How big is COD in Pakistan and why?

Cash on delivery is the default mode of payment for the majority of physical eCommerce transactions in Pakistan, and even though digital transactions in Pakistan have been on the rise; and they may cross cash withdrawals in the next 12 months. COD transactions constitute a substantial portion, estimated at 60-70% of the total market size.

Despite being the primary payment method cash on delivery is an expensive option for merchants, due to delayed cash flow and additional delivery charges for the risks associated with the delivery due to high refusal rates. Cash on Delivery can end up costing merchants more money in the long term. (we created a COD calculator exploring these costs in one of our previous articles)

Cash on delivery is the default option used by the majority of customers becuase of a lack of trust. A survey conducted three years ago revealed that 79% of online shoppers in Pakistan preferred COD, citing trust as the primary factor and access to a non-cash payment method second (33%). Overcoming this trust deficit is crucial for encouraging customers to embrace prepayment methods.

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eConsumer Research Survey 2021

Introduction As part of the eCommerce Awards 2021 we conducted a detailed survey of the 90k+ thousand unique mobile numbers that voted. 14.6k of those people agreed to take part in a survey and we have some of the results from that survey below. Why Cash on Delivery…

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5 years ago · Adam Dawood

What can be done to solve it?

Today, there are two solutions that are addressing this problem:

• Small merchants who use their own delivery riders can send a Point of Sale (PoS) device with their riders to the customers house. This works with both food delivery and electronics merchants.

• Trax created an option for payment while out for delivery earlier this year, intially with 1Link and then expanded to PayFast. Link

Pilot Program

Karandaaz launched a program in the last week to speed up this process (I was part of the team that suggestested this idea). The program is designed to incentivise delivery companies to offer customers the ability to pay digitally for cash on delivery orders. Its a great opportunity for any logistics company to test and build out a unique solution.

The program was launched last week and will close for submissions on December the 26th.

Building a Solution

The purpose of this article is to look at building a better way to convert COD customers towards prepayment and solving for the existing trust deficit. The success of the program will depend on the following assumptions that we are making on behalf of the stakehoders:

Point of Payment Collection

The model we have designed assumes that the customer has placed an order via COD and the logistics company that is making the delivery will attempt to collect the funds digitally.

A system where the customer chooses Payment on Delivery at the time of checkout, can also be designed but requires some modification to the models below and further customisation on the merchants website so we have decided to not fous on that particular scenario for now.

To start off with we have to decide when to collect payment from the customer. There are 3 points at which the payment could be collected:

1. Payment Before Delivery (PBD)

2. Payment During Delivery (PDD)

3. Payment After Delivery (PAD)

When people think of digitising cash on delivery the general consensus would be that payment should happen at the time of delivery, however, we feel that we should encourage Payment Before Delivery (PBD) as much as possible. The benefits to this are manifold in terms of effeciency and cost from the perspective of the logistics company and should be incentivised for the customer as well. However, this will require building trust with the customer.

There is then the option of Payment During Delivery (PDD) and finally the unlikely option of Payment After Delivery (PAD).

Payment Before Delivery

This journey begins when the 3PL receives the parcel and has an estimated delivery date & time. At that point the 3PL will message the customer saying their have recieved the parcel along with a link to make the payment in advance.

The payment link option requires the customer to go to specific webpage where their total payment amount is already present and pay via any of the payment methods that are available. It would be similar to placing an order online. What will be key however, is that the 3PLs backend system then needs to ensure that the COD amount for the parcel in question is reset to 0, otherwise when the delivery rider is out on his delivery run he will require payment which will very rightly so turn into a bit of a customer service nightmare.

Another key factor will be when this payment link will expire, to mitigate the chance of a double collection at the time of delivery as well.

We feel that Payment Before Delivery is the best option for 3PLs as it will greatly reduce the time it takes for a parcel to be delivered. COD parcels delivery on average take from 8-12 minutes, while non-COD parcel’s delivery take as little as 2-5 minutes, resulting in greater effeciency and lower costs.

The two biggest factors that will determine the success of this method is the clarity by which communication is done to customers and if incentives are provided for early payment.

Another option is if the the 3PL offers customers the ability to at their retail locations close to the customer via OTC payments.

Payment During Delivery

We expect that during the intial stages of this model, customers are unlikely to pay in advance, so our methodology for collecting at the time of delivery has to be seamless from a user experience point of view, as if its not, the level of frustration that will be built on both the customers and the riders side will result in this method not being a success.

There are means of ensuring this happens, by prepping the customer prior to the delivery attempt, saving key customer information etc, however, we will not be going into depth on that front, instead just looking at the basic journey that a customer and the delivery rider will go through. The training and scripts provided to the delivery riders during this period will also be critical success factor.

This system will work best if each rider has a smartphone and an active internet connection. The other key consideration is whether the rider will have a POS device or dongle where they can swipe a customer card at the time of delivery.

On App Journey

If the customer has agreed to pay digitally the customer can then be told their payment options (we will discuss the benefits of each option later). The riders smartphone will be key in then processing the transcation and ensuring the funds have been recieved before handing over the parcel.

Payment After Delivery

While this is technically an option and would work similar to the Payment Before Delivery, given the unlikelihood of it being adopted or even succeeding we shall not explore further.

Types of Payment Methods

There are various payment methods that could be offered to customers, and it would be best to offer as many as possible to increase options for customers. These range from:

1. Card payments, for debit and credit cards

2. Wallet payments, with EasyPaisa & JazzCash being the largest,

3. Direct Bank Transfer either connected via Raast or direct API with the banks, and

4. IBFT which the customer would do on the spot.

All except the last one are preferred as they would give instant feedback to the courier on payment recipt and be comparatively fast which is crucial especially at the Payment At Delivery point. IBFT would end up being the slowest method and would also cause reconcialiation challenges with the merchants.

The 3PL would need to ensure they choose payment gateways that offer these payment options, or integrate multiple gateways. It is important to consider redundancy options where possible.

Payback to Merchants

The critical elements to the success of this program is how effectively the payout mechanism is designed, the charges for this delivery method, and how quickly payments can be made to merchants.

Logistics companies may even be able to generate additional business volumes as payments from customers could directly be sent to merchants making their reconciliation easier and offering their merchants the fastest payback in the industry.

Conclusions

The above is quick attempt to look at the ways in which digitising COD may help reduce the trust defecit that is apparent in the eCommerce market and help us towards reducing our reliance on Cash on Delivery.

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As part of the eCommerce Awards 2021 we conducted a detailed survey of the 90k+ thousand unique mobile numbers that voted. 14.6k of those people agreed to take part in a survey and we have some of the results from that survey below.

Why Cash on Delivery

Cash on delivery is easily the most popular payment method with 79% of consumers preferring it other methods. When those who preferred CoD were asked as to why this was the case the biggest contributing factor was Trust with it making up 49.5% of the vote (Option 2, 3 & 5), with Access to a non-cash payment method second with 33% of the total and finally knowledge on how to pay online being the last factor at 10%

Building Trust

Building trust is a key component of getting customers to move away from CoD as 63% of respondents said that they would be willing to pay online if the store they bought from delivered the first 3-5 orders perfectly.

Social media plays a major part in building trust as well with 66% of respondents saying they check social media before they purchase from a new store online.

Purchasing Behaviour

The majority of purchases online are also below rupees 10k (64%) and 83% of people place less than 10 orders online every month.

Customer Segments

The survey was sent out to 83,000+ people and just shy of 15k people filled out the survey in the first 5 days. The breakdown of the sample in terms of segments is as follows —>

Other Data

Introduction

Pakistan’s eCommerce industry is tiny! The global average for eCommerce transactions as a percentage of total retail is in the 15% range (pre-covid). Digital first economies such as China are expected to have the majority (>50%) of their retail sales now happening digitally. 

Pakistan’s eCommerce sales in comparison are easily less than 1% of the retail industry. We have a long way to go, however, the industry has been growing rapidly and we wanted to help showcase the best eCommerce startups locally by hosting the first eCommerce awards in Pakistan. 

The industry does not work in a silo. eCommerce startups are supported by payment gateways, logistics companies, software houses, and many other digital tools and services that help them provide amazing experiences to consumers. For this reason within the first eCommerce awards we created the Founder’s Choice Awards, where the founders of eCommerce startups could vote for their best service providers in the industry. 

If you go to Facebook groups such as PECC or Pakistan Startups, you regularly see questions such as “What's the best payment gateway to use?” or “What logistics company is the best in X city?”. We wanted to create a strong answer for this question, one that was answered by all Founders in the country. Those that are processing thousands of orders a day to those that are just doing single digits sales per day. This is why the Founders Awards ask the Founders of eCommerce companies to vote for their favourite service providers. 

We wanted to achieve all of this while being as fair and transparent as possible. This is why our awards focused only on votes from consumers or customers of the services that are being given. 

Finally, we wanted to understand from actual consumers what their thoughts and views were on the eCommerce industry. For that we organised the eConsumer Research Survey

The objectives of the award were threefold

1. Promote the best eCommerce companies in Pakistan 

2. Set a benchmark for service providers so that eCommerce founders can make informed decisions and service providers are given direct customer feedback from their customers

3. Be fair and transparent 

The Mechanics of the Awards

There were two categories of Awards.

1. Public Choice Awards

   • Where the general public voted for their favourite eCommerce store. 

   • Each vote was cast after a mobile phone number was taken and the validity of that phone number was checked via a one time password. 

   • Each mobile phone number could only vote once per category

   • The winner in the public choice category was the nominee who had the most votes. 

2. Founder Choice Awards

   • This is where each Founder/CEO/Business Manager of a nominated eCommerce company voted for various service providers they used. 

   • Each Founder was able to vote only once but for as many service providers they used in the last 12 months. 

   • Voting was done on a scale of 1 - 5 with 1 being “Poor” and 5 being “Excellent”

   • There could be multiple winners in the founders choice category. To win a Gold Medal the service provider had to have an aggregate score of 4.5 or above, for Silver it was 4 and for Bronze it was 3.5. 

   • Alongside the aggregate score the service provider also had to have a minimum number of votes from founders before they could qualify for a medal. 

The awards also had no profit motivation. No revenue was collected during the awards (quite the opposite). We also turned away offers of sponsorship from those who were themselves nominated to ensure we could not be biased into creating unfair or biased awards. 

The Voters Behind the Results

People's Choice Awards

Within the people's choice award we had a total of 108,683 votes cast from 93,426 voters (1.16 votes per phone number). 77% of people only voted in one category while 603 people voted in 5 or more categories. 

We had 332,858 visitors to the website until the 7th of April 2021 (i.e vote deadline). 213k of those visitors were from Karachi or Lahore and 94% of all visitors came on mobile devices with 80+% of mobile users on Android. 

In terms of demographics 58% of the visitors were female and 88% of visitors were between the ages of 18 and 44. 

Founders Choice Awards

In the Founders choice awards we had a total of 101 service providers nominated and of those 58 had received enough votes to be eligible for a medal. However, only 52% of eligible nominees won a medal, i.e almost half the nominees did not get a score of 3.5 or above from the founders of eCommerce companies. The awards were given based on the votes of over 80 Founders from across the industry. 

In the Payment Gateway and National Logistics category voting was divided over 4 or 5 sub-sections. 

Payment Gateways

• 21 eligible gateway (3 international)

• 5 Sub-sections

  • Onboarding Experience

  • Integration Experience

  • Payout Speed

  • User Experience

  • Refund Experience

The average score that payments gateways got for each of the voting categories was as follows:

National Logistics 

• 8 eligible logistics companies

• 4 sub-sections

  • Payout Experience

  • Delivery Speed

  • Rejection at Doorstep %age (COD)

  • Pickup Speed

The average scores that national logistics companies got for each of the categories was as follows

eConsumer Research Survey

We messaged over eighty thousand people who voted for the eCommerce awards and asked them to fill out a survey asking about their eCommerce preferences. 

14.6k people responded. Some of the key highlights include that 79% of respondents prefer CoD over other payment methods and they prefer CoD as 42% have trust issues (option 2 & 3) and 33% do not have access to a means of prepayment. 

A large 63% of respondents would be willing to do prepayment if they received the first 3-5 orders in perfect condition. 

Over 64% of respondents have also not purchased anything above Rs 10,000. 

We will be sharing the results and adding more insights in a future post from this survey result. 

Transparency Report

In an effort to maintain transparency and fairness, the management committee had to make certain key decisions during the voting process and after the voting ended. All key decisions have been mentioned below. 

• 2 nominees in the public choice award sent communication asking for votes in return for the chance to win a gift. 

  • We were told about one of these within 24 hours of the post going live and we reached out to them to remove the post which they did immediately

  • One of these nominees ended up in the top 5, and as such the management committee decided to remove all votes accrued by the nominee over the period for which the communication was live. 

• 2 Nominee’s were asked to withdraw from the public choice awards as:

  • One was a B2B2C company whose service was not live yet

  • The other was a B2B company

• 1 nominee was entered into the FB/Instagram store category. It was asked to withdraw as they had 4 retail stores as well. 

• 1 nominee in the FB/Instagram store was asked to withdraw as the facebook store they submitted was not active. When we reached out to the founder in question they responded by sending us multiple facebook store addresses some of which were active a few months ago but not currently and it was not clear exactly what they were selling. 

• Two startups run by the members of the management committee made it into the winners list. To ensure the long term impartiality of the awards we therefore decided to withdraw our entry. 

• Initially in the founders awards we had kept the criteria for medal as 4.7, 4.2 and 3.7, however, after the votes were cast we felt that the benchmark was too high given the nascency of the industry and we reduced it down to 4.5, 4.0 and 3.5 for Gold, Silver and Bronze medals respectively. 

• In the Founders awards 9 votes were disqualified. 3 because they voted for their own companies, 4 had fake profiles, and 2 seemed to be selected votes for 1 company only with dubious email addresses. 

Areas of Improvement for Next Year

For next year we will be also asking customers in the public choice awards to vote on a scale of 1-5 rather than just a simple vote. We feel that by asking customers to give an actual score will result in more meaningful feedback for startups and it will also remove the competition element as you can then have multiple Gold, Silver and Bronze winners in a  category, rather than just first, second and third place prizes. We opted out from doing that this year because we wanted to keep the overall consumer voting journey as simple as possible. However, given the extremely strong voter turnout this year, we feel that we can add that level of complexity while still getting a large voter base. 

For the Founders choice awards due to lack of development time we ended up doing the vote via a 3rd party form sent via email to all nominees. Next year we will build the system directly into the awards website and ask people to vote as part of their nomination. This will result in a much higher percentage of nominees voting for the founders awards. 

The overall UI/UX of the website needs to be streamlined a lot more to encourage voting, especially on mobile. This year on mobile devices you could only see one nominee at a time on the page. 

To further improve the fairness and transparency of the awards we will also be bringing in an audit firm to tally the results. This will result in a trusted 3rd party ensuring that all votes were counted fairly and faithfully and be a double check on the count by the management team.

Conclusion

We believe the eCommerce Awards are an improvement first step to grow the industry and understand where our current limitations also lie. We should not be arrogant or boastful about where we are or how far we have come. Instead we should realise the journey is still long and we need to move forward together as an industry and support each other. 

If you would like to support us next year please do get in touch at hello@ecom-awards.com and or if you are a service provider who wants to better understand your exact results (without revealing the names of those who voted for you) we would be happy to oblige you.

While getting to 100% prepayment is a noble and in certain cases necessary goal for eCommerce Builders, COD (Cash On Delivery) is not going to go away anytime soon. The major problem with COD is that merchants have to deal with an occurrence called “Rejection at Doorstep”.

What is Rejection at Doorstep?

