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Ovo-Dana merger could be Indonesia’s most ambitious crossover event

The merger of Indonesia-based mobile payment services Ovo and Dana, which is reported to be in its final stages, would be the most concrete step toward a duopoly in the country’s digital payments landscape. But its implications could be even larger.

The much-anticipated move would thicken the battle lines between two coalitions, each a sprawling web of tech giants, massive family conglomerates, and popular consumer apps. It’s also a key chapter in a wider battle stretching across ecommerce, fintech, healthcare, and media, with Alibaba and Softbank on one side and Tencent, JD, and Facebook on the other.

Ovo CEO Jason Thompson / Photo credit: Tech in Asia

The prize? The wallets and data of tens of millions of Indonesian consumers. To borrow the meme, this could be the most ambitious crossover event in the country.

Mobile payments is the key to connecting disparate industries, easing transactions, and collecting data on Indonesian consumers. But who has the edge on this front?

The narrative was that Ovo was the strongest offline – thanks to backer Lippo Group’s network of malls and hospitals – while the Gojek ecosystem gave GoPay a foothold online. But this isn’t the case anymore – Ovo’s online presence has been bolstered by its partnerships with Grab and Tokopedia.

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Meanwhile, GoPay stands to benefit from its recent funding round, which saw investment from PayPal and Facebook. The latter also plans to move into ecommerce and payments to tap into its strong user base in Indonesia.

While the merger has not yet been finalized – largely due to regulatory issues – it appears that a duopoly (and the mergers needed to get there) will happen sooner or later.

A powerful combo?

An Ovo-Dana merger could present a united front. Multiple third-party research reports identify GoPay or Ovo as the current market leaders in Indonesia’s e-wallet space. But based on Bank Indonesia data viewed by Tech in Asia last September, Ovo accounted for 37% of total digital payment transaction values in the first six months of 2019. Assuming that the figures still hold true, Ovo-Dana would represent almost half of transaction values in the country at 47%, or US$1.86 billion.

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Gojek disputes these figures, however. While Bank Indonesia’s methodology was not disclosed, the numbers appear to be self-reported by each company and submitted regularly to the regulator for oversight purposes.

Another way to examine the coalitions would be to analyze the popular platforms under their belts and their respective user bases in Indonesia:

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Based on the table above, Tech in Asia took a look at third-party estimates on user time spent on platforms aligned with GoPay, Ovo, and Dana in 2020. Those numbers show an overwhelming advantage for the Ovo-Dana alliance, which benefits from three ecommerce platforms: Tokopedia, Bukalapak, and Lazada.

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GoPay’s ecommerce partners, on the other hand, are chiefly smaller ones like JD.id, Blibli, and Tiket.com. The Gojek app remains the one asset with the biggest time spent figures by comparison.

Conserving fuel

A merger would allow Ovo and Dana to concentrate their firepower on GoPay instead of on each other, says an industry analyst. As a whole, it may also lead to less aggressive marketing initiatives like cashbacks, subsidies, and discounts.

Fundamentally, while promotions are a costly strategy that may be essential during an e-wallet’s first phase of expansion, it’s not as “well-supported” now, says one VC, especially after Covid-19 and the increasing emphasis on profitability.

“[There] would be a bit more targeted promotions. You won’t see blanket 50% discounts anymore,” he says.

Banners showing payment apps’ cashback promos at a Jakarta mall / Photo credit: Tech in Asia

The VC points out that after being “quite aggressive” with promotions early on, GoPay and Ovo have dialed things back. Typically, the entrance of new players in an industry will create a barrage and counter-barrage of promotions, which was true when Dana and ShopeePay first entered the market. So the fewer new players there are, the better it is for the incumbents.

At the same time, it’ll be challenging for a smaller player – even at Dana’s scale – to raise funding in order to go up against GoPay and Ovo. Tough funding environments, such as the current climate, tend to favor larger companies rather than startups, Tech in Asia’s data shows.

“It’s a hard sell [to investors] in this environment, especially for an economies-of-scale business model which can be very costly,” the VC says, adding that players will be encouraged to merge as a result.

