130916_International Finance Corporation Inter-Industry Workshop_Spirethoughts on Traditional Retailers_Payment Transations & Characteristics
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Jeffrey Bahar, Deputy CEO of Spire Research and Consulting, was honoured to be invited as a guest speaker at the International Finance Corporation Inter-Industry Workshop focusing on e-payments in the retail sector. He shared his views on how the integration of digital payment in the supply chain would benefit Indonesian retailers in the long run.
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130916_International Finance Corporation Inter-Industry Workshop_Spirethoughts on Traditional Retailers_Payment Transations & Characteristics
- 1. 1 Spirethoughts – Traditional Retailers Payment Transaction & Characteristics Prepared for: IFC Inter-Industry Workshop Retailer Digital Payment: New e-Money Solutions Le Meridien Hotel, Jakarta 16 September 2013
- 2. 2 Traditional Retailers in Indonesia Business & Payment Characteristics 1 Business Profiles: monthly sales revenue, total number of customers and suppliers, percentage ratio of local suppliers, order placement frequency 2 Payment Characteristics: payment frequency and mode to suppliers, customer cash payment ratio, cash deposit transaction frequency, banked-in revenue 3 Adoption Rate for Cashless Payment & Banking e-Channel: Card payment (EDC), internet banking, SMS mobile banking Agenda
- 3. 3 Different Faces of Traditional Retailers in Indonesia Clothing, Textiles, Electricals, Food Products, Food & Beverage Outlets
- 4. 4 Business Profiles (1) Sizable revenues, customer payment transaction volume and value 146 86 33 29 165 57 0 25 50 75 100 125 150 175 200 Electronics, electricals & hardwareFood & beverage outletsFood products Textile Textile Clothings Small retailer Large retailer Monthly Sales Revenue (millions Rupiah) Rp. 61k Rp. 72k
- 5. 5 Business Profiles (2) Local suppliers dominate, frequent payments to suppliers 13 21 0 25 50 75 Small Retailer Large Retailer Total Number of Suppliers Monthly Weekly Weekly Weekly Textiles Food Products Food & Beverages Electronics, Electricals & Hardware Monthly Monthly Textiles Clothing % of local suppliers Order frequency to suppliers
- 6. 6 Cash Payment and Management at Traditional Retailers Though cash still dominates, positive sign of lesser cash for payment to suppliers as compared to cash receiving from customers Payment Frequency to SUPPLIERS Weekly Weekly Bi-weekly Monthly Every 3 weeks Monthly Frequency of Cash Deposited to Bank Daily Daily Weekly Weekly Weekly Weekly Cash Payment from CUSTOMERS Food & Beverages Outlets, small retailer Electricals & Hardware, small retailer Clothing, Large Retailer Textiles, small retailer Food Products, small retailer Textiles, L arge Retailer Cash Payment to SUPPLIERS* * Multiple payment modes to suppliers, cash is still at large and widely used; followed by bank transfers through ATM and at branch
- 7. 7 Are Traditional Retailer’s Revenue Bankable? Business operating profits can turn into savings placed at the banks 31% 25% 39% 33% 47% 38% 0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 50% Food & Beverage Outlets Electronics, electricals & hardware Textiles Food products Textiles Clothing SmallRetailers Larrge Retailers Banked-In Revenue % of sales revenue that is placed in bank accounts
- 8. 8 Are traditional retailers in Indonesia open to technological adoption such as the use of banking e-channels and cashless payment? Traditional Retailer’s Adoption Rate Cashless payment and banking e-channels 1 Penetration rate of e-payment options 2 Usage of online and mobile banking amongst retailers
- 9. 9 44% 33% 49% 16% 35% 17% 11% 30% 24% Card Payment (EDC) SMS Mobile Banking Internet Banking Food & Beverage Outlets TRADITIONAL RETAILERS Electricals & Hardware Clothing & Textiles Traditional Retailer’s Adoption Rate Cashless payment and banking e-channels – within Jakarta JAKARTA traditional retailers
- 10. 10 Card Payment (EDC) SMS Mobile Banking Internet Banking TRADITIONAL RETAILERS Clothing & Textiles 6% 8%18% OUTSIDE JAKARTA traditional retailers Traditional Retailer’s Adoption Rate Cashless payment and banking e-channels – outside Jakarta
- 11. 11 PT Spire Indonesia Tel: (62 21) 5794 5800 Fax: (62 21) 5894 5808 Wisma 46 Kota BNI, 25th Floor, Unit 07-09 Jalan Jendral Sudirman Kav. 1 Jakarta, Indonesia id.info@spireresearch.com www.spireresearch.com
Editor's Notes
- Thank you IFC for giving the opportunities to share in this workshop.Spire Thoughts are based our previous research findings compiled and our understanding on traditional retailers in Indonesia.We pick relevant topics surrounding retailer’s payment transaction and characteristics.
- Three small topics to be covered:First, on the traditional retailers profiles. Their average monthly revenue, number of customers and suppliers, order placement frequency.Then, we will look into the payment mode and frequency to suppliers and how many retailers are still relying on cash payment to suppliers. Likewise, on the cash receiving from their customers… and what is their transaction frequency for cash depositing into bankLast, a topic on their adoption rate for cashless payment & banking e-channels – internet banking and SMS mobile banking.
