E-commerce: A New Frontier

By: Editorial Team
Published: August 1, 2017
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Every invention – from the wheel to the steam engine – has transformed trading mediums. In the modern age, perhaps, nothing has impacted communication more than the internet which has completely transformed purchasing methods by bringing the marketplaces to the fingertips of the consumers.

Though a bit behind the curve, businesses in Pakistan are now also benefitting from the age of the web, thanks largely to the growing penetration of 3G and 4G technology. Easy and affordable access to mobile internet has made it profitable for an increasing number of businesses to target the e-commerce sector.

A growing middle-class has also pushed up the demand for goods, and entities focusing on e-commerce have stepped in to fulfill this demand, acting as a bridge between buyers and sellers and ensuring swift delivery of products in a convenient way.

However, the sector has faced hurdles too, none bigger than the fact that most of the population of the country does not even have bank accounts. And sadly, this situation is unlikely to change soon.

Experts say that consumers paying for online shopping via cash challenges the very idea of convenience that online shopping offers.

For transactions carried out through credit or debit cards, the consumers don’t need to worry about the delivery of the parcel and even if they are not home, the order can be dropped at their doorsteps. On the other hand, payments through cash require somebody to be present to pay on delivery.

To attract more people towards using banking channels, leading e-commerce enterprises are now teaming up with several banks, offering discounts on online payments compared with cash dealings. And while the future of online trading appears bright, a lot of work still needs to be done.

Narratives talked to the top executives of three leading online stores in the country to see what they have to say about the growth potential of the sector.

Challenges Ahead

Zain Suharwardy, Managing Director, Daraz Pakistan

E-commerce is the accumulation of a lot of digital activity which is happening and can be gauged by the rise of ride-hailing and through food delivery services. The probable catalyst for this has been the 3G and the 4G network which came about following increasing smartphone penetration, making people more digital savvy. Secondly, with a growing middle-class comes an increasing demand for goods.

The rural areas don’t have easy access to brands so that’s where businesses like Daraz come in. We have been pretty successful in closing this gap with tremendous growth over the past two years. From a customer viewpoint, it brings products within their reach, especially when you have a rising middle-class; you have families where both husbands and wives tend to be working, which brings in the convenience aspect too.

Pakistan’s e-commerce industry has a good standing, and we are seeing foreign interest in the sector as well. The more players in the market, the better it is for the industry

Pakistan’s e-commerce industry has a good standing, and we are seeing foreign interest in the sector as well. The more players in the market, the better it is for the industry as it will motivate all businesses to work harder. It is also better for consumers as they will get more choice, and in the end, whoever offers the best service, is the most reliable and offers the best experience, will be the winner. The entrance of foreign players will also create more jobs and will improve our e-commerce sector’s technical capability.

In Pakistan, most consumers still prefer to pay through cash. With the credit card industry still trying to get its foot in, the Cash on Delivery (CoD) service is a good catalyst for sales. However, in terms of operational activity, it becomes a bit more challenging because the customers can make an order and later change their mind about paying when they get the actual product. At the same time, it is a good enabler as it allows customers to transact. It is also critical because a majority of Pakistan’s population is still out of the banking cycle and can’t pay for online purchases via debit or a credit cards.

However, several e-commerce businesses are collaborating with banks to offer deals which encourage customers to prepay. This has caused a noticeable shift in consumer behaviour. For instance, on a normal day, approximately 80 percent of transactions are entered through CoD and 20 percent are pre-paid. But during these campaigns, the ratio becomes 50:50.

If we consider some of the developed economies of Southeast Asia for instance, six to seven years back their sales through CoD were almost at 90 percent. It took just three years for their people to trust online shopping, and now 80 to 85 percent of their transactions are pre-paid. This is a pattern of consumers adapting to online shopping.

At present, Pakistan’s e-commerce sector is 0.5 percent of total retail. If we look at American and Chinese e-commerce markets, this figure stands roughly at 15 to 18 percent. In India, it stands at roughly 10 to 12 percent. The potential for growth of Pakistan’s e-commerce sector is definitely there and we can expect a steady upward trajectory in this regard.

E-commerce, Evolution and Art

Adam Dawood, Chief Executive Officer, Yayvo

The e-commerce industry the world over has had a rich evolutionary history and you can trace patterns of similarity across countries. For instance, the United States’ e-commerce sector only offered Cash on Delivery (CoD) payment methods in the early 1900s and later evolved to pre-payment via debit and credit cards. While European and Australian e-commerce marketplaces today rely almost entirely on pre-payment, a significant segment of the Chinese and Indian e-commerce markets continues to rely on CoD.

