Monday, June 5, 2023

Indonesia, Philippines struggle to keep up with SEA’s cashless drive

CEBU CITY -- Digital payments are expected to power e-commerce spending in the Southeast Asian region, but as Southeast Asia’s payment landscape is fragmented, integration may be held back by archipelagic Indonesia and the Philippines where cash is preferred.

Shoppers in Southeast Asia increasingly rely on cashless transactions with their digital payments made to ZALORA which reported growth of digital payments to 81.20 percent in 2022, up from 74.61percent in 2020 as connectivity and digitization fueled hyper consumerism in the region.

“Despite the positive outlooks, the payment landscape in Southeast Asia has remained incredibly fragmented. Due to the region’s diversity, integration from market to market is generally difficult for a single player to do at a payment level,” Achint Setia, chief revenue and marketing officer at ZALORA, told Retail Asia.

Transactions closed through the cash-on-delivery (COD) payment method have significantly declined in the last two years to between 15 and 20 percent from the previous 25 percent, according to ZALORA.

According to Southeast Asia Trender Report 2022, ZALORA noted that cash transactions in 2021 in the Philippines reverted to pre-pandemic levels, while cash payments in Indonesia went up to 60 percent in 2021 from 58 percent  in 2020. Setia linked this to the archipelagic topography of the Philippines and Indonesia.

“The challenge with the Philippines and Indonesia is their topography is a lot more diverse, and more spread out. There is a challenge, even logistically for incumbents to expand.  It’s easier for digital incumbents to do that, but even from an offline market and building trust, it is sometimes tricky with so many different segregated and fragmented islands.” Setia said.

Setia said some customers, who are in remote places, are reluctant to use digital payment methods and opt to play it safe by relying on COD. Indonesia for instance, which has more than 17,500 islands, has a huge digital divide between customers in Central Java Island and those in remote islands.

Citing data from the Boston Consulting Group, Setia noted that 57 percent of Indonesians prefer to pay in cash, eight percent prefer mobile wallets, and seven percent use internet banking. There are still a lot of local intakes, but what brands and platforms can do is continuously incentivize customers to move to digital by streamlining the purchase journeys,” Setia said.

“If [brands] can reduce the time from carts to final payment in just one or two clicks, and also build comfort amongst customer in refunding their money; if they can do it consistently and repeatedly, then they will trust your returns and refund policy and some of these challenges can be overcome,” Setia explained.

ZALORA observed that consumers have become more comfortable with real and virtual worlds, but continuously struggle between the two as they seek personalized and more humanized experiences, without foregoing convenience.

On this note, Setia said retailers and brands should not be racing for total digitization to reach last-mile purchasers. Rather, the race should be geared towards “an attempt for agility in a volatile climate and an attempt to make sure that experiences across touchpoints are streamlined,” he said.

 Hyper consumerism in Southeast Asia

Connectivity and digitization that have grown exponentially in the SEA region have also fueled hyper consumerism as shoppers demand flexibility, convenience, and control. Setia noted, for instance, that a lot of high-value purchases were also enabled by “buy now, pay later” or BNPL.

ZALORA found that while credit cards dominate luxury transactions with 41.1 percent of shoppers using them as a payment method, luxury shoppers have also started using BNPL more.  

In 2022, 21.4 percent of luxury transactions were paid through BNPL, up from 12.9 percent in 2021. This is in comparison to the credit card option, which declined from 47.4 percent in 2021. The BNPL method has also given shoppers access to other high-value products, such as those under home and lifestyle, beauty, and women's accessories, to name a few.

Moreover, shopping festivals, such as Single’s Day and double-digit events, have also driven hyper consumerism among Southeast Asians. Setia said brands looking to capitalize on these events need to establish a stronger online presence that will bring customers through a seamless journey from intent to delivery.

“Customers want to build long-term relationships with brands that they love, but they also don’t want it to come at the cost of a lot of hassle or lack of value for money. Both are equally important,” he said.

Towards this end, ZALORA scaled up its benefits programme, ZALORA Now (ZNOW). Setia said that through ZNOW, ZALORA offers a unique experience to its customers by way of early access to big events, faster last-mile delivery services, and even allowing them to discover better products, amongst others.

Beyond this, Setia said brands need to ensure flexibility is integrated in the entire business model especially amidst the current economic and geopolitical landscape that could disrupt supply chains.

“Whether it is sourcing, manufacturing, or production, they’ve all taken a hit, so companies are continuously adjusting their supply chains to adapt to the current environment. We have also seen the cost of transportation and logistics becoming more competitive in the recent times and had really overshot in the past,” he said.

“Brands and sellers just need to ensure that they remain flexible. They should keep trying new business models to overcome the current challenges because they are not going away in a hurry,” he concluded. (Photos: Zalora FB/Google Images)

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