Rejection at Doorstep is when a customer places an order and subsequently at the time of delivery decides not to receive it. This results in the Builder having to deal with the following:

1. Pay the courier for the delivery attempt

2. Product out of stock for 5-10 days, meaning he is unable to sell it to other customers

3. Higher chances of receiving the package in an unsellable condition

If Rejection at Doorstep happened seldomly, COD would not be considered a major problem, however, it happens about 7-10% of the time across the eCommerce landscape. Some unfortunate Builders even have Rejection at Doorstep rates go above 15% which can be crippling to a small startup. 

The purpose of this article is to help Builders reduce the financial impact that is caused by Rejection at Doorstep and give them a toolkit to work with when starting or scaling their eCommerce business. 

COD RULEs

There are multiple ways to try and reduce your rejection at doorstep rate and we will discuss some of the most common ways now. 

Customer needs to be screened

Whenever you get an order, conduct a basic screen. Does this customer seem to be in my target market, do they live in the same areas where my other customers are coming from. Are they ordering the most popular items or the most expensive items? 

To give you an example of this, when I started PetPeople.pk, a marketplace for pet food and toys, within our first 2 months we received an order from Peshawar for around fifty thousand rupees and the order was a mix of cat and dog food. This happened to be the first order we ever got from Peshawar and it was also the largest order we had received up to that point by at least 10x. Plus we usually found customers only ordered items for one species of animals rather than two. 

So, if something about the order seems off best to take some additional action. 

Takeaways:

1. Does the customer fit the pattern of your other orders?

2. Does the name, phone number and email address all seem genuine?

3. Does the cart total seem oddly high?

4. Do the items in the cart look suspicious?

5. Are they on the Blacklist? (more on this later)

Officially identify the client

If you have any doubts about the order or the customer then it's time to stalk them (not in a creepy way, please). See if the customer is on social media and if they are is their account an old one or a new one. You can usually use the email address or phone number they have given to find more information about them on Facebook or WhatsApp. 

What I used to do was sync my WooCommerce customers data with a unique google account I created. I then had that account synced on my dedicated customer helpline, so within a few minutes of the order being placed by the customer, their contact was created in my phone and I could check if they were on Whatsapp. It saved me the hassle of having to add people to contacts all the time.

Takeaways:

1. Do they have a Facebook, Whatsapp or TrueCaller profile?

2. Do their account details match their social media profiles?

3. How old is their social media account?

4. Does their social media seem genuine?

Did they confirm the order?

If this fails, call up the customer or Whatsapp/SMS them asking them to confirm the order. This is one of the simplest things you can do. If you are especially suspicious you can call up the customer and judge for yourself if the customer seems trustworthy. Trust your gut!

I remember for another high value order at PetPeople we were unsure of the customer even after our SMS verification so we called them up and pretended to confirm the flavour of their cat food. While doing that we asked them other questions such as their cats name, age etc to try and determine if they were genuine. Usually talking to the customer helps build up trust much faster and is a great way of building up a personal bond with them as well. 

Takeaways:

1. Whatsapp/SMS the customer asking them to confirm the order

2. If you are especially suspicious, call them and pretend to confirm some minor detail about the order

3. Trust your gut

Request Partial Payment

If for any reason you are not convinced, or if the risk is too high for your business to take, then ask for some money up front. It's best if they can send across all the money upfront, as then you save on the shipping cost (see MDR of COD Article), however failing that, ask for some money upfront that at least covers your shipping cost. 

For the 50k order we got from Peshawar we calculated that the shipping alone would come to at least 4500 rupees so we asked the customer to send us 5k in advance. Therefore, if they didn't pay the remainder as COD then at least we didn't lose out on the shipping cost. 

Takeaway:

1. Work out the shipping costs in advance

2. Cover your costs by asking for a prepayment in full, but partial payment which covers shipping costs could be enough as well

3. Do not be afraid to ask for prepayment on the phone, just be polite, professional and courteous. Give multiple options of bank deposit and EasyPaisa or JazzCash deposit as well. 

4. Make sure the payment methods are listed on your website, and you have a message/email ready to send as soon as your talk to the customer. 

Unite the Courier & Customer

If after all of this the courier company sends you a message saying the order was rejected, do not despair, the time between the courier informing you and them returning the product back to you is critical and you need to be proactive. 

Make sure your courier company tells you as soon as the customer rejects the order and definitely before they ship the item back to you. Courier companies usually only give you a few hours to call them back to arrange a reattempt so be very proactive. As soon as you get this intimation, call up the customer and tell them a delivery attempt was made. 

Also make sure your delivery company is making the number of attempts it promised you in its contract. 

Takeaway:

1. Be proactive and call the customer as soon as your get notified about a failed delivery

2. Make sure the courier does reattempts

3. Regularly check the courier companies status updates for pending deliveries

4. Keep the customer informed

Let's find out what went wrong

If the product gets returned even after multiple delivery attempts, keep trying to call the customer and try and get an explanation. Sometimes it could be an honest mistake or the fault of the courier. Either way, keep a record, it's very important, trust me.

Sometimes the customers can make a mistake and usually I have found they then go out of their way to make it up to you. Cultivating strong customer relationships is critical, because these are the same customers who will say good things about your service in the future. 

If the customer says the courier never attempted the delivery, reach out to the courier company and ask for an explanation. Usually, getting them to entertain 1-2 cases will be difficult, but this is where if you have a record and you start seeing a certain pattern emerging you can then make a stronger case and then rethink your options in terms of which courier company to use. 

Takeaway:

1. Connect with the customer, let them know multiple delivery attempts were made

2. Was the failure due to extenuating circumstance from the customer's side or is the courier at fault

3. Keep a record of all info for future reference

Enter the Blacklist

For any customer that you feel deserves it, or doesn't answer your call after a few attempts automatically put them on the blacklist that you keep internally. 

Use this list to help filter out suspicious orders in the past. Be sure to save the address, email address and phone number. Sometimes bad actors can change their email address but may end up using the same phone number or address. You want to check against all of these options. 

Takeaway:

1. Keep a list of untrustworthy customer and their information

2. Refer to the list when filtering out suspicious orders

3. Use the bSecure COD rule engine to automate your order verification process. Reduce doorstep refusal. Save time and money

How bSecure Can Help

So there you have it, a list of key insights and takeaways all designed to help you reduce the overall financial strain of COD. The team at bSecure have faced these exact challenges while having over 3,000 COD orders a day coming through their own eCommerce stores. 

We have then taken that learning and have started building out features like our COD Rule Engine to help Builders navigate these issues. If you are interested in learning more about the solution feel free to get in touch by using the chatbot to the bottom left of your screen or emailing us at builders@bsecure.pk

COD Rule Engine

Our COD rule engine utilizes automated robo-calls in order to verify orders above a certain cart value or those made by customers on your blacklist. The caller list is completely customisable giving the Builder full control over when a call is placed. When the conditions for a robo-call are met the customer will receive an automated call where they must press either 1 to confirm the order or 2 to refuse the order. This method can reduce doorstep rejection on accidental orders by up to 10% at no extra cost to the Builder. It’s literally free savings. 

You can set up rules for New Customers, Existing Customers and bSecure Customers as well. We will call each customer a total of 3 times between 10am and 9pm to ensure you have the greatest chance of confirming your order. 

Other Resources

• MDR of COD Article - Link

• MDR of COD Calculator- Link

First time online shoppers will always experience a level of mistrust combined with a fear of the unknown. They might have heard of how convenient online shopping is but many shy away from the actual process of completing a full order because of apprehensions regarding online payments. COD has given many the faith that even if their order is not delivered, they have not committed any actual money towards their perceived gamble and through this process they have protected themselves from any possible grievances. I have always believed that once our customers have taken this pivotal first step towards online shopping, it then becomes the task of the entire eCommerce industry from vendors, to logistics partners, to payment gateways and finally regulators to support eCommerce stores satisfy the customers needs. Only once trust is established between customers and merchants can online payment platforms finally take off in a real way. 

Safety and security will always be a foremost concern. Banks, Fintechs and regulators play a key part in supporting and assisting merchants to promote the utilisation of prepayment methods. We shall be examining their roles more closely in this article.  

The True Cost of Cash on Delivery

Last weekend I ran an informal survey on Facebook and Twitter the outcome of which echoed my beliefs that the majority of merchants think COD is more expensive than prepayments. Let's first start by exploring the actual cost of COD and why it is in the interest of the majority of merchants to try and move away from it where possible. 

Step 1: Simple MDR Calculation

The most simple comparison that many people make is that the Internet Payment Gateway (IPG) deducts their charges upfront. This is usually the comparison that is made off the bat but we all know this is not the complete picture.  

Step 2: Greater Logistics Costs

We have to take the cost of operations into account, there is a real difference in the cost of delivery for COD parcels vs non-COD parcels. 

The average non-COD parcel takes just 3-5 mins to deliver (time from when the courier reaches the destination to moving onto their next destination). Whereas a COD parcel will take anywhere from 12-15 min on average. This 4-fold increase is usually factored as a cost by logistics companies. COD clients also have a 1st attempt delivery rate being anywhere between 75%-85% depending on the category of the merchant and the product. Most logistics companies try and make at least 2 or 3 attempts at delivery and each of these costs are then passed on to the merchant as well. 

Furthermore, there is a cost for handling the cash generated by these deliveries. After every few COD deliveries or when a certain cash threshold is reached, logistics companies want their drivers to deposit the collected cash either into a bank which wastes additional time, or to an Easypaisa or Jazzcash agent which incurs more charges or to their area office which has to be manned by finance personnel. All of this adds to the final cost of delivery. Handling all this cash comes with risks as well with the possibility of the cash being stolen from the couriers. Therefore there is a component of insurance that needs to be built in for cash handling whether it is done formally or informally.

Note: I have taken the default delivery rates from a logistics companies website to give a transparent comparison. Rates in the markets are lower for both COD and standard delivery based on your business volume and size.

Step 3: Rejection at Doorstep

We have already mentioned how the ‘first attempt’ success rate is between 75-85% and even after the 2nd or 3rd delivery attempt a percentage of deliveries still remain undelivered. These parcels then have to be returned back to the merchant. The merchant will of course be charged for these failed delivery attempts so we have to build this into the costing model. If we assume a 5% failed delivery attempt rate it would lead to an extra Rs. 12 per kg. These are not the kind of costs any efficient store owner would ignore.  

Step 4: Net Present Value of Delayed Cash 

Finally, we also have to take into account the time value of money. The IPG’s deposit the money within a few days of the transaction taking place. However, with COD the money is only deposited days after the delivery was successfully made. 

MDR of COD vs PrePayment Methods

So after the delivery and deposit we can see for our example that the MDR for COD is 25.8%, for Card transactions its 19.6% and for wallet transactions its 18%. While actual costs will vary based on key circumstances such as the price of the product, its weight and the delivery costs, for most scenarios COD will end up costing much more than prepayment methods.

I have made available my worksheet here for anyone who wishes to enter in their own variables to determine the true costs of MDR on their product line. 

Other Factors

There are other factors and costs that eCommerce merchants must consider to arrive at the true cost of COD. Conversion rate of Prepayments is lower due to the high failure rate of non cash methods. I have seen failure rates as high as 50% for certain prepayment methods and there is always a risk that the customer may not attempt another order thereby denying the merchant of any revenue opportunity completely. 

Unlike prepayment transactions, COD transactions generally do not have to be verified. eCommerce merchants prefer to verify COD transactions via calls, sms or robocalls to try to lower their ‘rejection at doorstep’ rate (step 3). One could argue that card transactions, as per the IPGs request at times, require customers to fill in their card details and this indeed is a very cumbersome activity. The conversion rate for prepayments is also slightly lower due to the number of extra fields the customer is asked to fill. 

We also have to examine refunds on both types of payment methods and particularly chargebacks on prepayment methods. While we can ignore any refunds that occur for genuine reasons, (mainly because their occurrence is common across the two payment types), we have to look at some other factors as well. While COD suffers from a ‘rejection at doorstep’ problem, in the case of prepayments (especially credit cards) customers can conduct friendly fraud or demand a chargeback even after receiving the products. The burden of proof is then on the merchant and this can add to the overall cost. However, it is much harder to judge these costs and I believe their occurrence is far lower than the problem of COD’s ‘rejection at doorstep’ rate.. 

The hassle and effort of giving refunds is also much greater for COD orders when compared to the some prepayment options (see IPG section for full details). With certain prepayment methods the ability to do instant refunds is available with 1-click or an API, whereas with COD, refunds have to be handled manually. 

These variables change considerably when the key assumptions such as the price of the product, the weight of the product and the logistics costs are changed. Each merchant should look at this relationship for each product or category of products individually to arrive at the best solution for their own category mix. 

What Should Merchants Do?

The key reason for writing this article is to help merchants be aware of the true cost of COD. I truly believe it is in their best interest to try and move customers towards prepayment methods and potentially even incentivise them to do so in an attempt to lower costs and save money. In the past I have found that the majority of first time customers to eCommerce stores placed an order via COD. However, after segmenting out customers who received their delivery successfully, the COD percentage subsequently fell rapidly by the 3rd or 4th transaction. 

Having conducted regular sessions with customers to learn of their preferences, I have also found that they do not want to use COD (if they have an alternative mode of payment). They however still use COD because of the lack of trust they have in eCommerce merchants.These same customers are happy to pay online for services such as FoodPanda, Netflix and even AliExpress, but when it comes to retail shopping within Pakistan, there is a trust deficit. 

It is up-to the merchants to earn that trust from customers and trust is only built in one way, CONSISTENCY. Merchants have to consistently perform and meet the expectations of their customers. The majority of the burden falls on the merchant and that is why merchants need a lot of support to help establish trust. 

How IPGs Should Help?

A merchant’s ability to convince a customer to use prepayment methods is only possible if he has the tools he needs to provide customer support at every interaction. There are four key areas where merchants need support:

1. Signup

2. Integration

3. Order Placement

4. Refund

There are currently too many merchants who don't have access to IPGs because the steps required to initially sign up are too cumbersome and time-consuming. To even begin our journey towards digitisation prepayments need to be an option on every eCommerce site, not just the 1559 as stated by the SBP until Q3 FY20. (The figure refers to accounts created, I would wager a double digit percentage do not have their website actually integrated with the gateway yet.)

Integrations should be foolproof. When a merchant comes onboard, most of the integrations IPGs provide are not as easy as they should be. To integrate Stripe or the PayPal checkout into an eCommerce store is literally a 5 minute task for non developers on platforms such as WooCommerce, Magento or Shopify. I request every Bank CXO with a desire  to bring on eCommerce merchants to test this out themselves. If your team cannot show you a live working integration within 5 mins there is something wrong. 

The first key customer moment is when they are placing a prepayment order. Merchants at this point only care about 1 thing - their conversion rate. If that's the case why do so many payment gateways redirect you to another website. All the processing should happen on the merchants page in a secure form to ensure the best results.

Finally there are still so many manual processes that the merchant has to undertake. Take refunds for instance, some of the largest IPGs in the country still make you process refunds manually to the point where they ask you to submit hard copies of refund requests. How is this even an option today? 

Every IPG should have a refund button on their merchant portal and the best should have refund API’s. There is no other way about it. When more than 5% of your transactions end up going into refunds the “happy flow” for the customers needs to extend that far as well. Product managers and designers at all banks and fintechs need to take this into account. It’s beyond me how so much time and effort can go into building a product, but a core part of the operation which occurs regularly can be so badly ignored. 

Conclusion

This article in no means wishes to convince merchants to turn off COD as an option to customers, I actually feel that will do more harm to the merchant at this moment in time, while taking away a much needed option for customers. Instead I hope merchant look critically at the true cost of COD for their specific business and product line and start making moves towards building trust so that customers actually want to use alternative payment methods. I am a firm believer in Pakistan’s digital potential. We just need to make sure we are taking the right steps towards it. 

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Our aspiring, innocent and, in truth, naive minds proved to be very wrong over the years. These assumptions were completely tossed out the window by the time Amazon bought WholeFoods, started their Amazon Go stores and AliBaba spearheaded the future of “New Retail” with their Hema stores. This plus the fact that despite years of strong growth in eCommerce globally the total percentage of eCommerce never really hit numbers higher than 25% in the largest countries when compared to the total retail market size.While Corona will impact the future trajectory of eCommerce, I still do not believe it will ever become a significant majority of total retail. 

