target in 2016.

Turbocharging the multibillion-dollar juggernaut are the e-commerce and ride-hailing sectors - which also includes food delivery services - amid rapid digital adoption and fundamental shifts in consumer behaviour.

This also comes at a time where the adoption of digital payments in the region is at an inflexion point, projected to exceed US$1 trillion by 2025 - up from the current US$600 billion - to become the payment method for almost one in every two dollars spent in South-east Asia, said the report.

The e-commerce sector leaped almost seven times from US$5.5 billion to over US$38 billion in the last four years to eclipse online travel as the largest sector in the region’s Internet economy, thanks to a fundamental shift in consumer shopping habits steered by online shopping festivals and other “social” initiatives by commerce players to enhance user engagement online.

“E-commerce has become a uniquely social experience (in South-east Asia), combining the excitement of deals with elements of entertainment,” said the report.

While the US has its annual Black Friday and Cyber Monday sales, South-east Asia, too, has its fair share of shopping festivals and more. For example, the 9.9 (Sept 9), Singles Day (Nov 11) and 12.12 (Dec 12) sales have given consumers a good reason to shop online more regularly, said the report.

To deepen user engagement on their platform, the region’s e-commerce players have rolled out entertainment offerings such as videos of social media influencers reviewing their favourite products, live auctions and in-app messaging to make the buying process more interactive.

Many of these initiatives are also laced with elements of gamification. For example, consumers are often encouraged to work together to bring down the cost of an item during shopping festivals.

Consequently, online shoppers in the region are now making smaller and more frequent purchases online, compared with big-ticket items in the past - in turn unlocking fresh segments of consumer spending, said the report.

Research shows that groceries, personal care and beauty products have become standard online basket items, which see an average order value between US$15 and US$20.

With that, the volume of e-commerce transactions has swelled to over five million orders daily, generating more monetisation opportunities such as advertising for e-commerce players.

“Now that the e-commerce sector has grown exponentially, monetisation is the name of the game,” said the report.

A joint study with data firm App Annie found significant correlation between the time spent on apps and monetisation.

The report noted that higher engagement is seen as a precursor to business growth for companies in the region, which are actively developing new ways for people to spend more time on their apps. 

The goal is to engage and anchor users to their platform, with the belief that engagement will eventually turn into orders.

Interestingly, user engagement is not quite as booming in the e-commerce markets of the US, Europe and Japan, where online shoppers are less interested in spending time online, according to the report. E-commerce apps in these markets typically offer specific services to minimise time taken to browse and order products.  

"People in the region engage deeply in apps and that is uniquely South-east Asian. As that happens, you see GMV (gross merchandise value) going up," said Florian Hoppe, a Singapore-based partner at Bain & Co, during the launch of the report. 

Unique consumer preferences in the region have also catapulted the rise of “Super Apps” the likes of ride-hailing giants Grab and Gojek. Apart from online transport, these firms also offer a range of services, such as food delivery and financial services, on their apps across key markets in the region.

Super Apps have since transformed the ride-hailing industry - now the second-largest sector in the region’s Internet economy - with food delivery as their main source of growth and profitability. Previously, food delivery services were primarily operated by firms such as Foodpanda and Deliveroo.

Similar to e-commerce, the use of discounts and marketing campaigns has played a vital role in ramping up online food orders. According to the report, the value of the food delivery sector has more than doubled year on year, projected to cross US$20 billion by 2025.

“Many (firms) have invested heavily into building loyalty and rewards programmes to deepen customer engagement and retention amid rising competition,” said the report.

Grab, for example, has tiered membership schemes and a variety of lifestyle rewards that users can redeem using points collected from ordering food or hailing a ride. 

In line with the rise of the e-commerce and ride-hailing sectors, digital payments - defined as cashless transactions that include cards, peer-to-peer transfers and e-wallets - have also enjoyed surging adoption rates in recent years, with growth in the double-digit range, said the report.

Accounting for just over US$22 billion in 2019, digital payments is likely to leap more than five times to exceed US$114 billion by 2025. The report noted that while other digital financial services (remittance, lending, investments and insurance) are in a nascent stage, they are expected to increase two to three times over the next five years. 

While there are 360 million Internet users in the region, half have yet to use digital financial services. To add, some 198 million people remain unbanked. 

"If we look at the headroom, we still have a long way to go," said Stephanie Davis, managing director of Google in South-east Asia. 

The untapped opportunities in this space has attracted substantial interest from a broad range of non-bank players looking to gain ground over the incumbents. These include online marketplace Lazada, robo advisory firm StashAway, Indonesian digital lender Akulaku as well as Grab and Gojek.

"As they go about it, challenger and traditional players are both competing and partnering to offer new services in an efficient manner. Some are teaming up to share resources and scale up, others are closing deals to acquire new users, technology and talent," said the report.