Back to square one: Indonesia’s social commerce ban a blow for ‘seamless’ buying experiences

In the last couple of years, the South East Asian region has witnessed a remarkable boom​ in social commerce.

However, it has not been without its challenges. For instance, many platforms lacked a seamless integrated payment system​, creating inconvenience for customers and sellers alike.

Having native shopping features was Bytedance-owned TikTok Shop’s biggest advantage in the market. This seamless integration enhanced the shopping experience, making it easier for users to discover and purchase products without leaving the app.

“It was a clear competitive advantage for TikTok Shop over marketplaces like Tokopedia, Shopee, Lazada just because it was so integrated. They could turn commerce right there. You can see how it can almost kill a lot of the marketplace [sellers] overnight because it’s very powerful,” ​Manvi Kathuria, chief business officer, LEAP Commerce, a Singapore-based end-to-end e-commerce enabler and subsidiary of LUXASIA.

However, a new law has disrupted TikTok Shop's dominance in Indonesia and marked a significant shift in Indonesia's e-commerce landscape.

On September 27, Indonesia banned the selling of goods on social media platforms under its new trade regulations, prompting TikTok Indonesia to shut down TikTok Shop on October 4.

“Social commerce is prohibited from facilitating payment transactions on its electronic system and can only offer and promote goods or services,” ​said Indonesia’s minister of trade Zulkifli Hassan, during a press conference.

A blow to grassroots sellers

The Ministry of Trade said in a statement that this was a move to “address unfair practices in e-commerce that harm micro, small and medium enterprises (MSMEs).”​

Raman Arora, chief operating officer, LEAP Commerce, believes “grassroots sellers”​ on TikTok Shop would be impacted the most by the new laws.

“The last I read, there were around six million TikTok Shop sellers, mostly MSMEs. Anybody who was relying just on TikTok Shop to sell their wares is very much affected because it’s not as straightforward as setting up a shop on Tokopedia or Shopee. You can set up stores, but then you need to jostle for visibility which has become a whole science on its own. Do I think it will affect commerce as a whole? Yes, but overall, at a grassroots level and not necessarily at a level where the larger corporations have been,”​ he said.

Kathuria elaborated: “Creators are still going to create content and brands are going to continue to engage them. It’s just the point of conversion that changes. It will not be TikTik Shop, it will be their own.com or their shop on Shopee, Lazada, Tokopedia,”​ said Kathuria.

Data protection?

During the press conference, Zulkifli emphasised a need to separate social media and e-commerce to prevent algorithmic control and the use of personal data for business purposes.

“Social media [and e-commerce] must be separated, so that the algorithms are not controlled. The provision will prevent the use of personal data for business purposes,” ​said the minister.

Arora commended the Indonesian authorities for taking steps to safeguard consumers and their personal data. He also noted how this could affect businesses.

“Putting some controls on how users can manage their data is always a good thing from a user perspective. But from a commerce perspective, it's not. From a commerce perspective, brands would want to have as much ability to play with the data as possible.”​

On the other hand, Kathuria was sceptical about how much this regulation could protect consumers.

“My counter to that is that the data is being used anyway whether we like it or not. The social media platforms have all that data from the marketing ads. You’re still targeting an audience on the same social media platform at the end of the day. The brands are still going to spend on the platform except that the click is happening somewhere else. So, frankly, I don’t know how much that holds.”​

The future?

Moving forward, Kathuria said we could expect e-commerce marketplace players to build up on social media-like functionalities.

“Live commerce, live streaming shopping, could become centre stage for these platforms.”​

It is also possible that TikTok Shop could make a comeback in Indonesia as long as it relaunches as a separate application, as per the regulations.

However, Arora noted that the company, along with other e-commerce players may want to wait to see how things develop.

“One thing that’s clear is that we don’t know how the regulations will evolve. We will wait and watch till it's a little clearer on what the implications are for integrating social,”​ said Arora.

Kathuria concluded: “I don’t think it’s going to go away, it’s just going to shapeshift into something else. Social media-driven commerce has been around a while and will stay. It’s just how seamless that journey in question will be.”​