E-commerce outlook in Southeast Asia
This article was published in February 2020. As the COVID-19 crisis has spread and intensified, we understand that businesses in this region, and around the world, are being deeply impacted. For more information, please read our guidance for e-commerce businesses and how Checkout.com is partnering with merchants around the globe.
E-commerce in Southeast Asia is growing at lightning speed and offers a wealth of opportunity for merchants to tap into this market. A recent report shows that consumers across Southeast Asia surpassed $50 billion in ecommerce spend in 2018, a 20% increase from the previous year, with analysts predicting that online consumer spend across the region’s six key economies will reach almost a quarter of a trillion dollars by 2023.
But before expanding into this market, it’s worth studying up on the cultural, financial, and socioeconomic nuances within each economic region as they can vary significantly from country to country.
While e-commerce is hitting its stride, with some experts even calling Southeast Asia the “next gold rush for e-commerce,” nearly three-fourths of the Southeast Asian population of 600 million do not have a bank account and still rely on cash to pay for their online purchases. Countries like Singapore and Malaysia have a high banked population at nearly 90% while developing markets such as Thailand and the Philippines have a banked population of just under 20%. In the last several years, digital disruptors have made it easier for underbanked consumers to access financial services, clearing the way for online commerce and other digital transactions.
While widespread adoption of modern financial services is still in its infancy, there is high internet and mobile penetration across the region. Data from GlobalWebIndex shows that the region’s shoppers are more than twice as likely to make purchases via a mobile phone than they are to buy on a computer, with cash as their preferred way to pay.
As a market with varied consumer behaviors, here are a few other things to consider when entering the Southeast Asian market:
Payments and pricing
The payment space in Southeast Asia is becoming an increasingly crowded and confusing space for businesses to navigate. When starting, you will likely get a broad spectrum of pricing options from different players in the market. Proposals that seem too good to be true often are. Make sure you work with a provider that knows the local market and issue a detailed RFP and include as many comprehensive and pertinent questions as you can. A good PSP will be able to answer your question thoroughly, provide consultation, and will try to find creative workarounds to your unique challenges. You should also be seeking 99.99% in platform uptime and reliability as a minimum. Don’t be afraid to ask for these stats; this is acceptable and expected.
More currencies, more payment methods, more complexity.
Unlike Europe, where there's the single Euro currency and a handful of others, each country in Southeast Asia has its own currency. Furthermore, most of these currencies are volatile and can fluctuate significantly, even within a single day. Therefore, it’s essential to have a clear strategy about how you are going to manage your currency positions internally should you need local settlements across the region. Work with a PSP who has an extensive range of settlement currencies in a centralized hub, allowing you to minimize your foreign exchange exposure while giving the flexibility to receive the same currency settlement. Either way, it's important to have control over your currency positions otherwise, it can quickly eat into your profit margin.
There is also a standard view that it's all about local payment methods in Southeast Asia. This is not necessarily the case. It is important to work with a payment partner who can advise you of which local payment methods are relevant to your business model. For example, if you're a high street fashion retailer, where refunds can be over 30%, make sure that the payment methods you select have an automated refund option. In contrast, if you're a subscription company, be mindful that almost all local payment methods in the region are designed for one time purchases, not recurring. Consult your PSP to determine the optimal payment mix for your business.
Today, Southeast Asian consumers are more connected than ever. According to a recent Forrester report, mobile is the primary channel that consumers in Southeast Asia use to shop online. 62% of online retail sales in Southeast Asia are expected to come from mobile, with Indonesia and Thailand leading the way. Moreover, mobile also plays a big role when consumers shop offline, like researching products, comparing prices, reading reviews, and searching for promotions on their mobile device before buying. Retailers should invest in having a mobile app or ensure their website is mobile-friendly, at the very least, to capture this consumer group.
Due to its geographical diversity, Southeast Asia faces unique logistical challenges when it comes to shipping and delivery. While some countries have reasonable costs and reliable capabilities such as Malaysia and Thailand, countries like Indonesia, which is comprised of thousands of islands, present a bigger logistical challenge. Do your research on local courier and shipping services to examine costs, quality, and shipping times, and establish clear communication with your customers regarding expected delivery times as some may be much longer than others.
Conversion over costs
Many large enterprise companies are learning to prioritize conversion over cost for one simple reason - higher conversions often provide a better payout. For example, if your business is processing $100 million per year, every percentage point increase in conversion equates to an additional $1 million in revenue. In contrast, an increased cost of $0.10 per transaction (using an ATV of $100) would earn you just $100,000. In this case, it pays to invest in boosting conversion rather than small cost-savings in the short term. Of course, this strategy doesn’t just apply to Southeast Asian markets. Be sure to do the math, talk to a payment provider that understands the local market and who can help you with projections.
Want to learn more about navigating the e-commerce market in Southeast Asia? Contact our payment experts today to learn more about entering this growing market and how the right payment partner can help expand into Asia.