Online shopping up 94 percent to Rs40 billion in FY2018

KARACHI: E-commerce in Pakistan sharply rose 93.7 percent to Rs40.1 billion during the last fiscal year of 2017/18 as consumers have started shifting their transactions online due to lower transaction cost and growing internet penetration, the central bank said.

The State Bank of Pakistan (SBP), in a latest report, said sales of local and international e-commerce merchants reached Rs20.7 in the preceding fiscal year of 2016/17.

The SBP said the data only covers transactions made via digital channels, such as credit/debit/prepaid cards, interbank funds transfer and mobile wallets.

“…the market estimates put the share of postpaid cash on delivery (COD) settlements at around 80 to 90 percent of the total volume, and about 60 percent of the total value of e-commerce in Pakistan,” it added. “Extrapolating accordingly, the figures for total e-commerce activity in FY17 and FY18 may have touched Rs51.8 billion and Rs99.3 billion, respectively.”

The SBP said payments infrastructure in Pakistan is quite adequate to meet requirements of local and international e-commerce transactions for both customers and merchants.

“Still, approximately 90 percent of e-commerce transactions in Pakistan are cash on delivery due to multiple reasons,” it added. “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.”

The SBP said upfront costs for developing an adequately secure and reliable infrastructure for payment processing, negotiating contracts with banks, 1Link, Visa and Master and stringent know-your-customer requirements of banks for merchant on boarding prove to be the major deterrents for businesses.

The SBP, however, said the digital payment infrastructure has gradually evolved over past few years.

“Encouraged by a rapid rise in branchless banking accounts (also called mobile wallets) and a continuous increase in subscriptions of 3G/4G networks, both retailers and online marketplaces have started to integrate such systems into their models,” the SBP said.

“This is resulting in better documentation of commercial activities, as captured in the financial statistics of the economy.”

Third generation cellular mobile signal covered more than 70 percent of the population as of end-March 2017. Similarly, 4G LTE services have become accessible to more than 30 percent of the population.

The total number of e-commerce merchants using e-payment gateway of banks have risen to 1,093 in FY2018, up 91.6 percent from FY2017.

The mobile wallet channel now accounts for roughly 30-40 percent of total transactions carried out via electronic payment gateways – relative to 60 to 70 percent share of credit and debit cards.

“Going forward, SBP is working towards building a national payment infrastructure that facilitates electronic/digital payments for customers, especially at retail level,” the SBP said.

The SBP, citing McKinsey Global Institute report, said growing use of digital financial services could lift up GDP by seven percentage points or $36 billion and create four million new jobs between 2016 and 2025.