Time has taught us that retail is both a key part of the overall eCommerce experience and one that is critical for Pakistan to embrace if we want to digitise our country. Therefore the recent capital injection into Bazaar Tech and Tajir has made an introspective dive into the retail industry an unavoidable and necessarily task. 

We want to outline some of the opportunities and challenges currently faced by this market. We will also be sharing some ideas about the importance of the retail sector and the role it can play towards digitising the entire economy. 

While writing this article we came across two other startups that are also focusing on this space, Jugnu & another still in stealth mode. 

Retail Market Size

The grocery retail industry can be divided into two segments: modern and traditional trade. The modern trade segment includes stores such as Carrefour, Imtiaz, Naheed’s etc, whereas the traditional segment incorporates pretty much everyone else. There is a major disparity in between the two segments both in terms of sales revenue and retail outlets (the number of modern retail outlets are not even visible on the graph below and we have included the full table below to account for this). 

As stated by the Euromonitor report: We have “deep rooted consumer habits and behaviours, which keep traditional grocery stores at the heart of our shopping experience. Situated within residential neighbourhoods, traditional grocery retailers provide convenience for daily shopping, and with the facility of credit purchasing, loyalty to the channel remains high. Moreover, the over-the-counter sales mechanism makes traditional grocery retailers the key gatekeepers for many household, personal care and packaged food brands, and companies invest in shelf displays, banner advertisements and trade initiatives to help traditional grocery retailers thrive.”

Key Stakeholders in the retail industry

To give everyone some background on the players in the retail industry we have included a short infographic below. However, for more information I recommend you read Analyzing FMCG Distribution End In Pakistan - Ans Shahzad & Retail revs up - Recent - Aurora. 

[Note: when we mention the traditional or retail segment from now onwards, we will generally be talking the much smaller segment of stores such as general stores, kiryana, etc as mentioned in my categorisation above rather than the overall retail sector or stores that fall under the modern retail channel]

Current Market Dynamics & New Players

New players in the market, such as Tajir and Bazaar Tech, all seem to be primarily focused on aggregating demand for those in the retail segment and this is a great entry strategy. It's likely to be a profitable business in terms of unit economics and they are solving a real need. However before we go deeper into their strategy lets learn about the current best practices within the industry. 

How do retailers stock their shelves today?

Currently retailers have to deal with multiple distributors and wholesalers, with some even going to places such as Carrefour/Metro to get bulk deals on products. Each store carries anywhere from 50-500 products and to gather inventory they have to deal with upwards of 20-30 distributors and wholesalers. The ordering process is ultimately broken as they have to wait for order-bookers to come and initiate the process. Having an order-booker is convenient if you are a big store and are serving a large area, however, if you are a small store in an underserved area it does not help much because the order-bookers are less likely to approach you on a regular basis. Once the order is taken, delivery usually takes place the next day. 

Each of the startups (Tajir, Bazaar etc) currently entering this arena is likely to be focusing on the following key components: assortment; price; fast delivery and ease of use. While factors such as these are the most critical for ensuring long term success, We believe there are a few other areas that startups should also focus on to ensure long-term retailer loyalty, diversification of revenue streams and the creation of a strong ‘’moat’’ in general as a defense against competition.

Ease of Use & Guaranteed Delivery

The startups intend to provide retailers with an easy and simple mechanism to place orders for supplies. This itself will add value as the retailers will now be able to compare prices of inventory very easily and therefore earn a higher return on their investment. They also intend to offer speedy delivery along with the option to do live tracking of the ability to choose delivery slots. 

Branded Items & Private Label

The startups intend to offer all sorts of branded items from all the FMCG’s that are available. One of the largest segments of sales however are commodities such as sugar, flour and salt which are ripe for upstream integration and can be sold under private labels. In a market which will be inundated with new startups and incumbent players the best way to make yourself stand out is to have the lowest prices. We believe that the shrewdest of players will go the extra mile and aim for a higher strategic position in the supply chain to earn additional value. 

Building Infrastructure & Enabling Technology Focused Growth

After these startups establish their core business models, they can then begin to focus on expanding their business lines. By using their relationships with retailers, they could decide to build core infrastructure which currently does not exist and/or are unusable by retailers for reasons such as complexity, comprehension and price. Some examples could include infrastructure for Inventory Management Systems (IMS), a Point-Of-Sale (POS) System, Credit Ratings for retailers etc. Getting into these adjacent markets will create a larger impact in the future. This is because it will provide other Pakistani startups & retailers with the infrastructure and data they need to expand into additional services such as Loyalty Programs and the B2C market.. 

Inventory Management Solution & POS

The majority of retailers in the retail segment do not have inventory or point of sale (POS) systems. There is no method to accurately know how much live inventory is in the system, which are the best selling SKU’s average stock time’s etc. After the core B2B supply chain business is established, if the startups are able to leverage their relationship to provide an inventory management and POS system, they will be able to leverage that infrastructure to build out multiple other revenue stream for themselves and provide greater data to the retailers to avoid things such as stock-outs and reducing inventory carrying costs. 

Big Data & Fintech

Bazaar Tech and the other players in this field would need to ferociously add more and more retailers to their roster. As they expand the number of retailers they serve they are ideally placed to start offering greater insights and data to both FMCG’s and to store owners - especially if they are deeply integrated into the retailers POS and IMS. They could capture data and insights on consumer behaviour, purchasing patterns and many other elements to help drive efficiency and profits across the entire supply chain. 

The retail segment is also one that is generally never given any access to credit facilities. A lot of the credit risk could potentially be reduced if data on sales and inventory levels were accurately held thus allowing banks and fintechs to start lending working capital to retailers to help them grow. 

Loyalty Program

A loyalty program for retailers will also help make a startup/distributor stand out against the competition and give retailers an extra reason to choose one service over another particularly when prices are the same across platforms. 

Entering the B2C Segment

In addition to the above mentioned factors, we believe that massive economic value can be generated for these startups, their retailers as well as Pakistan’s digital ambition by pivoting towards the B2C industry in the future. If they are successful in providing an amazing purchasing experience and helping their stores save on purchasing costs, the retailers will be willing to test out new and innovative methods en masse with the distributors. 

There are multiple entry points for the B2C business which include the following:

1. Direct customer app for both B2C & B2B clients

2. POS with an eCommerce focus

3. POS with a Fintech focus

1) Direct Customer App

One of the simplest extension’s Bazaar Tech could provide is to offer a consumer facing app. Similar to Aaramshop, which made its way to Pakistan earlier in the last decade, its goal was to allow customers to purchase items directly from local retailers for pickup or delivery. While we are not sure of the exact reasons for its lack of success, we are assuming a big part of it  was accessing current inventory levels at each local retailer. 

As Bazzar Tech et al are entering this space starting with B2B procurement, they will have a much better view of the inventory available on hand at every store; especially if they expand/integrate into the stores’ POS and inventory management systems. They could then easily create a customer app which showcases the products that are available in the nearest store to them and allows them to place an order directly for collection or delivery. The beauty of this model is that you are helping establish a hyper-local “super” on demand business, where you could get your deliveries in between 5-15 mins. 

This app could also be repurposed to allow large and small corporates alike to digitise their procurement of general supplies. 

2) POS with eCommerce Focus

Furthermore, every retailer could be converted into an eCommerce outlet. By using API’s from eCommerce retailers such as Bookme, Daraz and Dawlance, each Kiryana store’s POS could be a gateway into every product available across all major eCommerce stores in Pakistan.  Imagine going to your local kiryana store to buy bus tickets directly from Bookme or even become an extension of the millions of products on Daraz. This is an idea that could be taken even further with a LCD placed above each store's counter offering weekly deals from top brands such as Dawlance etc directly to the consumer and available for purchase locally for delivery to either the store itself or their home with payment immediately or when the item arrives. Not only will this help store owners make a lot more additional income but it will also provide tremendous value for customers.

3) POS with a Fintech Focus

We believe out of the three B2C focus areas, integrating more payment options that are easy, simple and convenient for the customer to use would have the greatest overall benefit to all the stakeholders within this ecosystem.  

At the time of purchase, the retailer could offer multiple payment options to their customers. Within the POS system, alongside the standard cash option, integrations with banks and fintechs could also be present. Customers could then be given an option to pay with a dynamic QR code on screen or with a bank transfer.

We would wager that the well funded fintechs and banks would love to use some of the money they currently spend on TV ads to have a direct means of gaining regular customers. In the past we have seen instances where as little as 200 rs or a 5% discount given on groceries has led to major jumps in sales. This phenomenon is common when giving discounts on fashion and electronic items, but demand will be much greater when you give them on commodities and particularly when you offer them at your local grocery store. 

With the introduction of dynamic QR codes as well the ability to pay within digital means will be seamless, especially when compared to the clunky methods with which you have to pay now. 

Challenges

Entering into the retail space and expanding will of course not be easy just because the startups mentioned are using technology or raised a few rounds of investment. There are key challenges that every new entrant will need to overcome. 

1. A large part of this market is serviced by wholesalers who only operate on a cash  basis which means reporting sales to the FBR  could be avoided. With a nation as undertaxed as ours we have to consider the impacts of competing against those that are happy to skirt the tax collectors. 

2. Distributors after the lockdown have hopefully realized they cannot rely on order-bookers alone, and with the number of startups with funding entering this space they themselves are likely looking at deploying similar technology to automate the order-booking process.

3. The retailers who are regularly served by the order-bookers will rightly wonder what benefits these startups will provide to them. They would probably prefer to have someone come and take an order. In these scenarios price will be the most important factor, so these new startups will have to ensure they are extremely competitive while offering an amazing level of service. 

4. The more competitors that enter this sector the harder it will become as only those startups/distributors that add real value will win. We can imagine in the not so distant future that every retailer has multiple distributor apps on his smartphone and they would regularly compare the prices of products across different distributors. 

5. Offering a high level of service will be extremely important as well. It's easy to promise next day delivery, but another matter completely to achieve it. Concerns such as how invoices are to be delivered and what the return policy is for products is also of crucial importance. 

Conclusion

Any investment that comes into the retail sector is worth celebrating not just for local startups but also for potentially increasing the digitisation of the entire economy. While each of these ideas mentioned above can be done individually by other startups as well, we feel that having an existing relationship with thousands of retailers beforehand will help immensely. All retailers by and large need to go through a digital revolution within Pakistan and we need to get rid of the paper parchi system once and for all. 

We leave you finally with a potential business model that could be built by each of the startups/distributors in this space. 

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Notes from the seminar

Telemart

1) orders since end of march have continued to increase due to lockdown ~23rd March

2) seeing 8k AOV for pharmaceutical orders

Trax

1) saw a drop in shipments since 2nd week of March - due to lack of imports

2) eCommerce sales almost dropped to almost 0 until the 2nd week of April

3) 1st to 4th week of April dispatches for Trax was 5k/day, 7k/day, 9k/day, 14k/day

4) eCommerce stores were live during the lockdown, but as the lockdown ended the backlog of orders started becoming dispatched

5) Transport services are still not fully open across the country which led to supply side contraints

Cheetay

1) says that 25% of restaurants were open during the lockdown (asuming Lahore_

2) Today only 60% of restaurants are still open (unsure of region)

3) See's spike in online orders with prepayment,3% via cheetay wallet, 15% overall prepayment

4) Managed a delivery to covid patient for free and then minuses balance of customer's wallet if they cant pay on prepayment at the moment

5) Daily inbound queries from restaurants of 125-150 to list online

6) Want to be quick commerce company with delivery in 20 mins - as per their strategy last year - currently 25m delivery on grocery and 33 min on food

7) Restaurants are valuing takeaway customers as well, before corona they were happy to make takeaway customers wait to give priority to their dine in customers

8) Restaurant are seeing returning customers online and have come to the stage where they want to make sure they are higher on the listing pages and want to learn how to improve their rank

9) In india there is a city with a population of 50,000 with 10,000 food orders a day

Brandverse & Google

1) Lots of people have gone into online delivery in the last 1.5m - turning into a cottage industry which is damaging the industry and customers as they are not able to fulfill orders consistently

2) Speed with which existing etailers pivoted is super fast

3) you only get one chance to lose a customer, and once they are lost, they are lost

4) Google research suggest there is a hockey stick like growth right now within eCommerce in Pakistan

5) In the major metro's any customer can get what is available on the majority of websites within 15m, which means the future of commerce is NOW/Quick commerce.

6) Why are we therfore building warehouses etc, when the local retail market has everything available

The eCommerce market size has fallen on a quarter by quarter basis according to numbers by the SBP. Transaction’s fell by ~100,000 orders in the quarter, while revenue fell sharply by PKR 3.1 Billion to 7.1 Billion rupees.

————— Original Article Below—————

The eCommerce and digital payments industry has seen tremendous growth in the last 3 years. According to reports from the State Bank of Pakistan (SBP) the ‘digital-only’ eCommerce market size has increased from 9 Billion to 26 Billion rupees (FY17 to FY19). Growth continues to look promising with the current financial year already seeing 18 Billion rupees in transactions in only its first 6 months. 

Growth between FY18 and FY19 for prepayment eCommerce transactions was ~40% and without Covid-19 we may have achieved similar growth numbers this year (FY20) already. However, due to fewer opening hours of retailers and a larger shift towards digital transformation we are expecting a much greater rise in PrePayment orders starting from Q3 of FY20. 

Overall prepayment transactions in terms of volumes have risen from 1.2m to 5.7m (FY17 to FY19). This has been accompanied by a sharp drop in the Average Order Value (AOV) from 7,800 to 4,600 rupees over the same period. This is a promising sign as it means that prepayments are being used for a greater number of smaller transactions; not just larger ones. 

How large is Pakistan’s eCommerce market size though? Unfortunately there is no definitive answer and predicting or rather guesstimating the COD market size is very difficult. While the general consensus seems to suggest that 90% of total transactions are covered by COD, when it comes to total revenue, COD more realistically accounts for 60% of all eCommerce transactions.

If we take SBPs numbers for domestic prepayment value and work out 60% for COD value then the total domestic eCommerce market size comes out to about 65 Billion in FY19, which is a growth of 40 Billion in 2 years. In the current financial year until December we have already achieved a value of 46 Billion rupees which is the same as we did in a full year in FY18. 

With this article we are also releasing our data set that we have been curating for the last few years. You can download a copy for yourself from this google sheet. All eCommerce data is currently up to date and over the next few weeks updating the rest of the sheets with the latest available numbers as well.  

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Rebate on Foreign Transactions

Firstly, the goal of the policy is to help grow the overall eCommerce sector and as a secondary goal it is to help exports. I believe that a monetary reward in the form of a rebate or tax credit should be given to all eCommerce merchants who are focused on selling Pakistani products abroad. A rebate of this nature can be very easily implemented and verified as it will only be applicable if a customer who holds a non-Pakistani credit or debit card, places an order on a Pakistani website using a Pakistani payment gateway. The Pakistani internet payment gateways can easily be used to verify these transactions.

For example, if a US based customer uses their Citibank Visa card to purchase a dress on Khaadi for PKR 5,000 and the payment is processed through HBL’s credit card gateway, then Khaadi would get a rebate/credit of 50 PKR or 1% of the total value. (Values are for illustrative purposes only)

One of the advantages of this method is that it focuses on small orders for as little as $10-$20 but the potential volume of orders that eCommerce retailers such as Khaadi, Gul Ahmed and others may potentially get would be large. Currently some of these fashion retailers prefer to use foreign payment gateways therefore the money never enters into Pakistan.

The reward for the eCommerce merchant should be a few dollars or upto 10-20% of the total sale all of which many eCommerce merchants could use towards subsidising their customer acquisition cost. This policy could also benefit SaaS companies in Pakistan and push them to build world-class product businesses such as Zoho out of India.

