Facebook in talks with Indonesia's e-payment companies for tie-up

JAKARTA - Facebook is fighting to get a slice of the pie in Indonesia's booming e-payment business, whose revenue is expected to grow nine-fold in the next five years in the country of 270 million people.

It has approached existing digital payment companies to tie-up with and compete with major rivals including local players SoftBank-backed OVO and rival GoPay, owned by Jakarta-based ride hailing firm Gojek and backed by among others Google and China's Tencent. OVO is an affiliate of Grab, Gojek's closest rival in Indonesia.

"We are in conversations with partners in Indonesia, however the discussions are ongoing," Jakarta-based Facebook company spokesmantold The Straits Times in response to queries.

Indonesia, the world's fourth most populous country, has 41 companies that have an e-wallet license from Bank Indonesia. Facebook declined to disclose which of these it has approached to tie up with, but it stressed that it is keen to grow its digital payment business worldwide.

"As Mark Zuckerberg has previously said, we are looking to bring digital payments to more countries. Simple and secure digital payments will not only help friends and families immediately but open up extraordinary opportunities for businesses to grow," said the Jakarta-based Facebook spokesman.

The revenue opportunity of Indonesia's payment market - predominantly contributed by e-wallets - was estimated by Bank Indonesia to be at US$10.4 billion (S$14.7 billion) in 2019. Goldman Sachs, in its March 10 research report on Indonesia's internet, noted the figure may grow to US$95.2 billion by 2025.

Goldman Sach noted a recent rule in Indonesia that requires e-payment companies to create interoperability between one another's machine-readable QR codes, which lowers the barrier to entry for industry players.

"Existing QR codes that have been rolled out will be open to other players as well, creating an opportunity for new players to enter the market," said the investment bank's research note.

The current top two players OVO and GoPay are closely rivalled by third largest player, Dana, which relies on transactions from its affiliated e-commerce Bukalapak. Dana is backed by Ant Financial, formerly known as Alipay, which is an affiliate of China's Alibaba.

Placing a distant fourth is LinkAja, owned by various Indonesian state-controlled companies ranging from Bank Mandiri, the country's largest telco Telkomsel, to state oil and gas company Pertamina, which operates the majority of the country's fuel stations.

Shopee Pay has recently overtaken other players and become the fifth-largest player, relying on its e-commerce business and offering large cashback promotions.

ST understands that Indonesia's e-payment industry is filled with companies run by those with close links to the current administration, providing a unique challenge for any significant newcomer to enter the market.

Facebook announced its new payment platform on Nov 12, 2019, saying it would offer the service across Facebook, Messenger, Instagram and WhatsApp.

Filianingsih Hendarta, head of payment system policy at Bank Indonesia, said that any joint-venture agreement between a payment company and an existing company with a license from Bank Indonesia must seek prior approval from the regulator, adding that the party with the existing license is the one that must file the application.

"If any payment company seeks approval for cooperation with Facebook from Bank Indonesia, we would first need to evaluate the (planned) business cooperation model and see what Facebook's role is in the cooperation, to ensure everything complies with the regulations," Ms Filianingsih told ST.

Indonesia has been exploring ways to tax foreign online firms such as YouTube and Facebook, who do not pay a 10 per cent tax of every dollar of their ad revenue from business generated from South-east Asia's largest economy to the government.

Google, on good faith, started to pay this 10 per cent value added tax since late 2019. Indonesian tax offices have been pressuring other foreign-based digital companies that get revenue here to follow suit.

Foreign e-commerce firm eBay, which is not locally incorporated, does not pay taxes in Indonesia either, creating an unequal playing field with local rivals such as Bukalapak, an online marketplace where people buy and sell goods using e-wallets.