Direction of Digital Economy in 2022
Adaptation was the key word in the development of the digital economy in 2020 and 2021.
Supriyanto
The Covid-19 pandemic and mobility restrictions have driven this process, bringing consumers or producers hundreds of steps ahead in the digital era. During this period, it is estimated that there will be an increase of 21 million new digital consumers in Indonesia, which is projected to further increase the value of the internet economy in Indonesia to US$70 billion (Google, Temasek, Bain & Company, 2021).
Not only consumers, producers (traders) have also continued to transform following the digitalization trend. It is estimated that 32 percent of Indonesian businesses have used digital platforms to drive sales during the pandemic. Business actors who use digital technology can earn 8 percent more than those who don’t (Prospera, 2021). The income of medium-scale businesses that use digital platforms is 18 percent higher than those that do not use it.
Adaptation is the first step. After this, Indonesia will enter the expansion phase. The efficiency of transactions as the result of digital innovation has caused the collapse of market barriers, the ease of the payment system. The digitalization of services makes the digital market more vibrant and ultimately encourages the entry of various new players into this market.
The next question is what is the direction of the digital economy in the future and what economic policies are needed to encourage the development of this ecosystem?
From 5G to O2O
UNCTAD (2019) divided the digital economy into three main layers. First, the core layer, namely technology (computers and telecommunications equipment) and infrastructure (internet and telecommunications networks). Second, the digital layer and information technology that results in an increase in technology applications or digital platforms. Third, the digitalization layer of the economic sector, where various goods and services in physical form are transformed into digital form.
These three layers have formed a large ecosystem called the digital economy. Let's discuss the direction of the digital economy by each layer.
First, there will be rapid development at the core layer, namely the emergence of 5G technology. The World Economic Forum and PWC (2020) studies showed that globally 5G technology had the potential to create economic value of $13.2 trillion by 2035 and 22.3 million jobs. With increasing connection speeds (up to 10 Gbps) and a shorter time for devices to upload data (up to
1 milliseconds), 5G opens up opportunities that can revive the economy. For the manufacturing sector, the presence of 5G can drive efficiency through fast and thorough production inspections with predictive intelligence. In addition, the security of the workplace will improve significantly with the help of drone technology (to map the area) or the Internet of Things.
Second, the application layer where innovation will accelerate as the 5G network develops. The development of financial technology will be the engine in driving this rapid development.
Based on research by Bain & Company and Facebook (2020), the value of digital payment transactions in Southeast Asia in 2020, which reached $620 billion, is estimated to further increase to $1,200 billion in 2025.
Heryunanto
Adoption of digital payment services, such as e-wallets, has experienced a sharp acceleration in the pandemic era, where there is a shift from cash to digital payment. A recent survey conducted by Kantar Research showed that in Southeast Asian countries there was a 37 percent decline in cash transactions during the pandemic, while digital transactions increased 25 percent.
The integration of financial technology services will play a key role. Various fintech companies have begun to carry out service integration, where a company has applied end-to-end services. For example, GoTo Financial has integrated multiple services, namely the payment system (Gopay), merchant (Moka) and payment gateway (Midtrans), so that it can no longer be considered as an e-wallet. For companies, the integration of these services is necessary to drive efficiency and expand the financial ecosystem, which ultimately creates new market monetization opportunities.
In addition, the increasing number of fintech innovations, such as PayLater issued by Traveloka, is expected to open up public access to financial services that have so far been unreachable by the public. The boundary between online and offline will become increasingly blurred, especially with the increasing number of online to offline (O2O) services. The presence of O2O services can encourage micro, small and medium enterprises (MSMEs) to enjoy the advantages of the digital economy, where even though the store is still physical (offline), various transactions or company bookkeeping can be done online.
The presence of O2O services can reduce transaction costs, which will ultimately benefit MSME owners. MSMEs adopting digital services (through GoTo Financial) booked a 37 percent increase in turnover to Rp 53 trillion ($3.70 billion) (LD-UI, 2021).
Third, the digitalization layer of goods and services. The advancement of the core layer through 5G technology means that more and more goods and services can be digitalized. For example, PWC (2020) estimated that 5G technology could increase the economic value of the healthcare sector to $530 billion by 2030.
5G technology opens the gate not only for the creation of new services for the health sector, but also for optimizing existing service processes. Real time communication between patients and doctors makes, telemedicine more effective. Everything from remote surgery to drug transportation is part of the
implementation of 5G technology for health services. Better doctor-patient communication has helped improve service efficiency, which results in higher health outcomes, and ultimately reduces the time required for hospitalization.
Furthermore, 5G technology also improves consumer well-being. For example, the transportation sector can provide autonomous cars as well as technology that can monitor vehicle maintenance in real-time. Furthermore, this technology can provide a more personalized retail shopping experience, making it easier for consumers to find goods according to their needs (reducing search costs), to improve the convenience of shopping remotely. Augmented reality technology in the future has the potential to enable consumers to try on clothes virtually.
Heryunanto
Digitalization is the solution
The time when digitalization was seen as mere disruption has passed. Currently, digitalization is a solution, not only for companies to improve efficiency, but also for society in general. In 2022, the digital economy ecosystem will continue to produce innovations that are expected to be a solution to various public problems. One of them is financial inclusion.
Over the last eight years, Indonesia has indeed experienced rapid development in terms of financial inclusion, from 20 percent (2011) to 49 percent (2017). However, the financial sector is still dependent on banking. As many as 79 percent of Indonesia's financial services are still provided by banks due the lack of other financial institutions. Based on the 2020 Financial Inclusion Survey, only 61.7 percent of adults had a bank account.
The emergence of various digital banks, such as Bank Jago, Jenius and Blu, can be a new milestone in the creation of financial inclusion in Indonesia.
The presence of digital banks, especially with the growing integration into the financial technology, can open up public access to financial services. For example, the innovations made by Bank Jago and GoPay enable people to open accounts through the GoPay application. This has resulted in an increase in internet penetration, community adaptation to technology and smartphone ownership, making access to digital financial services a future solution.
Of course, the digital economy should become the right policy solution. When the policy is not right, there is the potential for a mismatch to occur, the policy will be difficult for business actors to adopt or can instead increase compliance costs, which in turn can reduce the potential of the digital economy. To design the right policy, there are two things that must be considered.
First, the “one size fits all” policy pattern should be avoided. Basically, the digital economy consists of various business models, which have different economic functions so that existing policies should be based on the diversity of these business models.
Muhammad Syarif Hidayatullah
Second, policies should also be based on the capacity of digital economy actors. There are thousands of companies engaged in the digital economy in Indonesia, most of which are still relatively small in scale. Based on the Creative Economy Agency, or Bekraf (2018), analysis, most of Indonesia's digital start-ups (85 percent) had an initial capital of below Rp 100 million. It means they are still very sensitive to changes in the cost structure.
Policies that are too rigid have the potential to increase compliance costs, which will burden the new company's financial structure.
Muhammad Sharif Hidayatullah, a researcher at Wiratama Institute and an analyst of Indonesia Services Dialogue Policy
(This article was translated by Hendarsyah Tarmizi.)