Banning COD in Pakistan

The eCommerce policy bans all COD transactions in Pakistan over the next few years.

“To promote financial inclusion and digitization, COD mode of e-Commerce will be gradually discouraged through special incentives for consumers and merchants with an objective to use digital devices for payments. (Within three years of the launch of this policy, maximum COD transaction amount will be PKR 10,000. Efforts will be made to convert all COD payments into e-Payment preferably within 10 years (2029).” Section II, Recommendation I of the eCommerce Policy

While focusing on digitisation is a worthy goal, the potential for this to be a death nail to the eCommerce business is high. My recommendation is to tie the COD limit to the number of active unique mobile wallet/card users in Pakistan.

COD Limit Active Mobile Wallet or Online Card Users Rs 50,000 5 Million Rs 40,000 10 Million Rs 30,000 20 Million Rs 20,000 40 Million Rs 10,000 60 Million Rs 5,000 100 Million Numbers are for illustrative purposes only

So every 6 months we review the total number of active mobile wallets in Pakistan and the active online cards being used in Pakistan and based on that data we set the maximum COD limit for the upcoming 6 month period.

A policy like this encourages banks and fintech's to work hard to on-board and activate customers, with a reward for the COD market being limited because of their actions. Rather than the eCommerce players finding themselves in a position in 3 years where the move to digital money is still slow, but the COD limit is enacted, which would hurt the overall eCommerce market.

Increase Internet Users in Pakistan

This might seem like a simple one, but it's critical, and while I don't have any specific policy recommendations, the entire digital economy is dependent on the growth of the total active internet users in Pakistan. To grow this we need to be more inclusive and affordable both in terms of data cost, but also taxes on smartphones.

In addition to smartphone and data costs, mobile manufacturers and telcos should work together and focus on bringing in products built on KaiOS within the feature phone category as well. KaiOS is the 3rd largest mobile OS in the world after Android and iOS and Reliance Jio has sold over 60 million KaiOS phones which are capable of running whatsapp, google maps and other web features, products such as these can help greatly in introducing web products to the massives who are not interested or do not see the value of smartphones just yet.

In our last article we discussed how Pakistan’s retail e-commerce sector has not expanded as rapidly or as widely as one might have expected it to. This rings particularly true when you compare its growth to other e-commerce verticals in similar regional markets like India, Indonesia, Philippines and Thailand.

We therefore continue our analysis where we will look at the challenges that the retail e-commerce sector faces, understand the potential solutions and strategies enemies at the gate may use to dis-intermediate marketplaces altogether.

Current Challenges

At this moment, there are a number of challenges that face e-commerce players. While the list can be fairly detailed and granular, we will focus primarily on the core challenges that affect both customers and e-commerce merchants on a day-to-day basis.

Product information

Customers visit e-commerce sites for multiple reasons. These may range from pre-purchase research, comparison shopping, discovering new products, to directly purchasing a specific item. Regardless of what brings the user to the website, what they seek before all else is product information. Unfortunately, in Pakistan this vital part of the user experience has been given the least amount of attention, where today, the majority of marketplaces are not able to provide customers with little more than basic product information. Whatever information does exist on most product pages does not exceed that which you get from viewing a singular image on the website.

When shopping online in Pakistan, most of the time you will only find the product name, its price, and one photo. This negligence towards product content exists primarily because priority is given to getting as many products online (a.k.a growth in assortment) and at the lowest possible cost. The examples below show the difference between good and bad product descriptions. Keeping in mind that good product content drives sales and poor content will likely kill them, it is perplexing that marketplace leaders bemoan poor traffic conversion rates but persist with providing poor product content. Enriched product descriptions are a core component of the user experience and a building block of sales and marketing functions.

Enriched product data has been proven to increase the conversion rate of e-commerce stores. However good product data is tough to obtain and expensive to create at scale. Some studies have found that 20% of purchase failures are potentially a result of missing or unclear product information.

Payments

If a customer does end up purchasing a product and adding it to their cart, then the primary decision they need to make is their payment method. While the majority of customers choose cash-on-delivery (COD), over the last two years we have seen a strong trend towards online payment channels with larger marketplaces doing a large proportion of their sales via electronic pre-payment methods.

With most banks not allowing their debit cards to be used for online transactions (most only allow it after a call to their helpline), most customers see payments online as a hassle in itself. Mobile wallets could remove this hurdle. However, it is not a ubiquitous form of money right now.

In response to the hacking at BankIslami, the State Bank of Pakistan (SBP) has placed overly burdensome security measure on banks. This greatly reduces the chance of Pakistanis converting their cash habits towards the formal banking sector.

Payments are also challenging for merchants who now have a myriad of payment gateways to choose from but not necessarily the time or resources to integrate all of them at once. When EasyPay was launched in 2015, we felt it was a great incremental addition because in one integration an e-commerce merchant could offer a mobile wallet, over-the-counter (OTC) payments and a credit/debit card gateway all at once. However, now with rise of new wallets such as JazzCash, SimSim and services such as Keenu, FonePay etc, the number of integrations required now are much greater. If these gateways are not integrated, then customers who are starting to slowly shift towards online payment methods will not be able to pay with their preferred payment partner.

Vendors

When the purchase is complete, we come to our vendor base, which in our opinion is the key bottleneck to growth within the e-commerce industry today. The majority of vendors in Pakistan do not have the proper tools for accurate inventory management at the SKU level, let alone being able to connect inventory levels in real time with marketplaces.

In a recent article it was reported that less than 10% of businesses use an enterprise resource planning (ERP) software system. It is because of this lack of real time inventory-level information flowing through the supply chain that a large portion of orders for e-commerce marketplaces go unfulfilled. As is inherent in legacy businesses in the midst of transformation, it is common place for even a brand’s own website to not have visibility of, or connectivity to, their warehouse or retail inventory management solutions.

Having said that, over the last six years, we have seen many vendors, brands and resellers transform themselves very rapidly to cater to this increasing demand for quality information. Many have exhibited the wherewithal and appetite to learn and invest time in making the necessary changes needed to carve a place for themselves on the e-commerce arena. A fair number have set up new divisions specifically to focus on e-commerce marketplaces and have invested in getting the right technology infrastructure in place to make their mark. Brands and vendors have also started to realise that online marketplaces are an inevitability. Like the largest malls, they attract a lot of customers even if it is only to window-shop and brands cannot afford to not have a store to display their products.

Logistics

If the product is available the next step is to enter the logistics sector and last mile delivery. Pakistan has a large number of logistics players offering package deliveries and COD services. We have one of the strongest line haul and last mile services when compared with countries in South Asia such as Sri Lanka, Bangladesh, and Nepal.

However, the current infrastructure is still primarily built for letter delivery and not package delivery with a cash collection component. Parcel delivery is currently conducted by two types of companies: generalists like TCS, LCS, M&P and specialists like BlueEx and Forrun. Generalists are delivering parcels through the legacy channels of courier riders while specialist companies are not able to scale the market as much as they would like to.

What is shocking as well is that the standards of the industry for delivery is about 1-3 business days. At present 15-20% of deliveries are returned to the sender due to one of two main reasons: the customer did not want the item or was consistently not available to receive the item over multiple attempts.

This inefficiency is partly driven from the fact that planning is still done manually on the ground rather than conducted through dynamic route planning. Picking products from vendors can take 2-3 days and repayment of collected funds between 7-30 days. All of these systems can and should be automated. Otherwise, the e-commerce industry will continue to face significant hurdles in its ability to scale much faster in the future.

The unit economics of parcel delivery is also heavily geared towards the last mile which can take up 50% of the total cost. This can occur due to multiple factors, such as customers not having visibility for when the order will be delivered, or couriers not having the exact change ready to end the transaction in a timely fashion. Incidentals such as these and more have led to a first-delivery delivery success rate of 55-65% and an overall success rate after three delivery attempts of between 70-80%.

With each attempt the cost of fuel, salary, etc. is compounded and this leads to a very high cost rate. New players are looking to scale their unit economics by focusing on the optimization of rides rather than scale. By focusing on giving customers and vendors real time updates on deliveries, dynamic route optimisation and delivery algorithms, they are looking to increase the first-delivery success rate and bring down average delivery times from 12-15 mins down to just a few minutes.

The Future Builders

While there is no doubt, that there are serious challenges that in the industry hasn’t yet even begun to solve, there are plenty of reasons to be hopeful. Firstly, the large marketplaces are still investing within the industry and will continue to do so for the foreseeable future.

Secondly, there are a group of startups that have formed in the last year or so who are working on solving a lot of the problems faced directly by both large and small e-commerce marketplaces. These startups are also by and large funded and have founders who have a lot of experience within their respective sectors.

These new startups that are coming up are aiming to become aggregators and consolidators within the e-commerce industry which has the potential to help both the large and small e-commerce ventures across the country.

Vendor management

Technifai, a startup focused on providing close integrations between a brands e-commerce site and marketplaces. The integration works by taking all product data from a brand store such as Ego, including images, product name, price, stock quantity, etc. and then sending it to marketplaces such as Daraz and Yayvo.

When marketplaces get an order for Ego’s products, Technifai sends the order details to Ego’s brand store who then process it like any other order and send a confirmation of dispatch to the marketplace all the while keeping inventory levels and prices synced between all other marketplaces that might have the same product listed.

The key challenges that Technifai solves is the issue of brands having to update their product and stock details to multiple marketplaces, multiple times a day. And marketplaces love it as their inventory is then a live replication of the brand’s store meaning they are able to market the products with minimal chance of order cancellation.

Product information management

Product information management (PIM) is a major challenge for any e-commerce company, and one that is generally ignored due to the large investment and complexity required to get it right. At its core, retail e-commerce is about selling a product without being physically present. In the absence of the physical product, enriched and accurate content is essential.

Brandverse is a product information management startup that will be going live in the first quarter of 2019. They will work directly with providing brands, and with retailers, to create, maintain product information data. Marketplaces and anyone else who requires it will be able to get fully enriched product listings including its volumetric weight, content description and high resolution and 3D photographs.

As it scales, the service will start to become invaluable to all ecosystem players, from marketplaces, to concierge e-commerce and logistics providers. Customers will benefit from the enriched content to help their purchase decisions, brands will gain consistent representation of their products across all digital touchpoints, webstores will benefit as their conversion rate will increase as will their assortments, at incrementally lower costs, fulfilment will become more accurate, and sellers across the country, whether they are online or offline sellers, will be able to sell their products online without creating content.

Payments

While e-commerce payments are still primarily processed through COD, over the course of the next 2–3 years we predict a much faster shift towards electronic pre-payments within the industry. There are now too many payment providers, and it is difficult for an e-commerce merchant to incorporate all of them.

Kuickpay is one payment service that has already integrated with over 14 banks and offers their customers the ability to pay for ecommerce orders, bills and more directly through their bank account. They are currently also working on the ability for customers to pay for orders on ecommerce stores directly on the checkout using their bank account.

APPS is one startup that is working on creating a master payment gateway for e-commerce merchants. With one integration merchants will be able to offer their customers payment options ranging from credit/debit cards, Easypaisa Wallet, JazzCash Wallet, SimSim, Bank Transfer, Keenu, and so on.

Logistics

While the typical logistics letter delivery services are very strong within the country, their services are still not optimised and geared for e-commerce deliveries.

Logistics companies do not provide open box deliveries, scheduled deliveries, or live updates on deliveries. Where these services are attempted, they are not integrated directly into web-stores with application programming interfaces (APIs). For a large number of store owners, plugins are also not available by which merchants can in one click start printing air-way bills to dispatch orders and hence this requires lengthy processes.

E-commerce requires a much greater degree of logistics support than is fully available right now, and some local startups such as TPL Logistics and Trax are attempting to overcome some of these challenges directly.

The Future Builders we mention will all go on to support both large and small e-commerce companies and help them become more customer centric. However, the traditional e-commerce marketplaces face a potentially very large and dangerous challenge in the years to come by fintech and banking plays that aspire to seamlessly combine payments and retail, much like WeChat & Paytm.

The biggest challengers to the marketplaces will most likely come in the form of fintechs such as SimSim & FonePay, telco-backed wallets such as EasyPaisa & JazzCash, or from bank-led apps, such as Alfa by Bank Alfalah, HBL Konnect, DigiSilk from SilkBank et al. All of these companies are looking to create Pakistan’s first SuperApp.

The SuperApp challengers

The SuperApp is a concept that began in China with the development of TenCent’s WeChat. This revolutionary app has reshaped the entire country’s digital landscape ushering in unprecedented change in the economy both in terms of scale and speed of business. At its core it is just an instant messaging app, however, with microservice architecture built into it.

The app can serve as a payment portal as well as provide lending, ride-hailing, and food delivery services, including many others. It can even book your doctor’s appointments for you. This and so much more has been built right into the app.

In Pakistan, three names stand out right now when it comes to creating a SuperApp: EasyPaisa, JazzCash and SimSim.

China’s Ant Financial, owned by TenCent’s main rival Alibaba, recently made a massive $184 million investment in EasyPaisa, to grow the overall financial base in Pakistan and bring them onto their app.

JazzCash is vying for a competitive position in creating the SuperApp through its parent company Veon which does not want to be left behind in this race. They are investing a large sum over the next few years to expand their services.

Meanwhile SimSim is the fintech challenger who wants to move fast and make all consumer payments free. They were the first to incorporate a marketplace within their app and have plans to include food delivery and other services as well.

What makes each of these challengers a threat to retail marketplaces is that both EasyPaisa and JazzCash have a huge lead already in terms of their customer base when compared to Daraz. With an active customer base which is already more than ten times greater, the ability to sell products directly to them can be achieved without much effort. SimSim has already proven this as they have over two hundred thousand products on their app.

While SimSim might not have the customer base that the telco-backed wallets do, it has the ability to move quickly and by attracting customers to their wallets thanks to its always free promise. By offering free banking facilities, it is able to attract customers who are tired of paying fees at the traditional banks. It then uses its marketplace model and payroll systems it has developed as a way to build on its revenue model of providing payday loans and short-term credit to wallet holders.

The fintech marketplace

Being a nimbler startup, SimSim has already created a marketplace product using Technifai’s API’s. They have over two hundred thousand products available for any of their customers to purchase using their SimSim balance. Non-wallet holders can make their purchases with a credit card. The entire purchase journey on banking applications has the potential of being much faster given that payments methods are integrated and the customers names and home addresses are already saved within the Bank’s information vaults.

Even though SimSim has launched their marketplace service, it is not expected to be their core business. They are using the marketplace as means to attract and own customers attention by bringing them to their platform. Their strategy is to own the customer channel and then monetise them with multiple other services such as micro-loans in the future.

All banks need to look at diversifying their revenue models for the future. A large chunk of their current profitability stems from investing deposits and interest earned on loans. For instance, in China customers use their banks primarily to receive their salaries. After this they quickly transfer all their money into AliPay or WeChat for spending or investment purposes.

Banks most definitely need to rethink their business models for millennials. A new age of banking could provide all these services on a unified platform, ensuring their customers not only bank with them, but shop, eat, and travel through their own portals.

Bank Alfalah provides a great example as they are pursuing an aggressive digital strategy to offer multiple services directly within their app. In the last six months, they have integrated Yayvo, Eat Mubarak and Bookme.pk directly into their app and will continue to build out their platform in the months to come.

Fight for revenue or customers?

One of the key differentiators between all the fintech players and marketplaces is that the marketplaces that SimSim, JazzCash etc. will create will not end up being their key revenue driver. Instead they simply want to keep customers active on their app. Daraz and other marketplaces, on the other hand, derive key revenue and potential profitability primarily from their marketplace transactions.

We can already see the start of this battle as this year Pakistanis have been pushed towards more and more app download campaigns than ever before. Daraz and EasyPaisa are currently leading the pack with roughly 5 million and 3.5 million downloads each.

