At the heart of Facebook and PayPal’s fresh investments in super app Gojek is the intrigue of three formidable networks coming together in Indonesia’s payments space.
Connecting those networks will probably be a fast and easy way for each player to accelerate footholds in new markets, industry observers told DealStreetAsia. But for Gojek especially, extracting meaningful economics once those connections are made is a considerably more challenging task and success is no guarantee — which is possibly comforting for its payment rivals.
Gojek on Wednesday announced that it had secured capital from Facebook and PayPal, without disclosing details. Two sources in the investment banking space, who were not part of the deal, said Facebook had invested around $250 million in the Indonesian decacorn, while PayPal put in $30-50 million. Including the latest investments, Gojek has now raised more than $3 billion through its ongoing Series F round.
The pursuit of opportunities in payments drove the latest deal.
According to a corporate filing, Facebook and PayPal were registered as shareholders in Gojek’s fintech arm, GoPay, on May 22. The two firms own 2.4 per cent and 0.6 per cent of the entity, respectively. Two of the largest shareholders in GoPay are Gojek (72.4 per cent) and GIC-owned Gamvest Pte. Ltd (16.8 per cent).
In its announcement, Gojek said it will integrate PayPal’s payment capabilities into its services, enabling GoPay users to access the US firm’s network of more than 25 million merchants around the world.
“We will offer GoPay as a payment method at PayPal merchants around the world. For example, if someone in Indonesia is shopping on a German merchant’s website, at checkout they will be shown a GoPay payment button rather than a European e-wallet,” said a PayPal spokesperson in response to DealStreetAsia queries.
PayPal will also be made available as a payment option within Gojek’s services in Indonesia and Singapore. The US payment firm will also support some card processing for Gojek in Singapore, the spokesperson added.
Gojek offers its new investors a strong foothold in Indonesia’s mobile economy and access to the country’s leading e-wallet.
For at least the last two years, a recurring study by iPrice and App Annie consistently found Gojek’s GoPay wallet the most used in Indonesia, with $6.3 billion of transactions in February 2019. A recent survey by Ipsos found that 55 per cent of millennials and generation Z consumers in Indonesia using more than one e-wallet platform used Gojek’s GoPay the most often, and 60 per cent of first-time e-wallet users in the same consumer segments used GoPay first.
Beyond payments, Gojek has more than 29 million active users in Indonesia and reaches them through businesses in transportation, delivery and financial services.
Gojek’s dominance gives its new investors a fast track to customer acquisition. WhatsApp, in particular, has been trying to grow its payments business in Asia. Most recently, in India, it teamed up with Reliance Jio which will see it offer users the ability to place orders with local mom-and-pop stores and make payments through WhatsApp.
“Gojek, WhatsApp and Facebook are indispensable services in Indonesia. Working together we can help bring millions of small businesses and the customers they serve into the largest digital economy in Southeast Asia,” said WhatsApp COO Matt Idema.
In Indonesia, “You can’t access the market without Gojek,” said Openspace Ventures co-founder and partner Hian Goh. Openspace is a Gojek investor.
“Indonesia is not driven by big enterprise, it’s by small warungs, millions of them. Unlocking them is key for anyone who wants to win…But specifically for Facebook and PayPal, the partnership with Gojek unlocks the entire Indonesian economy to them. Regulatory, distribution, legitimacy, everything,” Goh said.
Chua Joo Hock, a managing partner at rival Grab backer Vertex Ventures, said Gojek’s reach with small and micro-businesses was important. Those companies “comprise a very large part of the economy and, depending on countries, represent between 50 to 80 per cent of all businesses. But acquiring them individually is very costly. So I see this as an efficient way of customer acquisition for Facebook and PayPal,” Chua said.
For Gojek, the most immediate benefit of the deal is access to precious capital during a global viral pandemic. The company had previously shared that its ride-hailing business fell amid restrictions on travel and social distancing during the COVID-19 pandemic. While its delivery business is making brisk sales during this period, that is understood to still be a loss-making vertical for the company.
But there is also less tangible value in having high-powered global tech giants among your stable of shareholders.
“This is an historic moment for Southeast Asia tech and it is great validation for us,” Gojek co-chief executive Andre Soelistyo said in a social media post. “It’s the first time we’ve seen these global companies all get together to support an Indonesia-born business. It means that we are on the right track and that we are putting Indonesia and our region on the map.”
While the additional capital from the two new investors may be small relative to the combined Series F funds raised so far, having Facebook, PayPal, Google and Tencent on its capitalisation table provides Gojek with an extremely deep-pocketed security blanket to help Soelistyo sleep at night.
“Gojek gets the financial boost they need to continue the market acquisition without the pressure to turn profit or list,” said Leck Ting Yan, a partner at venture capital firm TRIVE.
Gojek could potentially also tap its new investors for distribution channels, technology and new users.
WhatsApp was Indonesia’s second-most pervasive social media application as of the third quarter of 2019, according to Statista, used by 84 per cent of 16 to 64-year olds. The most popular social media platform was YouTube. WhatsApp’s parent, Facebook, held the third spot with an 82 per cent penetration rate. WhatsApp is also a global platform, with more than 2 billion users worldwide and dominant positions in India and several Southeast Asian markets.
