Disrupt on e-commerce: ‘AirAsia broke down barriers’

• Three factors have contributed to the e-commerce explosion in Malaysia, say Disrupt panellists
• While the promise of continued growth is there, challenges such as security and trust remain

IN the first dotcom wave in the mid to late 1990s, e-commerce was already being bandied about as a transformational model. Companies were setting up what they called ‘e-commerce sites’ that were nothing more than electronic brochures, and ministers were making declarations and trying to get Malaysian companies to jump on the bandwagon.
 
Except that the bandwagon did not go anywhere. E-commerce was a bust, largely speaking, although a few of the early pioneers are still around today, having revamped and pivoted to survive.
 
This is in stark contrast to the e-commerce space in Malaysia today. Big players have come into the market, local players are forming partnerships to stave off foreign competition, and analysts and market research firms are having trouble adding up the big numbers.
 
Last year, Goldman Sachs projected that the e-commerce market in Malaysia would be worth US$1.1 billion in 2012, with a 30% year-on-year growth. Euromonitor had a smaller but still impressive forecast of US$623 million by 2016.
 
Regulator Bank Negara Malaysia’s Report on Payments 2013 reveals that the total transaction value from credit cards and international debit cards was US$30 billion – and 12% of this or US$3.6 billion came from Internet/ e-commerce transactions.
 
While we were having a long blink, e-commerce just took off in Malaysia. And of the driving forces was a company that isn’t usually associated with e-commerce: Low-cost carrier AirAsia.
 
“AirAsia was the first big e-commerce leap,” said Lim Kok Hing (pic), founder of online payment systems provider iPay88. “You couldn’t buy those RM1 airline tickets [on promotion] if you weren’t willing to conduct an online transaction. You had to use your credit card; you had to buy online.”
 
That opened up new dimensions in consumer trust, where previously Malaysians were not generally confident of giving out their credit card numbers online, Lim said at the DNA-TeAM Disrupt panel discussion on ‘E-commerce: Is it game over?’ on July 24.
 
A second push came from group-buying sites, which also boosted Malaysians’ confidence in online transactions, he said.
 
“They had all these great deals, and if you wanted that 70% discount, you needed to buy online,” he added.
 
There is now a third push, coming from mobile adoption, said Lim. “It’s going to pick up even faster when the user experience improves,” he added. “You may have a desktop at home or a notebook computer – but which device is with you all the time?”
 
His fellow panellist, Mohd Suhail Amar Suresh Abdullah, executive vice president and head of Virtual Banking & Payments at Maybank Bhd, agreed on mobility being the next leap, but added that Maybank looks at mobility as a whole, and not just at mobile phones.
 
“Maybank started its online portal in 2001, and we now have 2.3 million active customers – those who regularly conduct transactions,” he said. “Today, on an annualised basis, we should be crossing RM20 million (US$6.3 million) in e-commerce transactions alone.”
 
“It’s not just about mobile phones but about mobility -- customers want to conduct transactions anytime and anywhere, and tablets have really opened up these opportunities,” he said in the panel discussion moderated by Digital News Asia (DNA) founder and chief executive officer Karamjit Singh.
 
“In our view, it’s ‘phablet’ world – phones and tablets,” he added. “Malaysia will have a 60% penetration rate into the app world, and e-commerce itself will transform into an app world.”
 
However, Suhail (pic) said that if one just takes mobile phones, m-commerce in Malaysia is negligible. “We’re still at the infant stage as a country, but definitely on a growth path.”
 
Another driving force which the first two panellists did not mention was the entry of deep-pocketed foreign competitors, such as Japanese online giant Rakuten and Lazada, a company under German powerhouse Rocket Internet.
 
Rakuten Malaysia was launched last November and already has more than 40,000 products listed on its virtual stores, and about 150 merchants on board, said its chief executive officer Masaya Ueno, also a panellist at the Disrupt session organised by DNA and the Technopreneurs Association of Malaysia (TeAM).
 
