Ecommerce in Pakistan witnessed an accelerated pace of growth over the period of past few years with the sale value of the industry touching Rs. 100 billion so far. However , the country still lags behind regional and comparable economies in terms of digitization of its payment sytems and efficiency of its logistics environment.
Pakistan is ranked at 120 among the different countries of the world, which is far behind the regional countries including China, India, Bangladesh, Nepal and etc.
The issues related to Ecommerce have been persistent despite increase in its adoptability among the masses and the consistent penetration in the coverage areas. The industry could move at much faster peace if these issues are fixed on long-term basis by the industry players and other stakeholders.
State Bank of Pakistan (SBP) in its report identified weak areas of the Ecommerce industry of Pakistan. It highlighted how accelerated growth could be achieved while addressing the issues related to the industry, which will also benefit the economy of the country at a large scale.
Here are some of the issues that Pakistani ecommerce industry needs to focus on:
Longer Delivery Times
Longer delivery times are often cited as a major deterrent to the wider adoptability of the Ecommerce channel. Delivery times are usually affected when either (a) third party logistics partners fail to deliver on time, and/or (b) the inventory management systems of the sellers prove inadequate to fulfill the flexible needs of the electronic channel.
Online Payments Issues
The absence of trust in online platforms and inadequate implementation of consumer protection laws pertaining to Ecommerce, amid an already low digital literacy environment, become a deterrent to the rapid digitization envisioned by policymakers and industry players.
Consumer protection is perceived to be weak in Pakistan, with an impression that end buyers may have little recourse available in case of payment disputes or instances requiring return of goods/services acquired via the e-commerce channel. In particular, consumers tend to be hesitant when transacting using online channels, as they worry that their personal information (such as credit card number, bank account number, address, etc.) may be leaked or misused by unauthorized persons.
Lack of Awareness
Still, approximately 90 percent of ecommerce transactions in Pakistan are cash on delivery (COD) due to multiple reasons. From the consumer side, a preference for cash may be attributed to low financial and digital literacy, security of online payment channels and instruments, and availability of dispute resolution mechanism in case a wrong or substandard product is delivered to the customers.
Lack of Options
The efficacy of the online payment system gets diminished as many banks do not by default allow debit cards to be used for online transactions. Either the customers have to contact bank’s helpline to activate the debit cards for e-commerce for a set timeframe, or the debit cards simply cannot be used to transact online.
In this regard, commercial banks should allow their consumers the option to pre-select at the time of issuance of debit cards the right of e-commerce application, alongside providing them due security and a Transaction Monitoring Systems protocol, which is already in place for credit cards.
High Cost of Doing Business
For businesses, upfront costs for developing an adequately secure and reliable infrastructure for payment processing, negotiating contracts with banks/PSO/PSPs, and stringent KYC requirements of banks for merchant on boarding prove to be the major deterrents.
Reducing search and contractual costs of vendors due to computerized systems and common digital infrastructure may help increase efficiency of the system by allowing swift transactions and providing co-sales services such as data analytics and payment platforms.
On the stock management front, a section of Ecommerce companies and vendors sell their products through logistic service are in the process of digitizing their inventory systems and integrating their warehouse database with that of the website’s central domain. This enables the sellers to operate on a Just in Time (JIT) rather than on a Just in Case (JIC) basis, thereby reducing storage and processing costs and quickening the purchasing process.
With the entrance of Chinese digital giants such as Alibaba (through acquisition of Daraz.pk) and Ant Financial (via a 45 percent stake investment in Telenor Microfinance Bank), the e-commerce landscape of Pakistan can be expected to evolve rapidly.
Following the success of their technological products and services in China, these players are likely to introduce and inspire variants of the same in the digital landscape of Pakistan. For example, the market spaces may give higher level of attention towards personalization and customization of their content and product recommendation protocols. The purchasers’ history of browsing through the marketplace, and the record of their previous purchases would be used to improve marketing and sales experience.
Secondly, thanks to advances in IT systems, the platforms would be able to provide comprehensive inventory and sales management systems to the suppliers. This would help bring down warehousing costs, while enhancing the speed of order processing via real-time interactive demand and supply data interfaces.
On the payments front, the market players would tap into the exponentially growing usage of ecommerce platforms on mobile phones (the phenomenon often referred to as m-commerce) and offer new modes of transaction settlements.
The next step would be to use the consumers’ purchasing history to devise a credit scoring mechanism to offer micro-loans for transactions and, eventually, savings.