Mix and match

A Dana-Ovo alliance would bring complementary pieces together.

While Ovo had a head start offline with the merchants in Lippo Group’s malls and hospitals, it has since built a strong online presence through partnerships with Grab and Tokopedia. Now, that will be compounded with Dana’s presence on Bukalapak, Lazada, and Tix ID.

Dana’s affiliation with Emtek, a media conglomerate, may also lead to a boost in media coverage for the merged company, says the former CEO of an Indonesian ecommerce platform. Emtek owns multiple TV channels, movie studios, and online publications, and one of its subsidiaries is Tix ID, a movie ticketing platform that is also a Dana partner.

A Gojek driver with a GoFood merchant / Photo credit: Gojek

Similarly, GoPay may have started out stronger online thanks to the Gojek ecosystem, but it’s also available as a payment option for offline merchants – especially GoFood partners.

Gojek’s recent acquisition of Moka may give GoPay even more of an edge offline, says the VC that Tech in Asia spoke to. Still, the acquisition happened only recently, so it’s too early to tell what Moka can bring to the table (aside from big data and perhaps a financial services play).

Moka’s scale – it claims to have 40,000 merchants – also doesn’t match up to Lippo or Emtek, both of which are conglomerates controlling billions of US dollars in assets. Most importantly, it is not exclusive to GoPay, as Moka supports Ovo as a payment option, along with Dana and other e-wallets.

GoPay’s secret weapon?

Even though Ovo and Dana may seem to have an upper hand in online reach, the dust has hardly settled.

What could make a big difference for Gojek is the recent investment it received from PayPal and especially Facebook. WhatsApp is the dominant chat app in Indonesia, and its potential use case is reminiscent of WeChat Pay, whose parent firm Tencent is also an investor in Gojek.

An integration with WhatsApp can make it “very convenient to send money to your circles of friends and families,” says a former ecommerce CEO. “[It’s a] less commercial, more social use case.”

The amount of time people spend on Facebook’s family of apps versus local platforms just shows the advantage Gojek can potentially gain.

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Other than peer-to-peer money transfers, Facebook can also pursue deeper integrations between WhatsApp and the Gojek ecosystem, as we’ve written about before. In India, for instance, the social media giant is hoping to position WhatsApp as a way for local mom and pop shops to purchase wholesale goods.

But more than WhatsApp, the commerce use case may be most apparent with Facebook and Instagram, which also enjoy large user bases in the country. Gojek stands to benefit from both platforms’ new “Shops” features, which would allow users to complete their purchases without having to leave the apps.

With the recent investment, Gojek can expect certain advantages from being part of Facebook’s portfolio. However, several VCs doubt that the collaboration will be exclusive – it seems more likely that Facebook will add Ovo and other GoPay competitors as payment options.

As such, the Facebook investment may still be a wild card in terms of how it will actually benefit Gojek, at least for the moment. Still, if the tie-up can bring just 10% of Facebook and Instagram’s Indonesian users onto GoPay (assuming they aren’t GoPay users already) it would amount to 18 million people – more than half of Gojek’s entire monthly active users in the country.

Keep an eye on Shopee and Traveloka

Looking at the duopoly’s alliances and relationships, two prominent names are missing: Shopee and Traveloka. Both companies have so far stayed out of the fray – neither offers GoPay, Ovo, or Dana as payment options on their platforms.

But that doesn’t mean they’re not in the digital payments race. Traveloka has TravelokaPay, a feature developed in partnership with the e-wallet Uangku (backed by the Indonesian telecommunications company Smartfren), while it has also branched out into co-branded credit cards with state-owned Bank Mandiri.

While TravelokaPay so far can only be used within Traveloka itself, Shopee seems to have bigger ambitions for its ShopeePay e-wallet. Aside from the company’s own marketplace – which appears to be Indonesia’s largest ecommerce platform by gross merchandise value – it’s already available at several offline merchants including McDonald’s and Kopi Kenangan (though not exclusively) and is offering promotional cashbacks and discounts.

From the looks of it, Shopee is the 800-pound gorilla in the sector, with its share of time spent in 2020 appearing to surpass that of all the other major ecommerce platforms and super apps.

