Here’s how Pakistan’s ecommerce could reach $1b in 2020

Photo credit: HS Wajid Hussain.

This article was co-authored by Awais Imran.

Much has been said about the potential of ecommerce in Pakistan. The behavior of consumers in smartphone adoption, internet penetration, and digital awareness are changing for the better, thanks to the launch and fast adoption of 3G and 4G services. These ecosystem enablers have led industry leaders and government authorities to predict that ecommerce in Pakistan will be a US$1 billion market by 2020, up from about US$100 million in 2016.

However, this prediction is seen as overly optimistic, considering those who are in the trenches of ecommerce.

Planet N and Karandaaz, two organizations working to boost ecommerce in Pakistan, held a joint workshop (Cracking E-commerce 2.0) in Karachi in November last year to build industry consensus on several issues. It was led by Planet N’s founder Nadeem Hussain who is popularly known for starting, scaling, and selling Tameer Micro Finance Bank to Telenor last year. Representatives from major ecommerce stakeholders—State Bank of Pakistan, TCS, OCS, Bramerz, Rocket Internet, Rozee.pk, private banks, fintech companies, and more—were present.

The workshop identified problematic areas and resolved which could unlock US$3 billion in market growth. The various insights shared in the workshop were compiled in a detailed whitepaper. Here are some takeaways:

Awareness is not the primary problem

Lack of awareness in both consumers and merchants is commonly cited as a reason for poor ecommerce growth. At the workshop, however, it was agreed that this is a secondary issue.

The primary issue of Pakistani ecommerce is a deficient ecosystem which does not offer enough incentives to encourage most businesses to go from brick-and-mortar stores to digital. There are over 200 million people living in Pakistan and yet only 40 million have internet access and only about 36 million use mobile internet.

So, when starting a business, one would predictably think of offline presence first. As these numbers improve and barriers to entry are lowered, the business thought process will also change with it.

Cash on delivery’s stifling growth

Cash on delivery (CoD) is the payment method of choice for Pakistanis, making up for over 95 percent of online payments.

In developed ecommerce markets, online merchants receive credit/debit card payments almost right after an item is ordered. With cash on delivery in Pakistan, however, it can take well over a month before the merchant can collect customer payments via their logistics partner. This working capital gap creates grave cash flow difficulties that most merchants simply cannot overcome.

Cash on delivery is the payment method of choice for Pakistanis, making up for over 95 percent of online payments.

We experienced it firsthand when we launched an online store for mobile phones in 2012. This was our first stint in ecommerce. The store had to be shut down less than three months later because of the insane capital required to support cash on delivery. On the bright side, many of the lessons we learned from our failure there is helping us grow PriceOye.pk, our price comparison startup that covers all phones from Apple to Xiaomi.

For now, because consumers have no great alternative to CoD, ecommerce players simply have to roll with it. Thankfully, the basis for a mobile commerce (or m-commerce) revolution is in place with fast-growing initiatives like Telenor’s Easypay and Mobilink’s JazzCash. Pakistanis appear to be receptive to them, as most of Black Friday payments were made with these online payment solutions. Such solutions represent the future of online payments in the country, so it is important consumers adopt them quickly to boost the ecommerce market.

Self-regulation before government intervention

Delivering on fulfillment

Building online stores