Jakarta-based journalist Nabila Marsya takes 500,000 Indonesian rupiah (US$34) from her salary every month to invest in gold, she tells Tech in Asia. What’s uncanny about the gold that the 28-year-old owns is that she’ll probably never see or touch it. That’s because it’s being managed by local ecommerce giant Bukalapak, which launched its digital gold-buying feature, BukaEmas, in September 2019.
By offering a nearly negligible entry point – investments on BukaEmas start from 100 rupiah (US$0.0068) – Bukalapak is trying to woo casual investors exactly like Marsya. The company also makes investing in the precious metal almost as fuss free as ordering a snack from its main app.
The company’s Mitra Tabungan Emas service – an expansion of BukaEmas – even allows people to start gold investment from the closest warung (small traditional stalls) from as low as 10,000 rupiah, he says.
In comparison, buying gold offline requires a minimum investment of around 500,000 rupiah (US$34.19) in exchange for a 0.5g gold bar – the tiniest size available on the market. However, few dealers offer this size, meaning minimum prices for offline investments are often even higher.
Apart from the high cost of initial investment, buying and keeping physical gold has also gone out of style for many reasons, such as the risk of keeping the precious metal without a safe deposit box. Storing large amounts of bullion can also incur hefty storage fees.
Optimists believe Indonesia could be on the verge of an e-gold rush, despite the country’s gold consumption lagging significantly behind China and India.
“Indonesia’s demand per capita is still at 0.2g per annum, which provides opportunity for growth,” says digital microsavings startup Treasury.id, which recently added gold to its list of financial products.
Indeed, Tech in Asia estimates that the size of Indonesia’s potential available gold market could amount to some US$12.6 billion – over three times of what it was worth in 2019 – when benchmarked against China’s more mature market. Bukalapak tells Tech in Asia that it foresees gold-based digital investment to contribute “at least 10% to 20%” of the total gold trade volume in Indonesia.
As most digital gold can be bought with a tap on a mobile app, any single one of Indonesia’s 82 million mobile phone users could become a potential investor.
This massive growth isn’t a given though, as there may be cultural or structural reasons preventing Indonesians from investing in more gold. Overcoming such barriers won’t be easy, but a way forward could be to bundle gold into a basket of investment products. The precious metal, like other assets, is just one of many means to attain financial freedom after all.
Traditional gold industry players stand to make a lot of money in transitioning to online modes, but they could gain a new and more youthful audience by partnering with internet companies like Tokopedia and Gojek instead. These tech platforms, meanwhile, may only make a small cut from gold investing, but it could become a significant use case for their e-wallets.
Going for gold
While gold isn’t as large as other investment products in terms of the total available market, it still commands massive amounts of attention, with “100 times more” online investors in the space compared to other commodities, such as silver or palladium, says microsavings startup Pluang.
With an opportunity as large as this, it’s no wonder that Indonesia’s app giants like Gojek and Tokopedia are locking horns in a race to command their share of the market. Many of these firms have already tacked on bullion as the first investment function on their desktop and mobile apps.
Gojek, for one, picked gold as the first asset for its investment services arm, GoInvestasi, because it’s preferred by Indonesians for “its long-term stability and relatively lower risk profile,” says Budi Gandasoebrata, managing director of GoPay. GoPay is used for transactions such as those on GoInvestasi.
The super app silently rolled out the feature in May in partnership with Pluang, which is backed by the ride-hailing firm’s venture capital arm, GoVentures.
Through GoInvestasi, Gojek is positioning its e-gold offering as a form of savings, with transactions starting from as little as 0.01g of gold – equivalent to approximately 8,000 rupiah (US$0.55). With the feature, users can purchase digital gold in just three simple steps: selecting the quantity, confirming the transaction, and paying via GoPay.
Gojek isn’t the first to offer this, however. It follows in the footsteps of competitor Tokopedia, which was one of the first unicorns to diversify into gold investment products with Tokopedia Emas in early 2018. Having been on the block for a few years, Tokopedia tells Tech in Asia that digital gold is on an uptrend.
“We’ve continuously seen an increase in Indonesian’s enthusiasm for online gold commodities since launching. Tokopedia Emas’ transactions surged more than 3.5 times during Q2 2020, compared to the same period in 2019,” says Vira Widiyasari, vice president of fintech and payment at Tokopedia.
Fintech platform KoinWorks, meanwhile, also created KoinGold, its first investment product outside of its usual peer-to-peer offerings. It sold over 1 billion rupiah (US$68,700) of gold within two weeks of launching the beta version of its gold-dealing feature.
“We added KoinGold to our product mix to better serve our mostly millennial retail clients,” says KoinWorks CFO Mark Bruny. “Any situation where clients can have easier access to suitable investments is a good situation.”
Our main objective is to democratize gold.
There’s also been a bevy of boutique startups that either specialize in gold investment or have widened their offerings to include the precious metal.
Treasury.id is one of them. “Our main objective is to democratize gold,” says Narantara Sitepu, the company’s head of brand development. “We do this by providing a very accessible price point for purchasing gold. Our users can buy starting from IDR 5,000 (US$0.34) – a price point that was not available before we came into the market in November 2018.”
Marsya, the Jakarta-based journalist who invests in digital gold, shares that she would never have imagined herself purchasing the precious metal monthly as a child. “I just know gold could be pawned or sold when you needed money,” she says. But since buying her first gram in 2016, she now checks on her portfolio’s yield daily.
For her, it’s not surprising that many players are jumping on the e-gold bandwagon, as buying in gold is the “most familiar [sort of investment] for Indonesians.”
Younger people, she says, tend to be attracted to these digital startups, as they offer affordable starting prices. Like many young people, Marsya has an aversion to buying physical gold offline, saying that although some startups give the option of “withdrawing” gold and having it delivered, she wouldn’t do so.