“We’re a business-to-business-to-consumer (B2B2C) company where we’re the middle ‘B’,” he said. “We connect local merchants to consumers; we enable the merchants to build their own virtual storefronts while we take care of everything else, including payments and marketing.”
 
Ueno noted that Rakuten has a host of other services beyond e-commerce, including financial services and also issues its own credit cards, and aims to be the “No 1 Internet services company in Malaysia.”
 
“We launched in Indonesia and Thailand before Malaysia, but Malaysia has really taken off because the payment gateways and infrastructure are just so much better here,” he said.
 
The other big foreign player in Malaysia’s e-commerce space is Lazada, which recently got a US$100-million injection that really “acted as the trigger for this discussion,” said DNA’s Karamjit.
 
“What’s interesting is that it said the bulk of this money would be going towards improving its logistics and supply chain, which is pretty amazing because Lazada already offers free delivery and seven-day returns, which in turn is forcing Malaysian e-commerce players to up their game,” he said.
 
Lazada has been in five South-East Asian countries since early 2012: Indonesia, Malaysia, the Philippines, Thailand and Vietnam, said its CEO Maximilian Bittner (pic). “We saw the same problems in terms of fulfilment and payments that others saw, in getting consumers to trust that when they buy online, they will get what they ordered, so we set out to control the supply chain.”
 
This entails Lazada buying from the merchants and stocking their goods in its warehouse to help ensure customers get what they ordered as soon as possible, he added.
 
“A lot of effort has gone into that, and a lot more will go into it,” said Bittner. “We’re now a B2C company, and will be looking towards becoming a B2B2C company – not because we want to pick a fight, but because it’s just a matter of expansion.”
 
He agreed with his fellow panellists that mobile was going to be a big factor in driving e-commerce in South-East Asia, adding that the other driving forces were the dynamic economic growth in the region and the fact that e-commerce still has space to grow.
  
Challenges and solidarity
 
Still, the panellists agreed that there were still challenges ahead, among them being the need to improve the user experience on the mobile front, and getting more people to use credit cards.
 
According to Bittner, about 40% of Lazada transactions are via credit cards – the rest are via cash-on-delivery and bank transfers, which can create their own problems.
 
“One thing we need to do as an industry is not let the fraudsters creep in,” said Maybank’s Suhail, adding that on the whole however, the financial services industry together with the regulator Bank Negara Malaysia have worked hard over the years to minimise this risk.
 
Both Bittner and Ueno (pic) shrugged off concerns about US e-commerce giant Amazon now offering free shipping in Singapore, and suggestions that it could do the same in other Asean countries.
 
“Amazon is a massive, amazing company, but I don’t see it as a competitor,” said the Lazada chief, adding that the US giant only offers credit card transactions and no other payment options.
 
“Increasingly, consumers cannot wait seven to 14 days for a delivery; they want it within two to three days,” he also said. “And how many have actually returned goods to Amazon? How good is their return policy?”
 
Indeed, Bittner doesn’t even see Rakuten as a competitor, saying that the more e-commerce players there are, the bigger the pie will become and the easier it would be to educate consumers and build in them greater trust in online transactions.
 
“My competition is that other 99% of trade that is still not conducted via e-commerce,” he added.
 
In that, Rakuten’s Ueno agreed with him. “We’re going to see in Malaysia what we saw in Japan 10 years ago – as e-commerce picks up, department stores will begin to see their own sales go down,” he said. “E-commerce is the shopping wave of the future.”

The DNA-TeAM Disrupt session was also streamed live; to view the video, click here.

Related Stories:
 
Disrupt #9: Is it game over for e-commerce?
 
Disrupt #9: Maybank2U and iPay88 join panel
 
Foreign e-commerce threat for retailers in Malaysia?
 
TeAM and DNA out to ‘Disrupt’ the ecosystem
 

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