As a merger between Gojek and Tokopedia looks increasingly imminent, talks between the two Indonesian tech unicorns have now expanded to include untangling the complexities posed by OVO. The payments major is partly owned by Tokopedia, and Gojek’s archrival Grab.
While previous reports have indicated that Tokopedia was looking to sell its stake in OVO as part of the merger plan with Gojek, industry executives familiar with the deal told DealStreetAsia that the e-commerce giant is against the idea of relinquishing its holding in OVO.
In fact, it is now likely that OVO will join forces with Gojek’s own payments arm GoPay, two of the executives said.
Tokopedia and Gojek have declined to comment for this story. An OVO spokesperson said that “OVO is always ready and open to collaboration to encourage financial inclusion”.
OVO is understood to be an important play for both Tokopedia and Grab. Both firms have failed to obtain a payments licence in Indonesia, which prompted them to acquire a stake in OVO in 2018. As of December last year, Tokopedia-affiliated companies own 41.1% of OVO’s parent company, PT Bumi Cakrawala Perkasa. Grab, meanwhile, holds 39.2% through its subsidiary GP Network Asia.
The investments in OVO by Tokopedia and Grab, both backed by Japan’s SoftBank Group, have led to a strategic partnership between the three behemoths, creating Indonesia’s largest tech ecosystem that spans multiple business verticals.
Central to this ecosystem is OVO, which, as their preferred payment gateway, poses a credible threat to GoPay, the e-payment arm of Gojek.
According to a survey by market research firm Ipsos in October 2020, OVO and GoPay had user penetration of 46% and 35% respectively. Both lagged market leader ShopeePay, owned by Sea Ltd. A survey from local market research firm Snapcart in June-August 2020 showed that the transaction volume in ShopeePay was the highest at 32% of total Indonesian e-wallets, followed by OVO at 25%.
Alexander Rusli, co-founder and CEO of fintech startup DigiaAsia Bios, believes that it is unlikely that a merger of Gojek and Tokopedia will bring about any changes to the respective brands and consumer-facing apps of the two companies. The same could be the case with GoPay and OVO in relation to their sponsors.
Observers say that the prospect of Tokopedia keeping its holding in OVO could spell a fascinating dynamic in the fintech ecosystem around the Gojek-Tokopedia entity.
Advantage Bank Jago?
The fruits of the merger, however, may come at the back end of the payments play.
“I think they will continue to run as separate brands and with their own separate e-money. Tokopedia will continue to use OVO as its in-app wallet, while Gojek will use GoPay. But the money in these e-wallets will be stored in the same bank, which is likely to be Bank Jago,” Rusli said, making reference to the digital bank partly owned by Gojek.
In December, Gojek increased its shareholding in Bank Jago to 22.16%, from 4.14% earlier, for an investment of Rp2.242 trillion ($160 million).
Rusli, an angel investor in a number of startups, explained that GoPay and OVO have never been direct income sources for Gojek and Tokopedia as they do not charge fees on transactions made on their respective apps. By having a custodian bank to store the money floating in the GoPay and OVO system, the combined Gojek and Tokopedia entity can monetise its payments game through the lending business of the bank.
“So if you ask who will benefit from this, it will be the bank. The custodian bank will be holding a massive amount of money from these two e-wallets. It could be used to lend through P2P lenders that are affiliated with Gojek and Tokopedia,” he said.
Maintaining its own brand and business means that OVO will continue to serve as Grab’s payments partner as well.
Not business as usual
If OVO’s identity remains unchanged in the event of a merger, it would seem to be business as usual for Grab with regard to its partnership with OVO. However, there are challenges.
One potential blow for Grab is that it may no longer be able to offer hefty price discounts through OVO.
A corporate law practitioner that DealStreetAsia spoke to, highlighted some bigger issues that may emerge with respect to OVO’s ownership: Bank Indonesia’s new rules for payment systems that take effect from July 2021.
Non-bank payment services must have at least 15% Indonesian ownership, and at least 51% of shares with voting rights or control must be held by Indonesians, individuals, or entities. The existing rules only specify that foreign owners can hold a maximum 49% stake, with no stipulations on voting rights.
Three scenarios are likely to emerge, under the new rules.
In the first scenario, Grab is considered the sole controller of OVO before the new rules are effective. If this is the case, Tokopedia will only be a non-controlling shareholder of OVO and will not be affected based on the new rules.
In the second scenario, Grab and Tokopedia are treated as joint controllers of OVO, and Tokopedia becomes an affiliate of GoPay. Then, the central bank is likely to evaluate the situation as it typically prefers to have a principal, or a group of principals controlling one payments player, rather than two or more players.
In the last scenario, Tokopedia releases its control of OVO, and Grab will have to buy Tokopedia’s share out to gain control.
As the new rules require Indonesian parties to have 51% control of a domestic payments firm, it remains to be seen if OVO and Grab can satisfy this requirement.