PayPal’s value, besides the merchants on its network, is also a globe-spanning payment and funds transfer technology platform that is widely used and accepted, and already set up for cross-border transfers. The platform processed $199 billion of payments in 2019 and had 305 million active accounts.
Those assets could significantly boost Gojek’s network of users and access to distribution channels, in the case of Facebook; and its ability to facilitate transactions, especially cross-border payments and remittances, in the case of PayPal.
Quest Ventures partner Jeffrey Seah said the possibilities are huge. “Looking at what WhatsApp is doing in India with Reliance, you can see a picture of WhatsApp being the network of roads underneath a rainforest while Gojek’s network is the canopy of the trees.”
A PayPal-GoPay alliance could pave the way for full integration of Indonesia’s fragmented consumer banking and payments market, Seah added. It would also allow Gojek to access the vast Indonesian diaspora around the world.
“They are two big foundation beams acting as watch-towers for Gojek’s expanded walled garden. With these two injections, Gojek is now more Constantinople than Rome.”
But those benefits are still just hypothetical. Turning them into reality may not be so easy. To continue Seah’s train of metaphors, any Indonesian can tell you that simply throwing ingredients into a bowl will not give you a hot meal of Soto Ayam.
Gojek’s plan to provide access to international merchants via PayPal may require careful navigation of financial services and anti-money laundering regulations, industry sources said.
Muhammad Azis, head of compliance at Amar Bank Indonesia, said the entities might have to obtain licences to do cross-border transactions and remittances, as well as set up Indonesian entities and infrastructure to process transactions and satisfy know-your-customer rules.
The Indonesian e-money licence, which GoPay holds, “is not designed for hybrid licences with a huge amount of transactions,” Azis said.
The contours of the partnership with Facebook may be slightly clearer. An ongoing tie-up with Instagram allows Gojek users to order food deliveries from merchants on the Facebook-owned social networking platform.
Indonesia is one of the top five markets for WhatsApp with over 100 million users. Due to tough licensing regulations in the Southeast Asian country, WhatsApp can only serve as a platform supporting payments via the GoPay wallet, unlike India where it is seeking to offer peer-to-peer services.
To augment its commerce capabilities, WhatsApp has been adding features such as product catalogues and click-to-message advertisements, which allow users to chat with businesses, especially smaller merchants, and complete transactions.
During the Q1 2020 earnings call in April, Facebook CEO Mark Zuckerberg said, “For commerce on WhatsApp more broadly, we’re very focused on making it so that small businesses can have a presence on all of the apps…Facebook, Instagram, WhatsApp, and Messenger, and can communicate organically with people and then increasingly can do things that can help them drive transactions.”
Gojek has also been actively seeking to establish a foothold across the payments value chain and has made acquisitions including mobile point-of-sale startup Moka, offline payment firm Kartuku, payment gateway Midtrans and lending network Mapan.
Leveraging Facebook’s technology and expertise can provide it with a further boost. For instance, adding WhatsApp tech features to GoPay, or other parts of Gojek’s digital ecosystem such as food delivery, can make the experience more seamless for more than half-a-million merchants that are part of its digital ecosystem.
Some industry watchers feel Gojek may not really need much more help in Indonesia.
“I’m not sure how the Facebook platform and the WhatsApp platform will really change the game too much. They talk about how merchants will be able to communicate with their customers more. But they can kind of already do that through the Gojek wallet, and the Gojek app, and then Grab for that matter as well. So, it’d be interesting to see how that angle plays out,” said KapronAsia founder Zennon Kapron.
With such uncertainties, there is, therefore, no rush to write off Gojek’s Indonesian payment competitors, especially super app rival Grab and e-wallets OVO and Dana.
Grab, which has made significant inroads into Gojek’s home base, does not have a direct fintech play in the country and operates through a non-controlling stake in OVO. It has previously held talks to merge OVO and Ant Financial-backed DANA to counter GoPay’s hegemony in the local market.
In the past, multiple industry executives have confirmed that PayPal had been in talks to join Grab’s cap table, and had been keen to pick up a stake in its fintech arm, Grab Financial Group. The loss of a potential investor notwithstanding, the firm has several large financial institutions on its cap table, including Japan’s largest bank, Mitsubishi UFJ Financial Group.
Forrester analyst Meng Liu said that Indonesia’s digital payment market is still growing, noting that no single digital wallet has more than 50 per cent market share. “Given Facebook and WhatsApp’s high usage among Indonesia consumers, Facebook’s new payment offerings will be a strong entrant and player in the market,” he said.
Chinese investor-backed wallet players such as Alipay and WeChat may be insulated by the fact that their core users are still Chinese tourists.
Still, Liu said: “The expansion of Facebook’s digital financial services to Southeast Asia won’t happen rapidly but will be a gradual process. The local regulators’ attitudes toward Facebook is critical, especially in terms of its usage of local consumers’ data and data privacy protection.”
Ardi Wirdana contributed to this story.