Will Gojek exit Singapore? Reducing its cut from drivers could be a prelude

GOJEK drivers may have cheered the recent cut in commission rates to be paid to the ride-hailing platform operator. But the news may be a harbinger of something bleaker – that Gojek could be eyeing an eventual exit from Singapore.

Gojek last week said that it will lower the driver commission rate to 10 per cent per trip – from 15 per cent previously – from November 2023 until at least the end of 2024. This was touted as a way to help drivers defray increased operations costs, and lure more drivers onto its platform.

A DBS Group Research report published Oct 20 said, however, that the cut in driver commission rates will “intensify losses” for Gojek and parent company GoTo.

The research house said that the business case for Gojek to operate in Singapore remains “weak”. The rate cut, it added, reinforces its view that Gojek will leave Singapore in the medium to long term.

DBS edited its report on Oct 25 to remove this view, although the analyst Andy Sim said the message in the report on tough competition remains “unchanged”.

Indeed, DBS’ argument makes sense. Indonesia-listed GoTo is already facing pressure from investors to turn profitable. And the cut in commissions will be a setback to its efforts on this front.

For the second quarter ended June, GoTo narrowed its losses to 3.3 trillion rupiah (S$284.5 million), from a loss of 7.6 trillion rupiah in Q2 FY2022.

On the ride-hailing front, its adjusted earnings before interest, tax, depreciation and amortisation (Ebitda) improved to negative 164 billion rupiah, from negative 1.4 trillion rupiah the year before.

The driver commission rate cuts in Singapore are expected to rattle these figures in the fourth quarter.

But it is unclear how big an impact those changes will have on its earnings, as GoTo does not provide a breakdown of its revenue by geographical segments.

Shopping for options

Nonetheless, GoTo may turn its resources and attention back to its home market of Indonesia in light of recent developments.

A move by the Indonesian government to separate sales activities from social media apps has given a boost to players such as GoTo’s e-commerce business Tokopedia.

Prior to the new law, Tokopedia had been trying to convince not only users but also merchants to continue using its platform.

UBS Securities Asia in a separate report sees Tokopedia as the biggest winner from the sidelining of TikTok Shop in Indonesia.

According to the e-Conomy SEA 2022 report by Bain & Co, Google and Temasek, gross merchandise value of e-commerce in Indonesia is forecasted to hit US$95 billion by 2025.

This will make Indonesia a key e-commerce battleground for Tokopedia, amid keen competition from rivals Shopee and Lazada.

Then, there is the opening up of GoTo’s financial services in the country, which is seen as a potential game changer.

GoTo Financial has tied up with Bank Jago to offer a bank account that can be accessed by GoPay or Gojek apps.

Customers in Indonesia can upgrade to the service GoPay Tabungan by Jago, which offers a 2.5 per cent interest rate on their balance.

Payments can also be made using GoPay or the Indonesia-standardised QR code for payments.

This comes after GoPay opened its e-wallet service to the rest of Indonesia. New users outside the main cities, or away from physical bank branches, can now gain access to some banking services as well with just a few clicks.

This new service could be the key to tapping into Indonesia’s unbanked adult population of about 97 million.

Banking on Indonesia growth

The race to bank the unbanked in Indonesia has been fierce. Tech companies – including Sea, Grab, and Hong Kong digital lender WeLab – have been acquiring Indonesian banks and turning them into digital banks to tap into this unbanked population.

When Gojek bought a 22 per cent stake in Bank Jago in December 2020, the rationale then was to offer Gojek users access to digital banking services. This has now come to fruition.

It should not come as a surprise that GoTo is moving to open up its digital financial services to the rest of Indonesia.

Patrick Walujo, who was recently appointed GoTo’s chief executive, also had a hand in the transformation of Bank Jago into a digital financial services player.

Already, Indonesia rakes in the bulk of revenue for GoTo. For the first half of 2023, the country accounted for 6.7 trillion rupiah of the company’s revenue, compared with a combined 160.3 billion rupiah from all its other markets.

Other recent news – such as Grab’s potential acquisition of Singapore’s third-largest taxi operator, Trans-cab – makes it only more challenging for competitors struggling with driver supply to operate in the city-state.

Gojek will need to weigh the plans of GoTo in Indonesia and consider if it is still worthwhile maintaining an outpost in Singapore.

Viewed in this context, it would not be a surprise should Gojek decide to exit the market here.

Clarification: An earlier version of this commentary referenced a report that has since been edited. This article has been amended to reflect the edited report.