What the flurry of M&A activities in the e-commerce, ride-hailing and payments arena means for the region.
It has been an exciting second quarter of 2021 in Southeast Asia, as we see four of the largest unicorns in the region – Grab, Gojek, Tokopedia and Bukalapak – announce deals that will enable them to strengthen their presence in the key areas of e-commerce and digital payments.
Despite reports of FinTech funding having declined from US$16.8 billion to US$11.6 billion last year, it is clear that a healthy appetite for investing in firms which operate in the e-commerce and digital payment sectors still exists. These are two key pillars which have been instrumental in the increased digitalization of the economy in response to COVID-19.
While Grab’s US$40-billion merger will further increase their ability to offer new solutions such as insurance and lending in the region, we have seen their competitor Gojek rise to the challenge by seeking a merger with Tokopedia, Indonesia’s largest e-commerce firm.
Clearly, there are signs that the age-old theme of consolidation in the regional scene is marching on, whether it is in the form of securing additional funding or through mergers as these key players are looking to expand their market lead in Southeast Asia.
Tristan Chiappini, Vice President, Partnerships and Head of APAC, PPRO, shared his insights with DigiconAsia:
What is your take on the recent flurry of M&A activity surrounding some of Southeast Asia’s unicorns?
Chiappini: The recent M&A activity we are seeing ushers in the next evolution of some of SEAs biggest tech unicorns. Whether it is seeking a public listing or merger, this points to an accelerated rate of consolidation with the likes of Grab and Gojek searching for the catalyst that will propel them to their next stage of growth.
In many ways, such behavior is quite likely to lead to what we’ve observed from the likes of PayPal and Amazon in the Western Hemisphere. Amazon recently acquired Selz, a Shopify competitor that helps small businesses build online stores, and Paypal being the first foreign company to own 100% of China’s Guofubao Information Technology, the firm behind GoPay (different from GoJek’s GoPay), a digital payments platform.
So with additional funds secured from IPOs, or the pooling together of resources via one merged entity, these latest developments will possibly lead to more deals in the near future as SEA’s unicorns step up their game to become the biggest name in the region, with Bukalapak (Indonesian e-commerce firm) and Traveloka (travel booking site) also looking to list later this year.
Apart from the financial benefits, the benefits of a merger as we’ve seen with the new Gojek and Tokopedia entity, is that both parties can leverage each other’s specialisms and access to their user databases to create more efficiencies in how they deliver their product, as well as provide a strong foundation for further expansion. This is especially true when you consider that how the merger between Gojek and Tokopedia will result in an ecosystem that encompasses 2% of Indonesia’s GDP, with over 100 million monthly active users and 11 million merchant partners as of December last year.
The benefits of a merger and receiving additional funding via public listings are clear. Itwill result in africtionless experience for users, whether it is in the form of digital payments or e-commerce. This speaks to the level of competition that exists in a highly saturated e-commerce/digital payments industry – our focus at PPRO is to offer our payment partners the best possible payments infrastructure and high-quality direct integrations which makes it easier for their customers to transact, increasing conversion of cross-border ecommerce.
Are these moves sufficient to help them get back on the profitability track?
Chiappini: Profitability was quite likely to be a key consideration for GoJek and Tokopedia’s merger, as well as Grab seeking additional funding via its SPAC merger. These tech unicorns will continue to face stiff competition from each other, as well as other entities such as Shopee and its newly introduced food delivery service ShopeeFood.
With these tech unicorns building up a comprehensive ecosystem that includes digital payments, e-commerce, ride-hailing, food delivery and financial services, it is inevitable that there are business challenges coming from these multiple business pillars. What is quite likely to happen, is that these businesses will focus more on the profitable ones to ensure that the business as a whole, is profitable and sustainable. These business strategies are not uncommon nor unsound, we see Sony admitting that they are taking a loss on the PlayStation 5, but yet posting a $10 billion record profit as their gaming division is the one that has been delivering all their growth.
Hence, the merger of Gojek and Tokopedia, as well as Grab’s receipt of new funding via a public listing will create economies of scale and direct more users to their services. Upon securing a stable and robust customer base it’s quite likely that we’ll see these companies get back on the profitability track in the very near future, especially when we see Gojek recording an operational profit in 2020, and Grab reporting that they are breaking even in ride hailing and will do so for their food delivery business by the end of 2021.
With increased access to financial resources, it appears that these unicorns are gearing up for a stage of aggressive regional expansion. Will this focus lead to them being spread too thinly across their markets?
Chiappini: Not necessarily. These are very well-run companies which have clear business strategies in place in key markets. The priority is acquiring scale and reach where it really matters. Companies such as Grab focus on the more than 70 million SMEs that account for 99% of all businesses in SEA, and we saw them bringing nearly 600,000 merchants across the region onto its platform in 2020, which is more than double the year before.
Similarly, Gojek and Tokopedia’s merger also appears to be a calculated move to further cement its presence in the rapidly growing Indonesian ecommerce market, followed by regional expansion. This focus will enable these tech unicorns to deliver sustainable growth in the key markets.
Will the new GoTo entity ward off the challenge from Grab?
Chiappini: The competition between Gojek (now Goto) and Grab is an evergreen topic. As it stands, both companies are well placed for the next phase of regional expansion, and we are seeing them roll out financial services with the Gojek entity increasing its ownership in Indonesia’s Bank Jago, and Grab/SingTel winning one out of 4 digital bank licenses in Singapore. It is still too early to say who will come out on top, as the FinTech growth runway is still quite long here in the region.
Both companies have made it a point to make financial inclusion a key part of what they do, and once either firm reaches critical mass in terms of user base in the region, the innovative solutions that they are able to offer in terms of promoting financial inclusion will be what sets them apart.
What are some of the implications of these developments on digital payments, considering that Go-Jek and Tokopedia respectively control Go-Pay and Ovo, two of Indonesia’s largest e-wallets?
Chiappini: Earlier, I’ve mentioned the critical role of partnerships. Regardless of how dominant an e-commerce platform or digital payment method is in a country, it is important for businesses to recognize that they need to fit into the reality of what their customers want – and this includes transacting with the local payment method they prefer.
This forms the core of what we do here at PPRO – to promote a vibrant payments ecosystem where businesses are able to facilitate the acceptance of multiple local payment methods on their platform.
No matter how the landscape changes, the payments and e-commerce pie is sufficiently large enough for everyone to have a slice of, and we’re here to help our business partners speak the payments language they want in a localized and targeted manner.