Conclusion

Globally the e-commerce sector accounts for ~10% of the total retail sector. In Pakistan this figure stands at less than 1%. Even though e-commerce revenues are doubling annually, the retail e-commerce sector in particular has a lot of challenges that need to be addressed now. With all the difficulties currently faced by the sector, its ability to scale while keeping customers happy will be a tough journey but one with unfathomable rewards at the end of it. Many new startups which have recently launched are luckily addressing a lot of these challenges head on. By focusing on creating local solutions for local problems, the future could still be bright for the industry.

Even though no one can say for certain what the retail e-commerce landscape will look like two years from now, we do know that the SuperApp contenders will play a major role in in its development. Not only will they push the marketplaces to improve their service quality as a result of the increased competition, but they will also create customer awareness. By educating their considerably large customer base and bringing them on board towards e-commerce they will greatly increase the number of first-time orders and in doing so will expand the entire industry itself.

We, as an industry, need to focus on prioritising the customers’ needs first and more specifically on increasing the number of return customers. This will only happen if customers enjoy their online shopping experience and find it rewarding and meaningful. One fulfilled customer can provide immeasurable positive and, more importantly, free marketing for their e-commerce provider. Positive word of mouth marketing will be a key ingredient for the industry to take on a life of its own and grow at the 5-10x speed that it is easily capable of achieving.

This article is the start of a series which will aim to provide the reader with an understanding of the e-commerce industry in Pakistan, with a special emphasis on the online retail market.

We will start by looking at the genesis of the industry, its key players and where all of them stand today. We will continue on to analyse why certain sectors seem to be doing better than others. In part 2 we will focus on the retail e-commerce sector in much more depth and look at the challenges they are facing both internally and external threats that may arise in the near future.

History of e-commerce in Pakistan

The e-commerce market in Pakistan has existed for nearly 18 years. The first online store named Beliscity started in 2001 and even though it no longer exists today, other early stores such as Shophive (2005), Symbios (2006) and HomeShopping (2008) still do. While each of these websites continues to serve its customers even today, none of them have blossomed into homegrown successes stories as the likes of Flipkart or Coupang.

In 2012 Rocket Internet decided to enter the Pakistani market. Within the first 6 months they had already launched three ventures namely Azmalo, Daraz and FoodPanda. Azmalo shut down within its first 2 months but was later re-envisioned as a drop-shipment site that too eventually changed its name to Kaymu. Kaymu then went on to be acquired by Daraz in 2016. Daraz started as a fashion focused portal and in early 2015 transitioned to a managed marketplace focused on all categories and was subsequently acquired by AliBaba in the summer of 2018. They also subsequently launched 5 other ventures which were eventually shut down.

The oldest foreign entrant is OLX, which started its operations in 2010 and continues to operate today. Other large global startups include Careem and Uber in 2015 and 2016 respectively. In the ride-hailing category, the largest local player is Bykea, and you have regional players such as Cheetay in Lahore.

Other large Pakistani startups of note include, Rozee.pk which started as side project of Naseeb Networks in 2006, and Zameen.com, Pakistan’s largest property classified player, which also started up at around the same time in 2007. The oldest however is PakWheels which started in 2003, initially, as a community forum for automobile enthusiasts in the country.

E-commerce landscape

E-commerce is an all-encompassing term incorporating multiple verticals or sectors within it. For this article we have focused on the largest of these verticals to give a sense of the depth and kind of services that are offered.

• Retail e-commerce is defined as the online sale of physical goods and consumables. These can be subdivided into two sectors: marketplaces and brands. An online marketplace can be described as a virtual mall hosting and selling numerous different brand offerings. Online brand stores, on the other hand, only deal in products they themselves produce. Marketplace competitors include names such as Daraz, Yayvo, HumMart and others while the list for brand store competitors include Khaadi, Ego as well and various other Facebook stores. Our primary focus for this article will be on the marketplace competitors.

• E-ticketing includes startups such as Bookme.pk, Easytickets, Checkin.pk and Sastatickets. It’s important to note that this sector also comprises of owned & operated, online ticketing businesses built for large transportation service providers such as PIA, Daewoo, and Pakistan Railways.

• Ride hailing has been overtaken mostly by the global and regional giants Uber and Careem. A local player has also emerged under the guise of a startup named Bykea which takes a much more indigenous and hyper-local approach to product development and marketing, and has seen fast growth in its key motorcycle-powered ride sharing and parcel delivery business.

• Classifieds cover a wide range of verticals from real estate, to human resources, to used cars. Sites such as OLX act as a marketplace offering all these services and more. Other sites such as Zameen, PakWheels, Rozee, on the other hand, have placed their focus on specific verticals and in doing so have successfully created a niche for themselves.

• Food Delivery service providers include startups such as FoodPanda (an acquisition of FoodPanda and local startup, EatOye) and Eat Mubarak.

To analyse and compare the market we will be using several data points, combining both anecdotes and expert opinion. We will compare each of the verticals in terms of their fulfilment speed and accuracy, their payment methods, the share of mind they capture amongst the customer base and what the alternatives were before they arrived.

Current Scenario

The e-commerce market has changed rapidly in the last 5 years. With big funding rounds for the largest players, most have made a sizeable impact on the internet economy.

Sectors such as classifieds and ride hailing are fairly saturated right now. OLX globally has close to no competitors. A few years ago Schibsted entered Pakistan with Asani.pk. However, OLX soon bought them out. In the property, automobile and jobs space there is Zameen, PakWheels and Rozee, all of whom have a very high brand recognition in their respective categories. Both Zameen and Pakwheels have also enjoyed the validation of outliving the Rocket Internet funded startups such as Lamudi and Carmudi.

Ticketing we believe is still an open field because even through there are three viable competitors in the market, no one has really managed to dominate the space yet. This is also due to the fact that many direct carriers have still not opened their sales to online channels. None of the ventures in the industry have received any major funding as yet also, with the largest funding announced to date being $1.5M into Sastaticket. A Rocket Internet company by the name of Jovago was also competing in the hotel booking market, but they shut down after 3 years.

Retail e-commerce is an anomaly in that it has received a lot of heavy funding especially Daraz, Kaymu and Yayvo, yet the market is not as saturated as one might expect.

So why does retail e-commerce seem to be lagging behind the other e-commerce verticals? This is even more surprising given that in more established markets, after classifieds, the retail e-commerce market always exhibits the strongest growth.

Each of these verticals have their overall customer service challenges as well. However, the general consensus seems to be that customer complaints within the retail e-commerce sector are much higher than those registered in all the other sectors.

We will explore each of the verticals one by one against their offline competitor to get a full answer.

Detailed Analysis of Sectors

To do a full comparison as to why the retail marketplaces might have not grown as rapidly, we take a look at a multitude of variables including cultural factors, fulfillment rate, and payment methods. We start by noting how each of these services was delivered before e-commerce players entered the market.

Ride hailing

The ride hailing sector is the one that has probably enjoyed the most growth within Pakistan. Uber, the global leader and Careem, the regional leader, are competing aggressively to win their share and stake of the market. Bykea, a local startup focused on motorcycle rides and deliveries, has also done well to carve out a niche for itself as the first online company to introduce motorcycle rides in the country.

Once the average fulfilment time for taxis was 45–90 mins. The startup market has successfully managed to bring this down to just a few minutes while simultaneously making the rides much cheaper on average. This is the primary cause of this tremendous growth. Mobility has always been a challenge in Pakistan, especially for the underserved and female population. By bringing air-conditioned cars at multiple price points, the market has grown tremendously over the last 3 years.

The biggest challenge still facing the ride hailing market is accessibility. Their addressable market is currently limited only to those customers who have a smartphone and an internet connection. While internet penetration is growing, there is still a lot of opportunity to solve the mobility problem of the population that remains online. .

Food Delivery

The food ordering sector has also done well, even though its growth hasn’t been as swift as that of the ride sharing sector. Online food ordering companies have had no competitors for the last three years after Foodpanda bought out EatOye. However, August witnessed the launch of Eat Mubarak, a new service that offers for the first time offer a viable alternative to FoodPanda that seems to be gaining traction. Cheetay, a startup focused on the Lahore market, also offers food delivery alongside groceries and other commodities. Competition in the market will increase in 2019 with Careem and Uber also launching their food delivery services in the first quarter.

As you can see, although online food apps have drastically increased the ease of ordering(bringing it down to just a few short clicks), the overall fulfilment time is still the same. This might be one of the reasons why the market hasn’t matched up to the break-neck speed of ride-hailing startups. Nevertheless, it does continue to gain strength.

Typically, the food culture in Pakistan differs from city to city. The online food market is much larger in Karachi than in Lahore. Apart from its market size, one of the cultural reasons for this is that in Lahore dining out is more of a preferred experience whereas in Karachi ordering in is far more widely accepted.

Retail e-commerce

The retail e-commerce market has the greatest revenue generating potential within the entire e-commerce sector.

The biggest differential between all the verticals is that the fulfilment time in the retail e-commerce sector is far higher than what is expected from the other sectors, averaging 3–5 days as compared to less than an hour for all other verticals. The fulfilment success ratio is also lower with on average less than 80% of customers ending up actually receiving the order they place.

The above table makes a very vital case for fulfilment time being a major impediment in the growth of online retail. Even though e-commerce provides the convenience of not having to leave your house to place an order, there are other deterrents which stem from traditional and cultural factors. E-commerce could never replace the experiential element of families going to the mall together where impulse led shopping is a powerful tool. Traditional shopping methods also allow one to see the product being bought and prices can be haggled down. One also knows exactly where to go to return or exchange a product, an issue which in traditional shopping can be dealt with on an immediate basis. These factors have contributed to be a huge impediment to online shopping and unless they can offer a more reliable and quick service, they will forever play second fiddle to brick and mortar retail.

Conclusion

While the overall e-commerce market has doubled in the last year alone and many of the large retail e-commerce ventures will have also grown at this rate or higher themselves, we believe that if retail e-commerce ventures had addressed their fulfilment challenges earlier, their growth rate might have been closer to 5-10x per annum rather than 2-3x. This growth would have been possible as returning customers would have helped spread the word and there would be a lot more trust overall within the retail marketplace vertical.

It is for these reasons that we believe this market segment is still open for disruption and believe that this disruption could potentially come from the upcoming super-apps or the growth of direct-to-consumer (D2C) business models within the next two to three years. I discuss these business opportunities and how the retail e-commerce vertical can secure itself against such threats in part 2.

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After the infamous Bank Islami Hacking incident, that took place in October, the State Bank of Pakistan’s Payment System Department (PSD) released a circular last week in a concerted effort to fortify the security systems under which all banks in the country operate. As well intentioned as these new measures may be it is the belief of many in the industry that they will slow down the growth of the banking sector; specifically in terms of customer growth and its pace of innovation.

The full circular can be read here.

Positive Elements

Let us begin by first discussing the positive elements of the circular which indeed will strengthen the integrity of banks and offer customers more protection. The PSD is to be commended on its actions regarding the following concepts.

Undeniably, measures had to be introduced to protect banks and their customers and the PSD has done very well in enacting article 3 stipulating free transactional sms and emails to be sent to all customers. This will greatly help in the detection of fraud on an immediate basis. It also promotes a constant dialogue between the banks and their respective customers reducing any existing barriers between them.

In the same spirit article 17 stipulates that banks should inform customers within 48 hours of any breach and make reparations within the same timeline. This ensures that no bank could ever try to hide any possible breach from its customers therefore complete transparency will be the norm for the future.

Both of these measures will help establish a strong platform of trust and provide customers with the rights they need in order to further their existing financial service requirements.

Articles 6 states that the majority of plastic cards in the country be replaced with new cards supporting an EMV chip and pin complaint system. This will be a major breakthrough as current magnetic based cards can be duplicated while chip and PIN formats cannot. This will also replace the act of requiring a signature at the point of sales with the requirement of typing in a PIN number instead. Many believe this to be a far more secure method of payment and it provides customers with the confidence that their cards are less likely to be misused if lost.

Finally, article 13 states that banks must submit an implementation plan for 3D Secure protocol on online payments. If implementations for all banks are completed within the next 2 years, this could be very helpful for the growth of the eCommerce market in Pakistan.

Catch 22

As commendable as their efforts have been the PSD has in all earnest implemented a few troubling measures which could seriously threaten the future development of Pakistan’s financial sector.

Article 4: Activating mobile banking at branch offices

iv) Henceforth, banks/MFBs shall activate/reactivate online banking services including internet/mobile banking for their customers after biometric verification at any branch of their bank. At the time of activation of online services, banks’/MFBs’ relevant staff shall educate customers about various types of online banking frauds as well as the corresponding preventive measures. Banks/MFBs shall be solely responsible for ensuring customer authentication for activation of any ADC and any loss of customer funds due to false activation of any ADCs shall be compensated by the respective bank/MFB.

This paragraph alone will hurt a lot of the micro-finance banks and large banks that were doing online activation of customers to create accounts without the need of visiting a branch. How are digital banks supposed to operate when such a stringent requirement is put on activating customer accounts? Small banks that do not have a large footprint in terms of branches have now also been put at a severe disadvantage.

** Correction. Wallets which operate under the branchless banking regulation’s are not specifically mentioned as having to comply with these regulations. Therefore wallets such as SimSim and others are not required to enact these measures. This might even give them an advantage in the short run, and in the medium term we might see the larger banks opting to create wallets under the branchless banking act. **

̶W̶a̶l̶l̶e̶t̶s̶ ̶s̶u̶c̶h̶ ̶a̶s̶ ̶J̶a̶z̶z̶c̶a̶s̶h̶ ̶a̶n̶d̶ ̶S̶i̶m̶S̶i̶m̶ ̶w̶h̶o̶ ̶w̶e̶r̶e̶ ̶o̶n̶b̶o̶a̶r̶d̶i̶n̶g̶ ̶f̶u̶l̶l̶y̶ ̶w̶i̶t̶h̶i̶n̶ ̶t̶h̶e̶i̶r̶ ̶a̶p̶p̶s̶ ̶w̶i̶l̶l̶ ̶n̶o̶w̶ ̶h̶a̶v̶e̶ ̶t̶o̶ ̶t̶e̶l̶l̶ ̶c̶u̶s̶t̶o̶m̶e̶r̶s̶ ̶t̶o̶ ̶g̶o̶ ̶t̶o̶ ̶a̶ ̶b̶r̶a̶n̶c̶h̶ ̶t̶o̶ ̶c̶o̶m̶p̶l̶e̶t̶e̶ ̶r̶e̶g̶i̶s̶t̶r̶a̶t̶i̶o̶n̶.̶ ̶J̶S̶ ̶B̶a̶n̶k̶ ̶w̶h̶i̶c̶h̶ ̶h̶a̶d̶ ̶v̶e̶r̶y̶ ̶i̶m̶p̶r̶e̶s̶s̶i̶v̶e̶l̶y̶ ̶i̶n̶t̶r̶o̶d̶u̶c̶e̶d̶ ̶a̶n̶d̶ ̶d̶e̶p̶l̶o̶y̶e̶d̶ ̶f̶i̶n̶g̶e̶r̶p̶r̶i̶n̶t̶ ̶s̶c̶a̶n̶n̶i̶n̶g̶ ̶v̶i̶a̶ ̶s̶m̶a̶r̶t̶p̶h̶o̶n̶e̶ ̶c̶a̶m̶e̶r̶a̶s̶ ̶f̶o̶r̶ ̶i̶d̶e̶n̶t̶i̶t̶y̶ ̶v̶e̶r̶i̶f̶i̶c̶a̶t̶i̶o̶n̶ ̶w̶i̶l̶l̶ ̶n̶o̶w̶ ̶s̶a̶d̶l̶y̶ ̶n̶o̶t̶ ̶b̶e̶ ̶a̶b̶l̶e̶ ̶t̶o̶ ̶c̶a̶p̶i̶t̶a̶l̶i̶s̶e̶ ̶o̶n̶ ̶t̶h̶e̶i̶r̶ ̶i̶n̶n̶o̶v̶a̶t̶i̶o̶n̶.̶ ̶T̶h̶e̶s̶e̶ ̶a̶r̶e̶ ̶j̶u̶s̶t̶ ̶a̶ ̶f̶e̶w̶ ̶e̶x̶a̶m̶p̶l̶e̶s̶ ̶o̶f̶ ̶a̶ ̶f̶i̶n̶t̶e̶c̶h̶ ̶s̶e̶c̶t̶o̶r̶ ̶t̶h̶a̶t̶ ̶w̶a̶s̶ ̶o̶n̶ ̶t̶h̶e̶ ̶v̶e̶r̶g̶e̶ ̶o̶f̶ ̶b̶l̶o̶s̶s̶o̶m̶i̶n̶g̶ ̶t̶h̶a̶t̶ ̶i̶s̶ ̶n̶o̶w̶ ̶b̶e̶i̶n̶g̶ ̶h̶e̶l̶d̶ ̶b̶a̶c̶k̶ ̶b̶y̶ ̶t̶h̶e̶ ̶s̶h̶a̶c̶k̶l̶e̶s̶ ̶o̶f̶ ̶p̶r̶o̶t̶e̶c̶t̶i̶v̶e̶ ̶m̶e̶a̶s̶u̶r̶e̶s̶.̶ ̶L̶e̶g̶i̶s̶l̶a̶t̶i̶o̶n̶ ̶n̶e̶e̶d̶s̶ ̶t̶o̶ ̶w̶o̶r̶k̶ ̶t̶o̶g̶e̶t̶h̶e̶r̶ ̶w̶i̶t̶h̶ ̶t̶e̶c̶h̶n̶o̶l̶o̶g̶y̶ ̶i̶n̶ ̶o̶r̶d̶e̶r̶ ̶f̶o̶r̶ ̶P̶a̶k̶i̶s̶t̶a̶n̶’̶s̶ ̶f̶i̶n̶a̶n̶c̶i̶a̶l̶ ̶m̶a̶r̶k̶e̶t̶s̶ ̶t̶o̶ ̶b̶e̶ ̶t̶r̶u̶l̶y̶ ̶e̶f̶f̶e̶c̶t̶i̶v̶e̶ ̶a̶n̶d̶ ̶p̶r̶o̶d̶u̶c̶t̶i̶v̶e̶ ̶i̶n̶ ̶a̶ ̶s̶a̶f̶e̶ ̶a̶ ̶s̶e̶c̶u̶r̶e̶ ̶f̶a̶s̶h̶i̶o̶n̶.̶