- The traditional retailers are represented by different faces of retailers…. clothing, textile products, electronics, electrical & hardware products, food products including food & beverages outlets or small eateries, restaurants or ‘warungmakan’ or ‘rumahmakan’ in the local language.This is from a survey sample size of 1,600 traditional retailers, that include small retailers and large retailers, some are semi-wholesalers. The retailers are in Jakarta and outside Jakarta, located in trade centers such as ITC or Tanah Abang, traditional market places or ‘pasar’ in local term and streets of clustered retail locations in shop houses or ‘ruko’ format.
- 1st topic…. the business characteristics of traditional retailers in Indonesia.The revenue of traditional retailers are sizable. Traditional SMALL retailers sales revenue ranges around Rp. 30-50 millions per month, with certain products have higher range close to 100-150 millions. LARGER retailer or semi-wholesalers revenue for textile and clothing are typically higher, above 50 millions up to 200 millions per month.It varies based on the type of products sold by the retailers.(CLICK FOR NEXT TABLE)To provide an indication on total payment transactions at traditional retailers, we provide figures on their total number of customers per day. On daily basis, traditional retailers handle on average 48 customer transactions per day and 29 transactions per day for wholesalers.(CLICK FOR NEXT TABLE)This translate to an average transaction value of 61 thousands and 72 thousands Rupiah per customers, on average – assuming 25 days of business operation per month. The customer payment transaction volume is high with a decent transaction value per customer.
- Typically, traditional retailers would have on average 13 suppliers. Large retailers and semi-wholesalers would have more suppliers.We look at ratio of local or domestic suppliers and their order frequency in order to understand better their supplier payment transaction.(CLICK FOR NEXT)Large retailers are purchasing mainly from local suppliers, between 50% to 75% of their total suppliers. Orders are placed on monthly basis. (CLICK FOR NEXT)Small retailers transact even more heavily with local and domestic suppliers, up to 80% to 90% of their total suppliers. With exception, small retailers of electronics, electrical and hardware products sourced directly from overseas suppliers due to their nature of product origin mostly imported into Indonesia directly by these traditional retailers.Order placement is more frequent especially for food products, on weekly basis.The conclusion drawn from this and previous slides are:Payment transaction volume at traditional retailers are high.1,200 customer payment transaction and 50 supplier payment transaction per month for each traditional retailers
- Now, we look at how large is CASH payment transactions at traditional retailers.Customer payment transactions are still mostly cash, above 95% of all customer payments.Only electronics, electrical and hardware traditional retailers has larger non-cash customer payments, around 22%. (CLICK FOR NEXT)As result, traditional retailers are required to make frequent cash deposited into bank account, either on daily or at least weekly basis. (CLICK FOR NEXT)For payments to suppliers, there are multiple payment modes used by retailers. Cash payment by large is still the most often and widely used (cash-on-delivery) with non-cash payments are mainly bank transfers through ATM and at branch. (CLICK FOR NEXT)Payment frequency to suppliers varies from weekly to monthly.Looking at both sides of payments – customers and suppliers, there is still a large component of cash payments with positive sign of non-cash payment seen, more for payment to suppliers and at lesser frequency basis.
- With so much CASH payment transactions taken place at traditional retailers, the next question from the banks are payment vendors are:Are there enough portion of the revenue banked-in and available in their bank account, to allow for non-cash transactions?(CLICK FOR NEXT)It turns out POSITIVE….Traditional retailers indicated that about 30% - 40% of their retail business revenue are actually banked-in their bank account. Yet there is still a larger portion of 60%-70% are cash fund movement between customers and suppliers without going through the bank.It is a function of cash surplus from the business, frequency of payment and the lead time with their supplier payments.
- Last topic and last slide….Are traditional retailers ready for cashless payment and how is their technology adoption?We will look at: the penetration rate of card payment facility or EDC terminal availability at retailers the usage of internet banking and sms mobile banking among retailers
- For traditional retailers in Jakarta, the penetration rate of EDC is high at these clustered retailers at 40% to 50% rate, thanks to the acquiring bank aggressiveness in pushing their card payment service to the retailers.The use of SMS mobile banking seems to be higher than internet banking for retailers.Penetration rate for SMS mobile banking and internet banking both are promising at the range of 10% to 35%.
- A slight different story for traditional retailers OUTSIDE JAKARTA.Card payment is still low at below 10%. SMS mobile banking and internet banking adoption is below 20% and 10% respectively.After all, it is still not bad news as traditional retailers seem to show openness to cashless payment and payment technology.
- We would like to close our presentation with two key takeaways:Payment transaction volume at traditional retailers are large volume, taking into consideration both cash-in and cash-out transactions from their customers and suppliers. This is an opportunity that all parties – the value chain actors supplying to retailers, banks and payment service providers – required to collaborate to foster less riskier and more cost-effective cashless business society There is a positive sign that cashless payment to suppliers start to take place, though this is still not the dominant portion. After all, traditional retailers are not prone to payment technology. Let’s push ahead for higher usage of e-payment solutions.Thank you for the attention, that ends our presentation.