Indonesia e-commerce market is experiencing remarkable expansion, driven by the rising internet penetration, a thriving middle class, and a rising preference for online shopping. 

By 2029, the number of e-commerce users in Indonesia is projected to reach a record high of 99.1 million. This represents a substantial increase of 33.5 million users (51.03%) from 2024 levels, marking the ninth consecutive annual growth and a new peak for its digital market.

In this guide, we’ll cover insights into the country’s market size, market projections, consumer behavior, top e-commerce players, challenges in the digital commerce landscape, and the future outlook of e-commerce in Southeast Asia.

Indonesia’s E-commerce Size and Structure

As of 2023, the market size exceeded USD 45 billion, and projections suggest that this figure will continue to grow, potentially reaching over USD 75 billion by 2025. This rapid expansion is primarily fueled by the increasing number of online shoppers, who are expected to surpass 220 million by 2025. 

The market is projected to reach an estimated value of USD 59.36 billion in 2025, with expectations of further growth to USD 95.84 billion by 2029—a compound annual growth rate (CAGR) of 10.40%.

Several factors have influenced this growth, including the rise of digital payment systems, the increasing internet penetration nationwide, and a burgeoning middle class with disposable income. The COVID-19 pandemic also played a significant role, accelerating the shift towards online shopping and making e-commerce an integral part of the consumer experience.

Market Projections

As internet penetration approaches 70% of the population, more Indonesians are gaining access to online shopping platforms, particularly in rural and underserved regions.

According to Journal of Economic Empowerment Strategy in 2021, Indonesia’s growing middle class, with higher disposable incomes, is also increasingly turning to e-commerce for convenience and a broader selection of products. This demographic shift believe can drive further expansion in online retail. 

The Indonesian government has actively supported digital transformation through various initiatives, including infrastructure investments and simplified online business regulations. These efforts are designed to create a more conducive environment for e-commerce growth.

Moreover, ongoing urbanization and improvements in logistics infrastructure, such as the development of new transport hubs and better road networks, may potentially enhance e-commerce platforms’ reach.

Consumer Behaviour

About 70% of 40 million Indonesians are digitally connected and active on social media, yet only 7 percent shop online. Retailers who can guarantee transaction convenience, security, and support have the opportunity to leverage.

Social media plays a role in shaping consumer behavior in the country. Platforms like Instagram, Facebook, and TikTok facilitate social interaction, discovery, and product purchases. Social commerce, driven by influencers and peer recommendations, is also a growing trend, especially in the fashion and beauty segments.

Many Indonesian consumers, especially those living on remote islands, are very budget-minded and highly sensitive to price. A report from local retailers and distributors shows that most Indonesians prioritize price affordability but still prefers the best quality when buying.  

Digital Payments

E-wallets accounted for 40% of all e-commerce payments in Indonesia in 2023, and their value is expected to grow in the coming years. E-wallets such as GoPay (from Gojek), OVO, and DANA have gained widespread acceptance among Indonesian consumers. The platforms are convenient and secure for many shoppers, and their integration with popular e-commerce platforms has made them preferable.

Indonesia’s e-commerce platforms also increasingly integrate digital payment solutions like Gojek and Grab into their ecosystems. Various services, ranging from ride-hailing to food delivery, have facilitated seamless e-commerce transactions through their built-in payment systems. 

The introduction of the “buy now, pay later” (BNPL) scheme has impacted digital payments by allowing consumers to purchase and pay in installments, often with zero or low interest. The BNPL option made shopping way more accessible, especially for customers on a budget. 

BNPL’s convenience and less intimidating basket cost also reduces the number of abandoned carts. It has increased accessibility to goods, boosted consumer spending, and promoted economic inclusion. 

Top Indonesian E-commerce Companies

Indonesia’s e-commerce sector has experienced significant growth over the past decade, largely driven by several key players shaping the market’s landscape. Take a look at the top companies and their impact:

1. Tokopedia

Tokopedia is one of the largest and most influential e-commerce platforms in Indonesia. Initially launched as a marketplace to connect small and medium-sized enterprises (SMEs) with consumers, Tokopedia has since expanded into various services, including digital payments, logistics, and financial services. The platform supports various products, from electronics and fashion to grocery.

Tokopedia created an accessible online marketplace where small and medium-sized enterprises (SMEs) could easily set up virtual stores without the need for significant upfront investment. The platform provided tools for inventory management, payment processing, and customer engagement, allowing SMEs to scale their businesses. Tokopedia also launched educational programs and resources to help sellers optimize their online presence, reach more customers, and improve sales.

2. Shopee

Shopee, launched in 2015 by Singapore-based Sea Group, quickly became prominent in Indonesia’s e-commerce market. With its mobile-first approach, user-friendly interface, and extensive promotional campaigns, Shopee has become one of the most popular e-commerce platforms in the country. It offers various product categories and known for its flash sales and discount offers.

