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Analysis: Facebook, PayPal will help Gojek win Indonesia, but not Southeast Asia

Earlier this week, Gojek announced that it received investment from US-based tech giants Facebook and PayPal. Both firms join existing backers Google and Tencent who also participated in this funding round.

The deal not only gives Gojek the cash it needs to ride out the pandemic, which has affected its ride-hailing and food delivery volumes, but it will also help the Indonesian unicorn in its bid to conquer digital payments in its home country.

Photo credit: Gojek

Looking outside of Indonesia, things are more complicated. The new investment is unlikely to help Gojek make a dent on Grab’s dominance in other Southeast Asian countries. In fact, it’s unclear how much importance Gojek is putting on its regional expansion, as Indonesia remains a must-win market for any consumer tech firm in the region due to its size.

That being said, Facebook’s backing could set the table for more capital injections that may bring the company closer to amassing a war chest that can rival Grab’s.

At the moment, Grab leads Gojek by a wide margin in terms of active users in Southeast Asia, according to third-party estimates seen by Tech in Asia. But while Gojek has a lead over Grab in the same metric in Indonesia, the gap is smaller.

Win-win in Indonesia

The latest investment brings Gojek’s series F fundraise over the US$3 billion mark, according to the company. This implies that it has raised an additional US$800 million since its last announcement in March.

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Facebook’s investment in Gojek marks the social media giant’s first capital injection in an Indonesian firm. Gojek’s payment arm GoPay, which is ubiquitous in the country, may have been a key consideration in Facebook’s decision.

Currently, the payment service is only active in Indonesia – it operates in other countries via a partnership model – and is competing against Grab’s digital payment partner Ovo. GrabPay, meanwhile, is available in five countries.

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For the social network, the recent deal could mark a breakthrough in its attempt to penetrate Indonesia’s payments market.

Prior to this, Facebook had tried to enter the Indonesian payments space by approaching three of the country’s major players, GoPay, Ovo, and LinkAja, a source familiar with the discussions told Tech in Asia. The aim was to bring a peer-to-peer transfer service to WhatsApp, which would allow the app’s users to send money from their GoPay, Ovo, or LinkAja accounts.

According to the person, the integrations have not materialized.

Parallel to these efforts, Facebook has been rolling out its own payments feature, Facebook Pay, in several countries. The service will allow users to transact inside the social media giant’s platforms: Facebook, Messenger, Instagram, and WhatsApp.

With Facebook Pay, for example, users can buy a product they see on their news feeds or send money to their WhatsApp friends directly on these apps.

Facebook Pay

Example of Facebook Pay usage / Source: Facebook

In Asia, the social media firm has launched the feature in Taiwan, Malaysia, and Vietnam, according to its website.

With its investment in Gojek, Facebook could launch the service in Indonesia with GoPay as a payment option. This move would deepen Facebook Pay’s reach among many users in Indonesia, considering the low penetration rate of credit cards, alternative payment methods like PayPal, and even bank accounts in the country.

This chart of Grab and Gojek investors is interactive. You can pan, zoom in and out, and view specific data points.

Meanwhile, the benefit for Gojek is clear: Facebook Pay could help set the stage for true social commerce in the country, where the entire purchase journey for consumers would happen within the social network. A lot of those payments would be processed by GoPay.

“The main value of the deal is the partnership with Facebook,” says Hian Goh, co-founder and managing partner of Openspace Ventures, which has also invested in Gojek.

But there’s a caveat: Some venture capitalists doubt that the collaboration will be exclusive. Over time, users can expect Facebook to add GoPay’s competitors like Ovo and LinkAja to the list of payment options. If Facebook Pay is rolled out to other countries in Southeast Asia, the company may open the platform to more providers.

“It’s less likely to be exclusive because Facebook must want to give the most convenient experience to users,” says Aldi Adrian Hartanto, vice president of investment at MDI Ventures.

That said, Gojek may still have an advantage in the Facebook ecosystem, as it is now part of the company’s investment portfolio, the sources speculate. Facebook could prioritize GoPay as its payment option in the country, for instance.

Merchants have began accepting Go-Pay QR code payments in stores / Photo credit: Go-Jek site

At the same time, the social media titan can also pursue deeper integrations between WhatsApp and the other payments-related services under Gojek’s belt, such as payment gateway Midtrans and point-of-sale app Moka.

“[Gojek’s] ecosystem will eventually give WhatsApp Pay a wide reach outside of GoPay and potentially embed itself deeper into the business processes of MSMEs,” says Hiro Kiga, chief operating officer of cross-border payments startup Wallex. Facebook is already pursuing a similar strategy in India, where it hopes to position WhatsApp as a way for local mom and pop shops to buy wholesale goods.

But with a Facebook-Gojek integration having potentially far-reaching effects, how does PayPal fit into the picture? According to the press release announcing the deal, GoPay users will be able to make payments to any merchant around the world that accepts PayPal.

This could give PayPal a huge boost, considering its main top-up options, credit card and bank accounts, isn’t that ubiquitous in Indonesia. An integration with GoPay would allow the company to tap into the large unbanked population in the country.

However, sources suggest that this kind of integration could become a subject of regulatory scrutiny, as it involves cross-border money transfers. Similar to Facebook, PayPal may not make Gojek its exclusive partner in Southeast Asia. In fact, Grab’s users can already use PayPal to pay for orders.

Gojek declined to disclose details about its upcoming integrations with Facebook and PayPal.

Southeast Asia a big question mark

While Facebook’s investment could prove to be a game changer for Gojek in Indonesia, it’s not clear how much of a bump the company will get in markets where it lags behind Grab. Catching up in those areas will require a huge capital investment.

Moving forward, we also don’t know how much emphasis Gojek will put on regional expansion or whether Facebook’s investment in the firm precludes it from backing similar companies that are active in the rest of Southeast Asia. A common opinion, even among people in the know, is that going abroad is not the main concern or strategy for Gojek.

While The Ken reports that the Indonesian super app could be building remittance features with PayPal’s help, our view is that the move will strengthen its standing among Indonesian users but not for those overseas.

For Wallex’s Kiga, Indonesia will be the center of Gojek’s focus, at least for the foreseeable future.

Gojek Founder

Gojek’s co-founders / Photo credit: Gojek

And yet, there’s an even simpler benefit for the Indonesian unicorn after it adds Facebook to its cap table: raising more money.

The social media company’s involvement is a strong positive signal for Gojek and Southeast Asia which could convince other investors to join in. “Other private equity [firms] may jump in like what happened in India [with Jio],” says an analyst at an investment bank.

After Jio received a US$5.7 billion investment from Facebook, investors like Silver Lake Partners, Vista Equity Partners, General Atlantic, and KKR placed their bets on the company in the weeks that followed.

In Gojek’s case, it’s more likely that its existing private equity backers will top up their investments. Indeed, the Indonesian super app told TechCrunch that its series F fundraise is still “ongoing.”

If Gojek does raise more money, it might be tempting to think that it could finally mount a fight against Grab for the region. But the case isn’t that simple: There’s some indication that Facebook’s investment could cause a cascade.

After the social network’s investment in Jio, for instance, Amazon is now in talks to acquire a stake in the Indian firm’s rival, Bharti Airtel.

In Southeast Asia, Grab could use Gojek’s latest haul as a pitch to raise even more money.

While Amazon has reportedly bowed out of talks with Gojek, it could be enticed to finally place a bet on Southeast Asia. That will be a development worth watching.