Article 10: Banks to decide daily spending limits

x) All payment-card issuing banks/MFBs shall immediately set reasonable per-day transaction limits commensurate with their risk appetite and transaction volume with the Payment Schemes especially for cross-border usage. Banks/MFBs shall ensure that their risk exposure remains within the pre-agreed limits set with the international/domestic payment schemes through legally binding contractual arrangements.

Article 10 should be a concern for customers because it takes rights directly away from them. Why can a customer not decide and set their own limits on their daily spending. Why must it be dictated to them as if they were children unable to know what is best for them. Surely this disregards the customers’ rights to the amount he or she wishes of his or her own money on a daily basis if it, perchance exceeds the dictated norm. The daily limit is not set to the customers’ requirements but instead in order to comply with the risk appetite of the bank. This is a perfect example of institutional dictates which hold a market back from prospering to the level of success it could naturally attain. The implementation of spending limits will be a huge impediment to future growth and should be seriously reconsidered by existing authorities.

Smarter options are available which have been employed by multiple fintechs in Europe. It is the hope of many in our industry that Pakistan will follow the examples of success stories where banking systems worked closely with new technologies to bridge gaps in security and verification methods. In this highly competitive era if we are to see Pakistan achieve it’s true potential as the financial giant it could very really be, we need to learn from the best.

Examples of great digital banks

Challenger banks which are emerging in the UK and Europe are some of the most user friendly, interactive and secure financial service institutions currently in place. They allow a whole host of security features that not only make transactions more secure but they also empower customers at the same time.

The offer very in-depth security features and all of them are available directly to consumers through their app. Features which allow you to freeze your card, set spending limits, allow ATM or online transactions are available as options directly to the customer without the need to call their bank.

We should be using these as examples and asking our banks to be innovative and customer oriented while also ensuring that their database security features are top notch. Pakistan’s financial sector can not risk hampering its development at this crucial stage when on the sheer size of it population alone we could stand to be at the forefront of technological innovation. We need to get more and more customers onboard with online financial services in the best most effective and secure methods possible.

Example of how Revolut gives its customer power over features

Security settings for each card within Revolut

Additional spending restrictions per card and instant notifications on payments

Conclusion

Successful companies do not have to choose between customer security and ease of use; they do both. The best of companies are those which are able to reduce the friction a customer feels when interacting with their products, while at the same time ensuring a high level of security and data protection.

When problems do come up, we should not look to over-regulate but instead use it as way to foster innovate change and move forward with smart solutions. Only then will our un-banked and under-banked populations come to trust the industry and use the banking channels available to them more regularly and with greater ease. We are a nation of more than two hundred million minds and we need to create a digital infrastructure that will ultimately lead to a safer and more secure future together – with customers and financial service providers alike!

I also fully understand that for an initiative like this to be pulled off would require an immense amount of political capital — — eeee-

Why Create a Crypto Asset

We need to create a cryptocurrency out of the rupee for three main reasons:

1. The ability to deploy smart contracts will be crucial in increasing adoption in the early stages (more below), while later on, it can be used to create a smart government.

2. The ability to be globally traded with minimal fees in the long-run will help with the inflow of capital into Pakistan (consequently outflows will also become easier, and I will address this later on)9

3. Have the PakCoin become a reserve currency in the future, the same way as the USD or the Yuan is today

In this article, we will not go into the details of the technical elements, but I will use a subsequent article to cover those topics. However, just to give you a rough idea; we will be creating a coin on top of an already existing protocol such as Ethereum, Neo, Stellar or others. We will also want to list the coin for direct trading on exchanges at some point in the future. One topic that this article will also very briefly touch on is the miner fees, which could become crucial to any large-scale implementation.

Key Objectives

• The coin must help in making Pakistan more financially inclusive

• The coin must be backed by PKR i.e. as a store of value

• The coin must be used regularly and become a medium of exchange

• The coin must be accepted by merchants, banks, and all govt. institutions

• Coins can be kept in a wallet or be deposited in a bank account

• The protocol must maintain the privacy of the users

The PakCoin Wallet Requirements

While the PakCoin will be built on top of a protocol like Ethereum, I also envision a PakCoin Wallet to be created in parallel to give additional features to Pakistani citizens.

The PakCoin wallet will be built for primarily Android and iPhone users. However, certain features will also be available for feature phone users via USSD.

The requirements include:

• Ability to create a wallet using NADRA (National Database and Registration Authority) verification

• Creating and issuing 3 types of public keys (Long alphanumeric string, e.g., 0x562bb56de196bcd30dac3835055316078733fb83; Verified phone number, 03008561123; Domain name similar to ENS, e.g., adamdawood.eth)

• The private key will also be created and held within the wallet

• Simple QR code features to receive and send money from wallet to wallet

• Money transfer facility via IBFT to local bank accounts

• Receive money via IBFT (pull & push) from local bank accounts

• Access dApps (eventually)

Becoming a Medium of Exchange

For the PakCoin to become a medium of exchange, I propose the following:

1. The SBP to issue newly issued coins to all registered wallets (1 wallet per CNIC) every X period

2. The newly issued coins to be available in the individual’s wallet for a period of Y days

3. For every newly minted PakCoin that is transacted within the Y days’ period, it should be converted into a permanent coin

4. All coins that have not been used in a transaction during the period to be destroyed

5. After all unused coins are destroyed, a new round of coins to be issued. However, a greater portion of coins should be given to those who are doing a larger number of transactions with the largest number of people or those who have more coins stored in their wallet. This will incentivise people to spend their coins.

Doing this for a period of 6–9 months should result in high levels of adoption. Also, those who directly credit more coins into their account via their bank account should also be given a large subset of coins during each free coin distribution.

The Cypto Bank of Pakistan

The Crypto Bank of Pakistan (CBP) will be a new Bank that will be incorporated and run by the State Bank of Pakistan. Its primary purpose will not be to do any conventional banking for customers (i.e., loans/savings accounts, etc.); instead, it will act as the custodian for all coins that are issued and will hold an equivalent amount in its reserves to maintain the parity of 1 PakCoin to 1 PKR. We will in effect be creating a stablecoin or an IOU coin as commonly referred within the crypto space.

The bank will also provide a mechanism whereby coins from customers’ wallets can be moved into traditional banking channels, hence facilitate IBFT movements to other banks as well as from the banks to customers’ wallets.

However, one crucial issue that needs to be discussed further is the question of who will decide on the issuance of new coins should there be any. I think we could set up a standard formula such as Milton Friedman’s k-percent rule to determine growth in the increase of the money supply by a fixed percentage each year.

While I understand the logic behind having a fully decentralised currency, I feel a larger debate would also be necessary to determine whether a nation should have some powers to shore up the currency when required.

Default Currency for Global Exchange (slowly)

When we create the Digital Rupee, it will end up being a link between the world of fiat currencies and digital currencies. Being a potential go-between will also mean that the currency can quickly flow out of the country causing a major problem in our already large deficit.

To counteract this, we will take a measured approach to making the PakCoin a global standard with some of the key points being:

1. At launch, only those possessing a NIC card will be able to buy/hold/sell the coin.

2. We will then open it up for purchases by non-Pakistanis who can hold the currency in CBP denominated wallets only.

3. In addition, we will gradually open up the currency for active trading on third-party exchanges such as Binance. We will only open up the currency to global exchanges slowly.

Major Questions

1. Will the state bank be allowed to print more money (quantitative easing) or should we let the money supply be locked in perpetuity like bitcoin after the initial growth period?

2. How many coins will we need to issue in the growth period to ensure a large number of the population actually start using the wallets?

3. Will the wallet be available only to smartphones, or should we create a feature phone equivalent as well?

Using Smart Contracts for a Smart Government

We can use smart contracts to create a smart government.

• For all local taxes that are paid, the taxpayer can directly deposit a percentage of their taxes to a government department of their choice

• Auto-deposit 10% of all parking tickets into a driver training program

• Auto-depositing 50% of littering fines as an added budget for local maintenance/clean-up teams

References & Reading Material

1. https://medium.com/@ubcoin/the-evolution-of-bitcoin-countries-launching-national-cryptocurrencies-492b3c221989

2. https://cointelegraph.com/news/national-government-digital-currencies-versus-globally-distributed-cryptocurrencies-in-depth

3. https://www.forbes.com/sites/rogeraitken/2018/05/31/does-venezuelas-oil-backed-petro-have-the-power-to-showcase-national-cryptocurrencies/#54e740027b43

4. https://www.devteam.space/blog/5-best-smart-contract-platforms-for-2018/

Overview

Napster was a roaring success when it first launched due to its easy ability to share music (illegally) and more importantly get music. It has since been overtaken by iTunes initially and now through subscription music services such as Spotify and Apple Music.

With services such as iTunes and Spotify however, you cannot share your music like you could back when you had cd’s, and although I subscribe to many services, I’m not a fan of the model as in the long run you never end up owning anything.

What follows are my thoughts on what a decentralised music platform could look like in today's world and how it would benefit both music lovers and those who create music also.

Customer (Music Owner’s) Journey:

1. First step purchase a song or album and enjoy it.

2. You want to share it with a friend. So you send it to them. The copy leaves your collection and arrives in theirs. You cannot listen to it, the same as if it was a physical cd.

3. But let’s build in a smart contract. The album/song you have given has a smart contract built in saying it will be returned back within 7 days. Boom, never have to worry again about losing my “cd” and I own the music too rather than subscribing to Spotify where I lose my entire music collection the minute I end my subscription.

Customer (Music Borrower’s) Journey:

1. Sign up and find my friends on the platform.

2. Request the rights to a song/album they have (borrowing from friends has a $1/month subscription, to borrow music directly from artists is free)

3. Once rights given, listen to the music. After 7 days the music is returned back to the owner.

4. Buy the album from the artist directly and listen to it permanently.

Musicians Journey:

1. Upload latest songs/album

2. Create 1,000 copies of it. To reward most loyal fans the first 10 copies are given for free to whoever downloads it, next 90 are given at $2, the next 400 at $5, finally last 500 at $10.

3. The artist can issue copies of his album to prospective fans for 7 days as well to see if they like it. If they do, they can purchase it, if not its feedback for the musician.

4. Start marketing their music via the platform. The more fans and listens you have the greater the chance of getting discovered.

Platforms Journey:

1. For every music album that’s sold they make a cut of the revenue.

2. For every song/album that is listed on their platform they take a small listing fee that is tied to the number of copies created.

3. For every customer on their platform that listens to borrowed music from friends a nominal $1 per month subscription fee to cover costs. First 5–10 albums borrowed would be free to listen.

Objectives

For Music Lover’s

While the overall market for subscriptions is growing rapidly, soon customers will realise that the cost of subscriptions is much higher in the long run. Imagine running into some financial trouble or if prices are raised, and realising the Spotify monthly cost is far greater than you can afford. You automatically then lose access to your music collection.

With purchasing you at least know that you own the music forever, and regardless of your circumstances in the future, you will be able to listen to your favourite music however you choose to and wherever you want to.

For Musicians

The life of a musician is very tough. In the US musicians receive only 12% of industry revenue, with the industry heavily geared towards megastars. The long tail of musicians simply do not end up making a sustainable income.

By creating a platform where musicians can offer discounted rates to loyal fans, and offer their music album for free, with the knowledge it cannot be replicated by the customer they will be able to create and generate a very loyal fan base while giving customers the ability to purchase from them directly as well.

Other potential markets where this could be replicated:

• eBooks

• Movies/TV Shows

• Apps and or subscriptions e.g Medium, the Economist, Games

• Airline Tickets and other tickets in general

• Credit Cards ( share with a person to spend a specific amount at specific stores)

Data Sources

The two primary sources of the data are:

1. Annual Performance Review (APR) 2016–2017 — Payment Systems — link

2. First Quarterly Report (FQR) 2017–2018, Special Section 2 — Online Payments Platform — link

Quick Analysis

Based on the report, we can deduce that, on average, every prepayment order in Pakistan had a basket size greater than Rs. 8,000 and each of the 571 merchants processed about Rs. 17M in prepayment orders on average.

Judging the “Cash on Delivery” Market Size

Not all e-commerce transactions are done through pre-payment. For instance, in the large marketplaces and brand stores, most of the payments are made via cash on delivery terms. To accurately gauge the e-commerce market size, we have to make an assumption on the volume of transactions processed via Cash on Delivery (COD).

Most of the other industry professionals claim that payments made through Cash on Delivery account for about 90% of all e-commerce transactions. However, that figure represents the number of transactions rather than the volume of transactions.

In my analysis, I have found that customers are more likely to pay for higher value orders via prepayment rather than COD. Yayvo, for example, had 76% of its orders below Rs. 1500 paid via COD, while 60% of its orders above Rs. 5000 were paid via prepayment.

I still believe that during the Fiscal Year 2017, the market was still very nascent to the idea of prepayment. I would estimate that COD was at minimum 85% of the total market for payments. This means that the e-commerce market size in Pakistan is ~Rs. 65 Billion or ~$620 Million.

Other Assumptions

Not all e-commerce sites process their online payments in Pakistan. Within the fiscal year ending in 2017 (July 2016 — June 2017), large e-commerce players such as Careem, Uber, and FoodPanda processed their payments via international gateways. Their prepayment revenue is unlikely to be counted within the local e-commerce market size but is counted in the international volume of transactions instead.