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Traveloka is not seeing numbers at a similar scale, partly as a consequence of the Covid-19 pandemic. But it’s worth noting that it is still significantly larger than competitor Tiket.com, which is aligned with GoPay. Plus, travel products presumably have larger average basket sizes, as Meituan-Dianping demonstrated in China.

For now, it’s unclear why neither player has aligned with GoPay or Ovo-Dana or whether there are plans to do so in the future (a Shopee spokesperson declined to comment, while Traveloka has not provided a comment at publication).

But Shopee and Traveloka’s backers may offer some clues on where their allegiances lie. The former’s parent firm Sea Group, for instance, counts Tencent as one of it’s key investors – Tencent, of course, is affiliated with Gojek.

Meanwhile, Traveloka may have reason to align with Gojek as well, being backed by global travel giant Expedia Group, whose main rival, Booking Holdings, invested in Grab in 2018. Grab has a hotel-booking feature on its app that directs users to Oyo, Agoda, and Booking.com.

Blockage on the highway

For SoftBank, the creation of its complicated coalition in Indonesia is deliberate at least. It’s widely known that the firm wants its investees, especially those backed by the Vision Fund, to form a “keiretsu” – a Japanese term for a web of corporations that not only own stakes in each other but also help out their partner companies.

That’s easier said than done, however. Firms within a keiretsu possess differing interests, battling egos, and conflicting cultures, all of which could prevent cooperation.

Another hurdle that any coalition will need to clear is regulations. In the case of Ovo and Dana, the most recent merger at a somewhat comparable scale would be Grab and Uber in Southeast Asia, which did not enjoy a smooth regulatory process.

Photo credit: Dana

Indonesia’s anti-competition body (KPPU) may also determine “anti-competitiveness” through the degree of market concentration as well as barriers to entry, an analyst points out. But Joel Shen, a partner at international law firm DWF, says that this would not really be an issue.

“Depending on who you ask, the Grab-Uber merger was either a masterful display of shrewd M&A strategy or a case study on how not to run a merger,” he says. While the merger was eventually completed, it also resulted in penalties, including a US$9.5 million fine from Singapore’s competition regulator.

Shen – whose clients include Grab and Ant Financial – points out, however, that Indonesian regulations do not prohibit substantial mergers or consolidations per se – only those that result in a monopoly and/or unfair competition.

So far, there has been no evidence that a tie-up between Dana and Ovo will be anti-competitive, Shen explains. Additionally, while filing mergers in Indonesia is compulsory, it’s usually done post-merger and is non-suspensory in nature.

Compared to ride-hailing, “there is a more diverse mix of competitors” in payments, says Shen. Uber’s exit from Singapore, for instance, resulted in the market being dominated by a single operator.

Rather than KPPU, Bank Indonesia – Indonesia’s central bank – will likely prove to be the more difficult gatekeeper, he says. After all, Bank Indonesia prohibits any single entity from having a controlling interest in more than one licensed e-money issuer. However, the companies behind Ovo and Dana both possess one e-money license each, which means that a merger would require special dispensation from Bank Indonesia.

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Ovo-Dana may not be a repeat of Grab-Uber / Photo credit: Grab

“If Dana and Ovo are unable to obtain such dispensation, then any plans for a merger will have fallen at the first hurdle,” Shen adds. “I don’t think Ovo and Dana will be able to blindside the regulators in the same way that Grab and Uber did because of the way the payments regulatory framework is set up and administered by Bank Indonesia.”

A fintech executive who is in the process of getting approval for “payment integration” from the central bank says that the entity is “conventional” and “slow” compared to OJK, the country’s financial services authority.

“They’re so reluctant in giving permission to new business models because of legal, security, and financial issues,” she says, adding that Facebook’s idea of WhatsApp Pay may likely face the same hurdle.

Should the merger fall through at the last minute, it seems likely that the status quo – and cash burn, to an extent – would continue, especially when the incumbents face newcomers like ShopeePay.

With so much at stake, it seems consolidation and a move toward a duopoly will still happen at some point. Without the merger, it will just take longer.