If you consider the Chinese e-commerce sector, in 2004-2005 they had about 90 percent CoD. Today this number is about 30 to 40 percent. Indian e-commerce market is approximately 60-70 percent CoD today. So this is a number that goes down gradually with time. It would be wrong to presume that our markets’ heavy reliance on CoD is a disadvantage for our e-commerce sector as compared to those of other countries. Our market is just at an earlier stage of evolution.

It would be wrong to presume that our markets’ heavy reliance on CoD is a disadvantage for our e-commerce sector as compared to those of other countries

The transition from CoD to pre-payment is affected significantly by factors such as financial inclusion and internet penetration. Only 16 percent of the people in Pakistan have bank accounts and this situation won’t change overnight.

When it comes to internet penetration, the wider availability of smartphones and development of 3G/4G networks has been an incredible boon for Pakistan’s e-commerce industry.

It has brought about a sea change in the number of people shopping online. When we had launched, in the initial few months approximately 60-70 percent of our orders came in through desktops and laptops. Within six to nine months this changed to 70 percent mobile. It doesn’t mean that the desktop population went down. It also grew. It’s just that the mobile market grew so much faster.

The biggest challenge for Yayvo right now, in terms of sales specifically, is ensuring better coordination between us and our vendors. We need a very swift turnaround time because we have to ensure that our customers get their products as soon as possible. There’s a lot of technology that needs to come in the middle as well. If the retail sector expands into elements such as inventory management that will really help the e-commerce industry.

Improving our game on the user interface functionality and design end is also an evolutionary process. For instance, if you look at a website such as Taobao, it’s not the most impressive site in terms of user interface but it is the second biggest e-commerce website in China.

User interface is an art and art has a subjective interpretation. Taobao’s site looks cluttered to us but it works well for the Chinese audiences. This is because their internet behaviour has been shaped by elements like this in the past. We have been tweaking Yayvo’s website based on user testing.

For example we know now, and there are studies done on this, that having a green button elicits users to press on it than a red button. But a red checkout button in Chinese e-commerce sites would work very well. The trick is to adapt your design to your local culture and consumer internet behaviour.

A Promising Future

Nauman Sikandar Mirza, Chief Executive Officer, Foodpanda Pakistan

In recent years we have seen increased penetration of 3G and 4G services in Pakistan. This, coupled with growing investment in the hospitality sector have pushed restaurants to expand their footprint across the country, while international chains are also eyeing smaller cities for expansion.

Considering these key factors, the outlook for growth for online food delivery is pretty encouraging. In a short period of four years, Foodpanda Pakistan has managed to build scale and caters to more than half a million foodies with around 2,000-plus restaurants.

If you talk about e-commerce as a whole, the sector is expected to reach a total value of over $1 billion in Pakistan by 2020.

This speculated figure is an aggregate of the gross worth of all different categories of e-commerce businesses including multi-category stores, brand stores, food and take-away, travel and ticketing, ride sharing and classifieds; whereas the food ordering and take-away industry, alone, is estimated to be around $2 million per annum.

We have been working with various leading banks in the country to not just incentivise the customers paying online but also allow direct payments

Also, over the last couple of years we have seen a healthy growth in online payments on the platform and this trend seems to be on the rise.

We have been working with various leading banks in the country to not just incentivise the customers paying online but also allow direct payments on both credit cards and debit cards without having the customer call the banks to activate their cards for online payments – the aim is to provide convenient payment methods to the customers.

Excellence in customer experience is at the heart of our business values. We have been working rigorously to streamline the customer experience and make it intuitive and user friendly for our customers.

The future of e-commerce in Pakistan is indeed very promising. Pakistan is undergoing a fast-paced economic recovery characterised by GDP growth, stock market gains, declining unemployment and higher consumer confidence that seems to have opened the eyes of international investors towards it as a flourishing market for e-commerce.

An industry with such dynamics has a great probability of exceptional growth in future as well and our government absolutely understands the fact.

We have seen efforts on the part of the government to work in areas like taxation, logistics, and payment infrastructure and customer security to facilitate the growth of e-commerce as a contributor to the country’s economic resurgence.

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Editorial Team
The Editorial team of Bol Narratives