Unicorns at the Last Mile

How MSMEs have become the next tech battleground in Indonesia

Stephen Deng
Dec 3, 2019 · 6 min read

Early last year, I wrote an article on how Gojek was forming a new kind of superapp in Indonesia based on online-to-offline ecommerce. My hypothesis was that as a majority unbanked nation, the success of these platforms would require a rethinking of how cash moves into digital wallets and vice versa.

The idea was straight-forward: looking at how mobile money agent-led banking was taking off in Africa, it seemed Indonesia’s unicorns Grab and Gojek were planning to turn every one of their drivers into cash-in-cash-out (CICO) points — essentially roaming, on-demand ATM machines.

In addition, we saw critical acquisitions by both Gojek and Grab that looked very much like agent-led ecommerce points in more rural areas. Kudo and Mapan respectively had hundreds of thousands of agents in Indonesia’s lower-income regions and offered an offline option for the platforms to reach the country’s mass market.

This November, I was invited on a learning trip to Indonesia, funded by GSMA’s Mobile Money Programme for a group of their mobile money operator members, and organized by Caribou Digital Live Learning. The group was in Indonesia for a week to learn about what made its digital economy tick and I was especially interested to see just how far along its CICO evolution had grown now that we’re a year into the experiment. We met with a bevy of internet companies including Gojek, Grab, Dana, Ovo, Bukalapak, Tokopedia, among others. We also had the chance to travel to Central Java to better understand how semi-rural areas were interacting with these massive platforms.

What’s working

Kudo / GrabKios signage in Yogyakarta

Gojek has grown at home focusing on financial inclusion. Bank CIMB Naiga opened up 940,000 new accounts for previously unbanked Gojek drivers. They offer their “Swadaya” program that includes vehicle and mobile device rental, health insurance at 16 cents a day, and loans for housing. Gojek’s Mapan acquisition continues to provide rotating savings to its 3 million members, now with a connection to GoPay.

As for Grab, their Kudo acquisition (now renamed GrabKios) has helped merchants increase their monthly income by 30% while helping Grab recruit an additional 800,000 drivers in a year. While not perfectly integrated, these rural agent networks are becoming a core strategy to effectively enter into more rural areas. They’re offering their merchants working capital loans and insurance starting at 5 cents.

It’s hard to argue that the major transportation and payment platforms haven’t changed the landscape of financial inclusion in Indonesia, especially when it comes to the resources and tech-focused initiatives looking to serve mass market customers. As urban centers become saturated, we are starting to see the MSME store-owner become the next hotly-contested user segment.

What’s still being worked out

P2P transfer while in a Grab

Cash-in via driver is live. I used it in a Grab in Jakarta. However, others in our group failed consistently at successfully completing a top-up via driver. Many were flat out rejected by the drivers themselves. Grab offers a points for cash-ins that feeds into a monetary bonus system. Additionally, it seems some drivers are required to have a certain amount of float available in their wallets to keep driving and cash-ins were subtracting against that balance. It was our experience that the incentives scheme for Grab cash-in via driver wasn’t strong enough for drivers to interrupt their workflow and complete the transaction.

That said, it’s important to distinguish between poor incentives and what’s outright failed. Driver cash-ins feel valuable especially compared to waiting in line at a convenience store to cash-in. The service literally finds you and has the potential to be incredibly powerful. It’s going to take a couple years for the edges to be smoothed out, especially as regulators figure out how they’d like to treat the transaction.

We also saw QR codes everywhere in Jakarta, but that landscape is about to be shaken up by the central bank’s interoperable Quick Response Indonesia Standard (QRIS) set to be implemented in January 2020. Every single QR code, starting with ones presented by the merchant will be interoperable. Over time, QR codes that are customer presented will also be interoperable. This means that all QR-related infrastructure investment, from printed codes to POS devices, will be considered part of an interoperable network. A semi-reset.

For urban consumers, this could be a boon due to the reduction of complexity. All QR payments will follow a few standardized set of processes now. However, I wonder if the regulation ‘reset’ the market too early because we simply did not see many instances of QR usage in rural areas. As the universal QR standards roll out, the incentives to acquire rural merchants and teach them to use QR falls off a cliff. Why spend your resources to do this when your competitors’ resources could do it for you?

It might play out that being the first to acquire the user has lifetime value implications that outweigh subsidizing the QR infrastructure for competitors. The stickiness of the MSME is still weak at the moment but I imagine loyalty will be a core business model consideration going forward.

What hasn’t worked

One of the few MSMEs that did accept digital payments

Ecommerce is not working in rural areas. To be clear, ecommerce purchases by rural customers is not working. We’ve seen a pullback of the “Taobao Village” model in China as it pertains to ecommerce purchases by farmers and we’ve seen a similar pullback in Indonesia by the rural merchant networks in Indonesia.

However, what we have seen is a doubling down of wholesale sales and logistics by the superapp players. From GrabKios to Mitra Bukalapak and Mitra Tokopedia, to new entrants like Warung Pintar, it’s become clear that there is an opportunity to offer MSMEs restocking and delivery services semi-directly from FMCGs while layering on digital sales (airtime, billpay, tickets) and cash-in.

What’s next?

QR code interoperability is coming in 2020

We have to remember that Indonesia’s unicorns are just about to graduate elementary school — they’re roughly a decade old. In urban centers like Jakarta, we will continue to see the bloodbath of cashbacks and user acquisition strategies that already exist. However, the megatrend of unicorn companies not meeting profitability expectations has entered into the ecosystem as talk about pathways to sustainability become more frequently mentioned. The coming interoperable QR policy will shake things up, given that regulators clearly want to simplify and standardize the QR payments flow across providers. Cash-in via driver will likely continue to iron out its wrinkles, especially on the incentives side.

We also have to remember it has only been the last handful of years that these companies have truly experimented with rural ecommerce and digital payments. We’re starting to see agent-led ecommerce pick up in East Africa with Copia’s $26 million Series B. It’s clear the rural ecommerce market benefits from the in-person trust and demand aggregation that these agent-led models engender, but it’s unclear how far the model scales. PinDuoDuo in China has seen incredible growth from social ecommerce starting in lower-tier areas, but it’s clear the model is moving upmarket to keep its pace of growth. I imagine there will be another ramp up of attempts to extend ecommerce purchasing to rural users in Indonesia as we better understand what works and what doesn’t.

We know that the last-mile MSME is the next contested customer segment for Indonesia’s tech giants. Each has a similar strategy right now that includes inventory management, digital good sales, and a growing collection of digital financial services such as working capital loans and insurance. The rural ecosystem is still mostly cash but we’re starting to see digital behaviors from forward-thinking store owners.

It’ll be fascinating to see what another year will bring.


We’re ​an early-stage accelerator that delivers funding, mentorship, and strategic advice to entrepreneurs as they refine, launch, and grow early-stage fintech ventures in emerging markets. www.dfslab.net

Stephen Deng

Written by

Investments @TheDFSLab. 2X @Cal Golden Bear.



We’re ​an early-stage accelerator that delivers funding, mentorship, and strategic advice to entrepreneurs as they refine, launch, and grow early-stage fintech ventures in emerging markets. www.dfslab.net

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