I am assuming that there was no duplication of the online acquirers when the State Bank was collecting this data. For example, JazzCash and EasyPay both used the MCB e-Gateway to power their platforms during this period. I am assuming that the State Bank did not count these numbers twice when collecting the figures submitted by EasyPay/JazzCash and MCB respectively. This is especially important given that EasyPay had over 350 merchants and JazzCash over 150 merchants by June 2017, which possibly makes them the largest online acquirer’s in Pakistan.

E-commerce Merchants

According to the State Bank, there are 571 e-commerce merchants in Pakistan. Typically, the e-commerce merchants that come to mind are players such as Daraz.pk and Yayvo.com. We have to dismiss players like FoodPanda, Careem, and Uber because their payments are not processed in Pakistan.

Other large merchants include ticketing platforms such as Pakistan Railway and PIA, amongst others. Pakistan Railway, in its first two months, reported a revenue of Rs. 100M from online sales. In addition, an article in November 2017 stated that UBL had made more than Rs. 1 Billion from online sales through Pakistan railway alone.

Conclusion

The overall e-commerce market size is much bigger than what many industry insiders estimate. After reviewing and examining the numbers, my conclusion is that the e-commerce market size transcended $600M in the 12-months period between July 2016 and June 2017.

I believe the number will be much higher in the current financial year (June 2017 to July 2018). A case in point is Yayvo, which is on course to grow their revenue by at least 3x this year. Therefore, the overall market, even with 2x growth, would rise to approximately $1.2 Billion. This means we will be crossing the $ 1 Billion e-commerce revenue mark two years before the 2020 deadline we had set.

[1] There is a difference in the volume of transactions indicated in the two reports. I will be taking into account the numbers given in the FQR because those stated in the APR are provisional. However, the FQR does not show the number of transactions (my assumption is that they would have risen). Therefore, since the FQR does not give full information, I will use the APR numbers.

When Yayvo launched in September 2015, we inherited our website from our past moniker, TCS Connect. That site, though functional, was not considered visually appealing or user-friendly.

Since December we have started to place a lot of emphasis on our UI (User Interface). Being an e-commerce company we wanted to be fully data driven and over the course of the last three months, we have made some impressive strides. This article aims to share some of our learning experiences in the hope that you may also be able to start your journey to providing a bigger and better user experience for your customers.

Typical journey for an eCommerce customer

Yayvo’s integral aim has always been to provide their patrons with as seamless a customer experience as possible, helping them through each stage of their journey while showcasing Yayvo’s strengths in terms of delivery and customer experience.

Before we discuss the aspect of data, it is important to give credit to the Product, Design and Technology teams at Yayvo, who have put in many hours into what will be just the start of our User Experience (UX) journey.

Data Driven Design

Our team began with having to make an extremely important decision — which A/B or Multivariate testing tool to employ. We considered two options: Optimizely or Visual Website Optimiser (VWO). Due to its user-friendliness and simple technical implementation, VWO came out on top. (Tip: Don’t directly trust the data provided by VWO, verify the results by checking them within Google Analytics as well.)

Test 1: Product Page Call To Action

Our first major task was to see what portion of our product page attracted of the highest Call to Action (CTA).

End Goal: A better CTA

• Describes Next Action vs. End Result (e.g. — ‘Add to Cart’ vs. ‘Buy now’)

• Must contain a trigger word (e.g. — “Buy” or “Add”)

• Gentle Nudge vs. Commitment Requirement (e.g. — ‘Add to Cart’ vs. ‘Buy now’)

Hypothesis: Instead of using the simple word ‘Buy’ as the CTA in product pages, use variations which contain the aspects mentioned above.

• Control — Buy

• Variation 1 — Buy Now

• Variation 2 — Add to Cart

• Variation 3 — Order Now

After running the test with 2800+ users, we determined quite conclusively that “Add to Cart” was the best conversion-driven CTA. Its conversion rate was 2% greater than the incumbent CTA, with a 100% degree of certainty.

The winning variation, ‘Add to cart’, has the following characteristics:

• It indicates the exact event that happens after the click.

• It does not rush the user (less commitment than having ‘Buy’ or ‘Buy Now’).

Test 2: Color of the Call to Action

We then decided to run a test on the CTA color of our product page. We wanted to test variations based on our research about the strongest colors for CTA’s. The existing red was our control and we added green as the variant. Green was selected because we felt it was the tone that contrasted most against red. This was important as our website has red as its primary color.

The results showed that the green button led to a higher conversion rate over the red button.

The fact that Green was the highest converter contradicted three studies we came across that seemed to show that red was a much better converter: DMix, HubSpot, VWO.

If Red was such a good converter, then having a website with numerous red elements could potentially be a distraction to users which may result in a lower overall conversion rate. Our team also felt that the overtly red overtone of the website was overpowering. This led to our decision to reduce where possible the red elements of the website.

Reducing the Red Impact

Yayvo from the start has always had a red theme associated with it. However, from a personal perspective and comments from users we knew it had to be re-evaluated.

At this point, we decided to take a visceral approach to design rather than conduct tests. Our goal was simple — keep a customer’s focus only the essential task at hand on every page by limiting distractions.

We made the following changes on the homepage:

1. Replaced the red color in the category header bar with Grey, while making the category drop down red.

2. Removed the partner websites from the header and placed them below the fold in the footer.

3. Changed the red color of the category selector (just below the sliders) to orange.

After the changes the tone of the overall website changed quite dramatically.

Product Page Overhaul

The product page also underwent a fairly large change. We conducted focus groups and internal surveys that led to the realisation our product page needed to become more convincing in pushing users to purchase. Further still we conducted heat map tests on our product page to identify the most used features and those that were surplus to requirements.

Design Principles: Focused Push Towards Conversion

• Show the customer as large an image as technically possible.

• Show a clear CTA.

• Make it straightforward and intuitive to choose options.

• Easy and precise identification of mistakes.

Checkout Overhaul

The checkout page is the final hurdle a customer has to face before they commit. Given the sheer amount of information required at this phase, customers can easily bounce off the page and not complete their transaction.

Design Principles: A Simple & Intuitive Process

• Keep information requirements to a minimum.

• Guide the user through the next steps

• Limit distractions

• Easily identifiable any mistakes in input

Design Changes:

• Removed all elements of the Header and Footer except the logo and the Contact Number Bar

• The logo is no longer clickable to the homepage thereby reducing to three the ways in which you can move away from the page:

• The back button;

• Edit Product Option in Section 4 and;

• Close the Tab/Browser.

• Clear CTA — “I Confirm My Order” — which due to its size and color is the most prominent element of the page.

• Reduced number of fields required in the shipping and billing option.

• Hide the booking code requirement — which is only used by a tiny subset of users.

Performance & Results

With each major change we also monitor our overall conversion rate after implementation. While it is difficult to attribute any increase or decrease in conversion rate directly to any one change, factors such as marketing campaigns, exclusive stock availability, new product launches all can affect the overall conversion rate in a significant way, however we try and control for these by filtering down to the most common attributes when we measure the results.

To check the success of the overall checkout page we created filters so that only direct traffic and desktops views would be counted. When we did this we noticed that our conversion rate had increased by a significant 31–54% over 2 weeks.

Next Steps

The changes and tests we have run is just a first step for us. While we have decided to start with the overall UI of the website, what is far more important is the user experience we can create. More than color testing the buttons on the online portal, we feel that creating a sustainable business is about providing a good delivery experience.

Last year has resulted in exponential growth of the ecommerce industry in Pakistan. We have witnessed strong movement in the sector in terms of overall sales and customer acquisitions. Traditional industries have also started to benefit from this trend and have begun to move towards partnering with online stores to increase their revenues. This growth is coming in due to some exciting partnerships taking place, however a lot remains to be fixed as well if we are to hit $1 Billion in ecommerce revenue by 2020.

Black Friday

Let’s start by examining the biggest event of the year for the ecommerce — Black Friday. In November 2015, Daraz introduced Black Friday to Pakistan with great fanfare. In 2016, Black Friday was much bigger, both in term of sales revenue, customer acquisitions and the number of ecommerce sites who participated by offering extraordinary discounts.

Daraz & Kaymu’s revenue surpassed Rs 1 Billion during Black Friday, Yayvo.com exceeded 60,000 orders and though other stores have yet to reveal numbers, HomeShopping, Symbios, Shophive all participated aggressively. New entrants such as MyGerry’s also used Black Friday as a launching pad for entry into the ecommerce arena.

Black Friday achieved a cornerstone in retail, to the extent that it permanently left its mark as the pinnacle event in Pakistan for both offline and online channels. The comparison is similar to that of Singles Day in China, and the Big Sales held by our Indian counterparts around Diwali.

Black Friday has become such a milestone for the ecommerce sector because it witnessed major economic partners aligning themselves together to create the necessary ecosystem needed to facilitate online shopping. JazzCash & EasyPay worked hand in hand as the main payment partners with Yayvo & Daraz respectively. Furthermore major banks offered additional discounts to their Credit and Debit card holders to help push prepayments. This in itself was a major move for the industry away from the Cash on Delivery payment method which accounts for more than 90% of sales during the rest of year.

Multinationals who own brands such as Dove, Ponds and many others also partnered with major ecommerce players to help bring their products to a wider audience. All in all Black Friday pushed the ecommerce industry into the mainstream and proved to Pakistan that it in fact offers a truly viable future for the country’s retail industry.

Overall Market Size of ecommerce in Pakistan

There are many estimates floating around as to how big the ecommerce market is in Pakistan. We must first divide up the ecommerce sector into various smaller divisions. This allows us to understand the dynamics of each sector in a more comprehensive manner in order to estimate sales volumes.

• Marketplaces or Multi-Category Stores

• Tier 1 Stores: These are your multi-retailer and multi-category online stores. The biggest ones of the pack are Daraz, Kaymu & Yayvo, with other e-tailers such as HomeShopping, Symbios, Shophive, Telemart also competing.

• Tier 2 Stores: There are stores which have been present for some time or have recently received investments and are pushing hard to enter the Tier 1 category. Stores such as Well.pk, GoTo, The Warehouse are all part of this group.

• Tier 3 Stores: This would be a very large collection of e-stores that are trying to compete via a niche category or as a multi-category store with a very limited team and marketing budget.

• Facebook Stores/Group: These comprise of another considerably large segment and sales volume, with examples such as Sheops taking top spot.

• Brand Stores: This segment includes e-tailer’s such as Khaadi, Ego and Gul Ahmed who enjoy strong brand awareness but are primarily focused on sales through brick and mortar means. These stores generally have a high volume of sales and their basket size (AOV) is high. It’s a good testing ground for new products for brands and gives them the reach to capitalise on their brand identity without investing in retail locations across the country.

• Food/Takeaway Model: Enjoys a considerably large market in Pakistan monopolised by FoodPanda and EatOye.

• Travel, Ticketing & Holiday: Players such as Jovago sell hotel bookings and even PIA, Shaheen & AirBlue. Traditionally these airlines and other transportation service providers are not associated with ecommerce however they do conduct a sizeable amount of their sales online. Pakistan Railways alone made Rs 100 million through e-ticketing in 2 months.

• Ride Sharing: These include Uber and Careem along with sites such as Travly giving local competition.

• Classified: These are listing sites such as PakWheels, Zameen.com, Rozee and of course OLX.

To accurately calculate the current size of the ecommerce market we need to include all these sectors. When focusing on only the multi-category and brand stores, measuring sales becomes far easier as the market is still primarily based on COD.

With 3 major COD couriers and several second tier couriers measurement can be fairly accurate. However, measuring sales of Careem/Ubers and even sales of tickets via PIA is a much more challenging and difficult task. Most of these companies do not release their numbers in sales volume and when they do questions on whether those are GMV or NMV are not addressed.

Based on my knowledge and collection of data, I estimate in 2016 overall gross revenues stood well north of $120 million.

Customer Acquisition

Massive Campaigns such as Black Friday not only help in increasing the number of transactions through ecommerce stores, they also are a very valuable source of new customer acquisitions.

The biggest such event outside of Black Friday was GOSF — the Great Online Shopping Festival which was organised by Google and the Jang Media Group.

The event saw a dozen online stores participate in an event which led to a staggering 1 Million unique users visiting the GOSF site. Over 25,000 orders were placed in a span of 3 days with sales estimated at around Rs. 133 million.

As we move into 2017, more and more large customer acquisition events are planned as they act as large customer awareness programs which is crucial giving even the largest of ecommerce companies do not have the budgets necessary to sustain long TVC campaigns like they do in India.

Major Areas of Improvement

In an industry that’s still growing, there are always going to be numerous challenges. Some of these challenges can be identified easily while others are still harder to pinpoint. The major issues that the ecommerce industry faces have been outlined below:

An Unbanked Populace

We are living in a country where the majority of the population is unbanked. Those customers who have a bank account cannot even use their debit/credit cards online as they are by default restricted from being used for online shopping.

Unmapped Areas

Another challenge is posed by the lack of identifiable locations. Customers living outside of the major cities of the country, at many times, fail to have specific addresses that identify the actual place of delivery. This can make life extremely difficult for logistic companies and many orders experience long delays due to this issue. Customers get understandably annoyed and many choose to abandon their orders.

Fulfillment Failures

The biggest challenge facing our industry is that of fulfillment failures. Failed deliveries occur as a result of customer cancellations and even refusals to accept order by customer at their own doorsteps, but these are more or less commonplace occurrences in the ecommerce business.

Where Pakistan’s ecommerce industry takes a bigger hit than it would in other places is in terms of ecommerce stores not being able to fulfill their products 100% of the time due to unavailability. Even when customer cancellations and refusal at doorsteps are taken into account, the number of orders that are cancelled due to the vendor listing inaccurate stock levels or information, is far too high.

Regardless of the reasons regarding whether the vendor, the marketplace, the warehouse or the manufacturer is to blame, and regardless of whether the solutions is technological, manual or has to do with planning, this problem needs to be rectified quickly.

Since for many online customers ecommerce is still a relatively new retail channel. Delivery failures will only make customers more reluctant to place their orders online a second time. This loss of trust by customers will hurt our entire industry and not just the vendor who fails to meet his customer’s demand. This problem will lead to reduced repurchase rates and cause increasingly bad word of mouth for the whole sector.

If this industry wants to make a dent in the retail market this issue needs to be addressed as growth will not be achieved by simply hosting massive sales events every few months. We need to ensure that the customer who purchases a Rs 200 charging cable and expects it to be delivered in 2 days gets it in 2 days rather than waiting 5 days only find out that the order has been canceled.

When customers shop online they do so for the convenience that online shopping offers. If they find that instead of convenience they experience aggravation then the whole purpose of online shopping is defeated and its future in a country like ours will not flourish.

The Growing Market Position

The online retail market is growing immensely on an annual basis. Yayvo has in the first 5 months of the financial year exceeded its revenues of the previous full year. Other large ecommerce companies post growth of as much as 300% per year and these growth numbers are apparent across the rest of the industry as well.

With growth accelerating across all sectors and estimated to reach $1 Billion in revenue in 2020, ensuring positive customer experiences is the minimum requirement. In fact ecommerce should promise its customers an above average shopping experience that surpasses all their expectations, this is the only way ecommerce sales can start becoming a bigger chunk of retail sales.

To do this we have to realise the right levers that are necessary to enable great customer service. While a customer will directly interact with 1 Website, that website is reliant on multiple industries and players to ensure they deliver a seamless experience.

• Vendors — without vendors the ecommerce industry would not have any products to display. Vendors are crucial to marketplaces in particular where any delay in receiving the product can ruin the customer experience.

• Logistics: Once the product is procured having the right delivery partner is crucial. Factors such as service quality and cost are both equally important as well as providing live tracking data and support.

• Payments: Whether the payments is handled by the logistics players through COD — or by Credit Card merchants how easy and accessible the payment method is crucial for both the customer and the ecommerce player. The ecommerce player needs to ensure he receives his payment on time otherwise can suffer greatly from lack of working capital.

