Market deep dive: Indonesia and its growing crypto scene

On a blockchain, infrastructure powers the development of apps. This technology layer commonly comes in the form of key management systems, wallets, protocols and other middleware providers—anything sitting below an app. But the mere existence of infrastructure is not enough. Context is everything. Just like the best products, a blockchain infrastructure product is only as good as its ability to serve real societal problems.

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At Portal, we are excited about the way blockchain infrastructure can add value to the daily lives of those in emerging markets. But how does the context of an emerging market shape the way we build our blockchain infrastructure? 

What we can learn from Indonesia about wallets 

Indonesia is a bustling country of 270 million people with a large working age population. Over the last few years, fintech in Indonesia has boomed! “Fintech'' in Indonesia is typically associated with three broad categories: digital wallets, wealth management apps, and crypto exchange apps. I recently spent time in Jakarta in an effort to understand the local ecosystem. Here are a few things I learned:

E-wallets and superapps are important for daily life, especially for the unbanked 

Digital wallets are where it all started. After cash and bank transfers, digital wallets (more fondly known as e-wallets in the region) are the most common way of paying in many Southeast Asian countries, including Indonesia. At least 20% (~60 million) of the country’s population own an e-wallet and some studies put this at an even higher percentage of 50%¹.

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The rise of e-wallets was shaped by a few forces²:

• High smartphone usage - more than 180 million people (more than half the population) use smartphones;
• Regulatory intervention - the Indonesian Central Bank launched a digital payment system called QRIS (Quick Response Code Indonesia Standards) in 2019 to accelerate digital payments in Indonesia for both consumers and merchants. QRIS quickly became the standard by which consumers paid merchants through an e-wallet;
• The innovation of Gojek and Grab - Gojek is Indonesia’s leading superapp with more than 100 million downloads. Gojek started out as a ride-hailing service. In 2016, Gojek launched GoPay, the e-wallet through which Gojek users could conveniently pay and tip drivers as an alternative to cash. This created a large user base that at one point, half of the 100 million monthly transactions through Gojek was processed through GoPay;
• The pandemic - the global pandemic necessitated the use of e-wallets, the primary way of contactless payments, in many locations in 2020 and in 2021; 

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In 2018, the number of e-money transactions rose to $3.3B USD from $800M in 2017³.

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Besides GoPay, Dana and OVO are some of the most popular e-wallets. E-wallets have found that their product serves a large number of underbanked and unbanked individuals who use them to pay merchants, send and receive money, pay bills and shop. In fact, Indonesia has the fourth largest unbanked population in the world, according to the World Bank.

Crypto and fintech are inextricably linked

Wealth management apps such as Pluang and Ajaib started out as investment platforms for the masses, primarily educating the public on stock investment. But as the crypto boom took off, these platforms started offering crypto services and found that a growing number of their users were using the platform to purchase crypto assets with local currency for holding or trading later.

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E-wallets such as GoPay and Dana have extended their services into wealth management as well, offering gold and mutual fund investment offerings. While these e-wallets have not offered crypto investment services, it may just be a question of time. GoTo, the parent company of GoPay, acquired a local crypto exchange in 2022 in a bid to diversify its offerings. 

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While Indodax and Tokocrypto are still the largest crypto focused exchanges in Indonesia by volume and number of users, Reku and Pintu have fast grown their market share in recent years with friendly and approachable mobile user experiences.

A significant part of the population is crypto native

According to App Annie data, 3 million Indonesians own a non-custodial or decentralized wallet like Metamask or Trust Wallet. That is significant, especially considering the difficulty of using a decentralized wallet. This crypto literacy speaks to a growing trend in not only holding, buying or selling crypto assets, but actually engaging with web3,whether it’s decentralized finance, digital collectibles, or blockchain gaming.

Building blockchain infrastructure for Indonesia

How do these learnings inform Portal’s product design principles?

1. Inclusivity. Infrastructure must be built for everyone, especially those who are underserved. For example, blockchain key management development kits like Portal’s SDK must be compatible with the most popular device in Indonesia: an Android phone, often of lower specifications. Infrastructure compatible with iOS only is not accessible for the average person in Indonesia or any emerging market.
   
   
2. Embeddability. E-wallets, superapps and fintech apps are not going away. Infrastructure needs to complement this, whereby any service that can be powered by the blockchain - whether it’s cross-border payments or investing - can be easily embedded into the native user experience of these apps. The infrastructure also needs to be easy to implement so that these big companies can expand their suite of services with a few lines of code.
   
   
3. Convenience. The convenience of paying with a QR code is one of the factors why e-wallets took off. Infrastructure must similarly make processes more convenient. Take sending money with a traditional bank account as an example. In Indonesia and in many countries, SMS one-time-passwords are still commonly used to authorize a transaction. This step of authentication while necessary is inconvenient as it involves a few steps. Cryptographic protocols like Threshold Signature Scheme (TSS) MPC by contrast enables anyone to send funds with 1-click, while increasing security through a distributed key management model. Blockchain infrastructure must increase convenience if it were to be adopted.‍
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4. Value additive. This goes without saying. How can an app like Gojek be more useful with blockchain today? The greatest benefit of the blockchain is a borderless and trustless network. From day 1, people can get access to a global transaction network. So what if a normal GoPay user can send money to a friend or family abroad who is a non GoPay user- all settled by the blockchain? Or what if a Gojek driver, traditionally underbanked, can now be tipped by tourists and expats in US Dollars via GoPay?

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There is a lot to learn about designing a blockchain infrastructure product from observing how people transact in Indonesia. We believe blockchain based wallets can enhance the experiences of many already using e-wallets, superapps and fintech apps today.

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Portal is excited about bringing expertise in security, cryptography and fintech to designing a next-generation blockchain infrastructure product relevant to the experiences of those living in Indonesia and in other emerging markets. In partnership with the Indonesian Blockchain Association, we hope to learn more about the business and regulatory environment to further design a better product. 

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If you love nerding out about the same topics, please reach out to us or email at partner@portalhq.io! We are also at Coinfest Asia in Bali from August 24th to 25th and excited to connect with those in the ecosystem.

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Sources: 1. AC Ventures and BCG report "Indonesia's Fintech Industry Is Ready To Rise"; 2. The Development of Digital Payment Systems in Indonesia: a Review of Go-Pay and Ovo E-Wallets by Rosita Widjojo; 3. Asian Banking and Finance: E-Money Transactions in Indonesia