For many older Indonesians, though, physical gold is synonymous with wealth and savings. Regardless, KoinWorks found that over 60% of people in the archipelago prefer gold as an investment, as it has been used for generations, with traditions stipulating that gold be part of a wedding dowry.
Apart from this, gold is also Shariah friendly, which means it’s compliant with Islamic rules – a big deal in the Muslim-majority country.
New internet platforms, however, face an issue: They’re perceived as untrustworthy. Maizal Walfajri, who lives in West Java, sets aside 500,000 rupiah (US$34) per month for digital gold investments. But his choice of platform is the one provided by national pawnshop giant PT Pegadaian, rather than the ones offered by mega ecommerce startups like Gojek, Bukalapak, or Tokopedia. He has been using the program since July 2018.
Like many industries in the country, incumbents have a strong grip on the market. “I chose PT Pegadaian, as it’s a state-owned enterprise,” says Walfajri. “I’ve previously used gold trader Indogold, but as I didn’t trust them, I moved all of my investments to Pegadaian.”
The 28-year-old, who calls himself a “traditional customer,” says he used to enjoy his monthly walks to the nearest PT Pegadaian branch to top up his gold portfolio monthly. But with Covid-19, he says he’s been forced to change his habits. He now uses Pegadaian Digital to manage his investments, which include several other mutual funds and stocks.
Buying a grain of gold costs the same as my daily lunch
It’s not just the millennials who are swerving on tradition. Sri Utami Sumarno, a 42-year-old Surabaya businessperson, says – while showing a picture of several of her gold necklaces – that she would “definitely dabble” in e-gold if startups can prove their mettle.
“It just feels odd pushing a button on your smartphone to buy gold. We can’t even feel it,” she says. “But since buying a grain of gold costs the same as my daily lunch, I guess there’s no harm giving digital gold a shot.”
According to a 2019 survey by Financial Services Authority, over three-quarters of Indonesians use financial products and services, but just a third of them consider themselves “financially literate.” It’s this gap in literacy that all the startups are after.
“There is a huge potential for industry players, including those from the technology sector, to participate in increasing the nation’s financial literacy and inclusion,” says Tokopedia’s Widiyasari. “While Indonesian people’s financial literacy has risen significantly, we believe there is still a massive potential for gold investment’s part in increasing that further.”
How does it work?
Besides the minimum transaction value, buying digital gold is just like shopping for groceries or making a purchase online.
Buying e-gold – although done digitally – still means users purchase physical portions of the precious metal. The physical gold that users buy is held in the custody of the issuer until users choose to sell or have the gold delivered. That being said, while some services give the option of having the gold delivered to doorsteps, others only allow users to redeem the gold by selling it back to the vendor at specific prices.
In the market, symbiotic relationships are emerging between ecommerce companies and entities that store and provide gold. Through partnerships, PT Pegadaian, for example, is gaining access to the millions of daily users on Tokopedia and Bukalapak as it tries to shed its image as a pawnshop and move into digital services.
In Gojek’s case, it also works with PT Kliring Berjangka Indonesia, a state-owned clearing house that serves as a custodian for the gold bought on the super app’s platform. When customers buy gold on GoInvestasi, for instance, the money is transferred from Pluang’s segregated account to the clearing house, which then guarantees the physical gold itself.
For Bukalapak, it relies on gold trader Indogold – which also allows users to invest in bullion – and teams up with state-owned mining and metals company PT Anam for storage. The company’s BukaEmas feature offers cash and installment payment options, and the gold that users purchase will then be stored at PT Anam’s virtual boxes. Users may withdraw the gold they have deposited once it has grown to at least half a gram.
Tokopedia, meanwhile, is working with online jewelry sales firm Orori for its Tokopedia Emas platform, while Treasury.id partners with Indonesia’s largest private gold refinery, UBS Surabaya, and Indonesia Clearing House. Koinworks, on the other hand, teams up with several gold aggregators – companies that collect and resell gold from mines.
How much can you gain from gold?
Gold is a safe haven asset, meaning more people invest in it during economic hardship. It comes as no surprise then that gold prices in Indonesia have risen 26.3% since the start of the year.
Despite being an investment product, gold has an inverse relationship with the stock market, as many investors buy more of it to “safeguard” their portfolios during times of political and economic uncertainty.
There’s been even more demand lately, with many economies teetering on the brink of recessions from Covid-19. In the early days of the pandemic, some traders even compared the frenzied buying of gold to that of toilet paper.
According to Treasury.id’s Sitepu, gold stands out when compared to other commodities. Even amid the turmoil this year, it’s the “leading asset” with returns of 24% within six months. Contrast this to crude oil which dipped to a negative price for the first time in history in April this year, and it’s a much safer bet. “Our focus now is to offer gold as an instrument to save,” he says.
However, Pluang co-founder Claudia Kolonas cautions that digital gold is profitable, it’s a “medium-term product” that shouldn’t be used for short-term trading.
A common consensus on the market is that gold as an asset is “virtually permanent,” with no erosion of quality over time, says KoinWorks’ Bruny.
“Gold has both an essential industrial use in electronics and commercially in jewelry. Meanwhile, Bitcoin has none of these features,” he says, emphasizing that the e-gold trend wouldn’t be a flash in the pan unlike the cryptocurrency craze in 2017. “Gold will never go out of style.”
Even so, because tech unicorns occupy only the tail end of the gold investment value chain, they may find limited direct revenue opportunities. In fact, it may be the existing industry players, who own the customer base and infrastructure, that may stand to gain the most.
For internet platforms, digital gold may be a means to another end: increasing the number of use cases for their e-wallets.
After all, the more money a user transacts on the platform, the more insights the platform has on that person. The real gold here isn’t the metal but the data.