Shopee makes online shopping more accessible by offering localized services, such as cash-on-delivery (COD) and language support. Their frequent sales events, such as the 9.9 Super Shopping Day and 11.11 Big Sale, have also fostered the online shopping culture in Indonesia. These events have attracted millions of consumers who have also engaged the platform.

Through initiatives like Shopee University, which offers training and resources to help sellers improve their online presence, Shopee has supported the growth of local entrepreneurs. This has helped many small businesses succeed in the competitive online marketplace, further boosting the e-commerce ecosystem.

3. Lazada

Lazada, launched in 2012 and now owned by Alibaba Group, is one of Indonesia’s earliest e-commerce platforms to establish a significant presence. It operates both as a marketplace and a direct retailer, offering various products, including electronics, fashion, and household goods. 

Lazada invests significantly in reliable logistics networks across Indonesia to improve access to e-commerce. Lazada Logistics includes warehouses, fulfillment centers, and partnerships with local delivery companies to offer faster and more reliable deliveries, even in remote parts of Indonesia. Lazada’s investment in infrastructure also set a high standard for other e-commerce platforms.

Lazada’s initiatives, such as the Lazada University program, have also provided training and resources to help local businesses succeed in the online marketplace. This support has enabled many Indonesian sellers to grow their businesses and reach new customers.

E-commerce Compliance with Indonesia’s Local Laws

Here’s an in-depth exploration of e-commerce compliance with Indonesia’s local laws, the challenges faced by the sector, and projections for e-commerce in Indonesia looking forward to 2024 and beyond.

1. Legal Framework

Indonesia has some regulations aimed at protecting consumers. Key laws include the following:

• Electronic Information and Transactions Law (UU ITE), the Consumer Protection Law, and the Trade Law. These laws provide a legal framework for online transactions, digital contracts, data protection, and consumer rights.
• Data Protection: The Personal Data Protection Law (enacted in 2022) imposes strict guidelines on how companies collect, store, and use consumer data. E-commerce platforms must ensure customer data is handle in compliance with these regulations, including obtaining explicit consent for data use and implementing robust cybersecurity measures.
• Taxation: E-commerce businesses in Indonesia must comply with local tax regulations, including value-added tax (VAT) on goods and services sold online. The government introduced new regulations in 2020 requiring e-commerce platforms to collect and remit VAT, ensuring a level playing field between online and offline retailers.
• Licensing Requirements: To operate legally, e-commerce platforms must obtain the necessary business licenses, such as the Online Retail Business License (SIUPMSE). Compliance with these licensing requirements is essential for avoiding penalties and ensuring smooth operations.

2. Compliance Challenges

The Indonesian government has launched several initiatives to help e-commerce companies comply with local laws. These include online portals for licensing and tax registration, and educational programs to inform them about their legal obligations.

The government encourages informal online businesses to formalize their operations by registering with the relevant authorities and obtaining the necessary licenses.

Challenges Faced by E-commerce in Indonesia

1. Infrastructure and Logistics

Indonesia’s archipelagic geography poses significant logistical challenges for e-commerce companies. With over 17,000 islands, delivering goods quickly and efficiently to all parts of the country is difficult, especially in remote and rural areas with less developed infrastructure.

The shipping cost across Indonesia is often high, particularly for last-mile delivery. These costs can be a major barrier to expanding e-commerce operations into less urbanized regions, limiting the reach of online platforms.

2. Payment Systems

Many Indonesian consumers still prefer cash-on-delivery due to concerns about the security of online transactions and trust in e-commerce platforms, despite the rise of digital platforms. Cash-on-delivery can be challenging for e-commerce companies as it increases non-payment risk and complicates logistics.

Most of the population remains unbanked or underbanked, particularly in rural areas. It limits their ability to participate in e-commerce. 

3. Regulatory and Compliance Issues

Complying with multiple regulations and obtaining various licenses can slow business operations and increase operational costs.  

4. Digital Literacy

Urban areas of Indonesia have seen significant increases in digital literacy, but there are still substantial gaps in rural areas. Many potential consumers lack the knowledge or skills to engage with e-commerce platforms, limiting the market’s growth potential.

E-commerce in Indonesia: 2024 and Beyond

Indonesia’s e-commerce market is most likely to grow rapidly, with projections suggesting it could exceed USD 75 billion by 2025. This growth are driven by increasing internet penetration, rising smartphone adoption, and a growing middle class with higher disposable incomes. 

The use of artificial intelligence (AI) to enhance personalization in e-commerce will likely become more sophisticated.  For instance, AI-driven product recommendations, chatbots for customer service, and predictive analytics for inventory management are become more common. AR and VR technologies may become more integrated into e-commerce platforms. This allow consumers to virtually try on products, visualize the items directly, or even shop in virtual stores.

Companies that can effectively address the logistical challenges of Indonesia’s geography will be well-positioned to capture new markets. They will likely expand their reach into less urbanized and rural areas, leveraging logistics and infrastructure advancements.