• Technology: The backbone of the ecommerce site, technology whether its just the web store, the seller centre, the warehouse management system or the customer support system. Without the right technology no ecommerce company can succeed. Whether the technology is custom developed or bought is irrelevant, however its requirement and proper usage is crucial to succeed.

• Trust: Only when all of these elements are working properly will the customer end up getting a good experience and therefore start to build trust in the overall sector. This will result in higher repurchase rates and therefore retention which itself will then drive further acquisitions of new customers.

Conclusion

We have over the past 2 years seen massive strides in ecommerce. With the launch of 3G there was an immediate boom in the industry, now as 3 of the 4 mobile networks have 4G/LTE we might be in for another round of growth especially if we start getting cheaper 4G handsets.

Traditionally retail industries have also started to aggressively explore entry into ecommerce, either directly or through marketplaces. The mobile networks are innovating rapidly and entering into the FinTech space. The FinTech space is also seeing new entrants directly and the banks have started to consider digitisation. The logistics players are trying to innovate more with two of the incumbents getting funding last year.

Overall I think we are on the cusp of a very exciting phase in ecommerce within Pakistan. There are still significant challenges ahead, however we are also in the lucky position of not having to set this up from scratch.

The US ecommerce market currently sits at around 8–9% of total retail sales, while China is around 18–20%. Pakistan’s ecommerce isn’t even close to 0.1% of total retail sales as yet but considering the overall size of our market we should be able to achieve better results soon.

As Benedict Evans of A16Z stated “Everything bad that the internet did to media companies is going to happen to retailers, if it hasn’t already.” We are in a market that is growing and it is upto us to ensure we look after all customers who do come online to shop so that we create an online shopper for a lifetime.

This weekly newsletter focuses on the most important new developments within Pakistan’s Technology Sector. To receive this newsletter on a weekly basis subscribe to our mailing list (no spam ever) or follow me on Twitter @adamdawood. Previous installments of the newsletter can be found here.

Classifieds Are Getting Interesting

It seems classifieds have a new avenue for expansion within Pakistan. OLX has been advertising quite heavily for the last few years, but in the past 2 months more players are now entering or re-entering the market to either innovate or retain market share.

OLX has been losing desktop visitors consistently for some time now. The reason for this is unclear but I would wager it is because traffic has shifted towards their app rather than having lost visitors overall. Given this probable shift the launch of these two new mobile focused classified sites seem to be a very interesting development.

In order to compete online with OLX, companies such as Rocket Internet and Naspers have launched mobile centric classified apps called Sparklist and LetGo respectively. In the offline classified space The Jang newspaper has started to advertise their classified section in BTL media.

Both Sparklist and LetGo are looking to use an innovative mobile platform to make buying and selling both quick and easy. From a consumer’s perspective both these apps are very simple to use. In a few clicks you can either buy or sell or correspond with your prospective traders and customers.

Sellers simply photograph the product they are selling, add a simple description, pick a category and suggest a price. Then buyers can search by location and/or category and begin the transaction or purchase related correspondence. Ads can be posted on the mobile app only. I tried to post an ad after turning off my GPS to see if it would allow me to place it without giving my location. Both the apps had seemed to have saved my location earlier on.

Both LetGo and Sparklist do not seem to have a defined revenue model just as yet. I have yet to see ads by either on any online channel as well however these are likely to follow soon as both would need to build a strong buyer and seller base in order to grow.

Jang Classifieds on the other hand has started to advertise on BTL channels across Karachi. I noticed them a few days ago while on the way back from the airport. This begs the question of how strong newspaper classifieds still are and perhaps they are now starting to realise the strong competition to one of their revenue sources from online channels. Newspaper classifieds though are still according to some the most effective means of advertisement for selling personal items.

Out of all the newspapers in Pakistan only Jang seems to have an online classifieds which, to me at least, seems incredibly bizarre. Dawn on the other hand though seems to have an online ad booking site with some very helpful tips on how to create and place your ad.

It’s a very easy and simple opportunity to create great synergy between their online and offline platform. It would also act as a method to start taking orders for ads in the offline newspaper. I remember placing a classified ad in Jang 18 months ago in Islamabad and the entire process was very manual and offline. Having an online ordering portal could actually help increase the overall numbers of ads in offline classifieds as well.

OLX | Sparklist | LetGo | Jang Classifieds |Dawn Classified | e27

Other News:

• Pakistan To Become a $5 Billion eCommerce Market by 2020 | ProPakistani

• CheezMall Launches in Pakistan | ProPakistani

• TradeKey Debunks Bankruptcy Rumours | TechJuice

• Meet AutoExpert, a streetsmart startup for vehicle care | TechJuice

• Cleanry, a startup that claims to deliver 5 star laundry experience at your doorstep! | TechJuice

• 9 Healthcare Startups from Pakistan | TechJuice

Disclosure Statement: I am the Managing Director of Kaymu.pk, a venture funded by Rocket Internet. All news pertaining to Kaymu, Rocket Internet or any of their investors and holdings are discussed here as and when released in the media.

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The launch of the 3G and 4G services in Pakistan in July 2014 has led to the number of overall broadband users in the country to rise rapidly from 3 million to over 18 million people. In its first year of release 3/4G users numbers at more than 15 million, therefore upgrading our IT infrastructure has obviously led to a very important step in the right direction. As more and more people come online from all the varying social groups existing in our nation, all ecommerce companies will become increasingly more important. Numerous online retailers have experienced a massive increase in orders with Kaymu alone growing from 700 orders a day to 3,000 orders a day. This increase in demand will have to be accompanied with an increase in efficiency, protocol and service standards in order for the industry to meet its full potential. If we want to continue and grow at an even faster pace we need to address some of the major challenges we are facing in the industry today and work on a roadmap for the future.

Nadeem Hussain, the CEO of Tameer Bank, recently held an eCommerce roundtable in Pakistan for this very purpose. His aim was to discuss ways and means of expanding the eCommerce industry in the country. The following is a comprehensive view of the findings from the roundtable talks held with some of the major players in the field of eCommerce and its related concerns, as well as my own experience.

It’s my strong belief that improvement in the following 4 tenants will lead to an even faster growth in the the overall expansion of the eCommerce industry

1. Customer Experience

2. Logistics

3. Payments

4. Awareness

CUSTOMER EXPERIENCE

The major focus for all eCommerce companies has to be Customer Trust. The rapid growth this industry is experiencing at the minute is due to a large influx of new customers that are trying online shopping for the first time. It is imperative for the long-term growth rate of the industry, that each and every new customer has a great first experience so that they continue to build trust in the concept of online shopping.

Customer trust can only be built when they receive the right product, at the right time, at the right price and if they are properly compensated when they don’t. Given that most companies act as as marketplaces that do not necessarily carry all their available inventory on their site, controlling customer experience becomes increasingly more difficult. Running your business as a marketplace like Kaymu, Daraz, Homeshopping, Symbios or countless other local e-tailers means facing and overcoming challenges such as product availability, delivery speed, and product quality. These aspects are the key to retaining customers and commanding their loyalty.

The reason for these challenges is as follows:

1. Unavailability of Stock: Many marketplaces face inventory challenges when stock is not available with the seller but is displayed on the website due to manual “sync” between the merchant and the eCommerce store. This leads to the buyer’s’ orders either being cancelled or experiencing long delays in being fulfilled. By the time the item comes back in stock the buyer has already lost faith in either the marketplace or online shopping. Having improved and updated inventory processes will be a key factor towards achieving sustained customer growth and satisfaction.

2. Slow Deliveries: The cause of these range widely but the most common cases I have witnessed involve sellers who prioritize their own individual sales over and above sales through online marketplaces. This delays dispatches for their online sales and negatively affects the overall customer experience. The online arena has a far greater reach than what most sellers can even imagine and if their commitment to eCommerce remains strong they can very easily become the market leaders that customers will come to depend on. Each seller needs to act as an ambassador for the customers who purchase online so that together they can thrive and grow to new heights they would never be able to achieve alone.

3. Price Volatility: Prices of items in online stores do not always reflect current market prices. In categories such as mobile phones, the volatility of market prices regularly leads to the cancellation of orders. In the worst of cases customers are asked to pay more than the agreed upon charge due to sporadic price changes. These experiences can be extremely disheartening for most if not all customers. Each and every member of the eCommerce industry needs to form a firm commitment to their customers assuring them the freedom of complete choice and information when placing their orders. These commitments then need to be upheld in order for the customer to feel satisfied after having placed an order. Price volatility will not allow the industry a smooth road ahead.

To allay most of these building strong and lasting partnerships between sellers and merchants is they key. Building partnerships will lead to all the major issues being solved. Technological solutions by the eCommerce stores will be adapted with less friction leading to the overall efficiency of the value chain improving. In addition to that when it comes to dealing with complaints from customers, together both seller and the online store can quickly resolve any issues leading to little to no customer dissatisfaction.

In terms of technical solutions, manufacturers and distributors themselves do not have strong systems in place that keep up to date inventory numbers. If these were available then online marketplaces could easily tap into their systems and sync their products in realtime to limit the number of non-buyer cancellations. Startups such as Shopistan are already building real time inventory engines such as these under their Omni Channel brand and at Kaymu we are doing real time sync directly from other eCommerce portals. There is incredible room for growth in these areas and once better systems come in to play sellers and buyers will both greatly benefit from an increase of eCommerce activity.

LOGISTICS

Pakistan is very fortunate to have very strong 3PL providers. Other than India, our courier agents are probably the best in the region in terms of their coverage and reliability.

The eCommerce industry in Pakistan heavily relies on the following courier firms to diligently deliver all its orders:

1. TCS has the largest network of any of the private companies. It’s COD services are very reliable and they have started offering 1 hour pickup services and are through their own online shopping portal offer 1 hour guaranteed deliveries for certain products.

2. LCS was the last entrant into the COD business but now has the second largest network and its competitive rates have quickly allowed it to become probably the largest COD provider in the country.

3. Blue-Ex pioneered COD services in the region and still maintains a very reputable clientele. unfortunately their reach is not as widespread as the other private operators in the country.

4. OCS was recently purchased by Muller and Phipps who have hired a very strong management team to begin operations with a major focus on eCommerce fulfilment. They are aiming to use technology to fill in a lot of the gaps in the logistics industry that other providers have not as yet addressed.

5. Pakistan Post, the national postal service is not well known for its reliability. It is, however, currently looking to expand its reach towards its COD offering. They are providing a very cost effective solution which is being used by an increasing number of retailers selling low cost goods online.

6. Stallion is a local startup that offers customized COD solutions to local eCommerce stores. It began from a local university and received funding from investors to grow operations.

7. Forrun/Delivery ChaCha/Fatafat/I2Y are all local city solutions for quick pickup and delivery options. As these smaller players grow they will begin to provide ample competition to the local 3PL’s.

Despite the large range of logistic competitors offering varying services and price levels there still remains many improvements that can be made especially within the ecommerce industry. The major problems being faced and the main improvement needed right now are as follows:

1. Fast payments to sellers/merchants: given that the majority of orders are booked for COD, fast payment protocols would greatly benefit merchants and is crucial for the growth of the industry. Currently the average payment time ranges from between 7–15 days and with additional delays, which are currently a common occurrence, the actual payment time goes up by at least another week if not longer. Bringing this number down to less that 7 days and ideally within 2 days from the delivery date is crucial for merchants who are primarily generally cash constrained.

2. Speed & Price: 3PL’s need to offer multiple options for delivery at varying costs. COD needs to be made available for Next Day, 2-day, and Overland Delivery options. Currently shipping anything large and bulky is also very expensive and only a very limited number of overland/truck shipment options are available with COD. This makes selling heavy items such as Air Conditioners or 20kg packs of dog food to places such as Rahim Yar Khan very cost prohibitive.

3. Predictability: all the major COD providers give tracking numbers and these are updated fairly regularly at least for deliveries in all major cities. The update cycles for second and third tier cities however needs to be increased immediately given that over 50% of all orders are shipped outside of Karachi, Lahore and Islamabad/Rawalpindi, the three main cities of the country. Furthermore customers want the flexibility to have deliveries made at a time that is convenient for them. 3PL’s need to start offering solutions such as deliveries within 1 hour time slots for the foundations of eCommerce to be strong enough to achieve its maximum potential.

4. Integrations with Ecommerce Stores: Given that today we have major eCommerce stores still manually creating AWB’s for their shipments and doing manual reconciliation, running integrations between 3PL and Online Stores is crucial. Currently the major 3PL’s offer API’s to their systems, however with a massive influx of ecommerce stores with limited resources especially on the software development side, 3PL’s need to start giving stores greater flexibility by offering plugins to stores such as Magento, WooCommerce, OpenCart etc. The ability to auto create AWB’s, and get delivery statuses directly can greatly improve speed and reliability. This will enable stores to become more efficient in their processes and help increase their focus on customer satisfaction.

5. Open Box Deliveries: With COD set to remain the prevalent payment method for the near future, Open box deliveries could present a solution to help increase the trust levels within the industry. Riders, in this manner, would open the parcel in front of the customer and ask them to ensure the basic quality of the ordered items after which the customer has the option to accept or reject the parcel. Admittedly this operation is a very complex one to run at scale.

6. Fresh/Cold Solutions: As the eCommerce industry develops, the market will move faster and faster towards food and groceries. Currently the large 3PL’s are not built to cater for such on demand services. Food ordering is already a fair segment of the local eCommerce space, however grocery delivery is still yet to become mainstream. Being able to deliver fresh/cold items will be crucial in this regard and concerted efforts need to be made to open up avenues for these markets.

PAYMENTS

Pakistan is still at a very early stage in developing its payments infrastructure. In recent months however major activities have allowed this to become a very exciting time for Pakistan’s payment systems. Predominantly COD still accounts for the majority of online transactions and unless legislation, seller responsibility and customer trust do not go hand in hand in the future, this will continue to be the case.

The current payment methods available in Pakistan are as follows:

1. Cash on Delivery: This covers 90%++ of all orders in Pakistan. It is the dominant method used due to the unavailability of other means of payment. Customers are also generally sceptical of online shopping and COD provides a good starting point for their first few purchases. It allows a degree of confidence to the customer that in these early stages on online sales is extremely important.

2. Card on Delivery (Swipe on Delivery): Recently launched as a collaboration with Daraz and Monet, the delivery rider reaches the customers doorstep with the parcel in hand and a credit card machine with which the customers credit card is charged and the parcel then handed over to the customer. This method is nothing more than a stop-gap measure to get customers to pay using credit cards without much of the benefits.

3. Card Online: The traditional method of paying online. Currently these options are present for local eCommerce stores by UBL, HBL, and MCB. However the greatest challenge remains that most debit and credit cards issued by all but one bank in Pakistan are locked from purchasing online. The only way a customer can purchase online is if he or she specifically calls their bank to unlock the facility for a period of 1 hour.

4. Payment through Wallet: This, in my opinion, is the option with the most potential for the long term. It involves the customer having a mobile wallet with deposited funds, then at the time of checkout, they select the mobile wallet payment option. This connects with the customer’s phone and automatically prompts their M-Pin or Mobile PIN in real time. Upon entering their PIN, the transaction is completed. The greatest challenge facing this options is however the number of active users with M-Wallets.

5. Payment through Bank Accounts: Certain banks for certain stores allow direct payments for orders any and all placed. This is not a widely used or integrated system and requires the customer to login to his bank’s online banking system and make the payment in a manner similar to paying a utility bill.

6. OTC (Over The Counter) Payment: In terms of an integrated solution this is the only available option right now via EasyPay by EasyPaisa, which now lets customers pay for their online order at over 65k locations across Pakistan.

Payments however to really get started need to provide customers with a safety net. An independent and trustworthy escrow service which is plugged into all online payment gateways will greatly increase the chances of customer placing orders online and pre-paying. Finally given the wide prevalence of COD — to really convince buyers to prepay you need to provide monetary incentive.

AWARENESS

Nothing will take off in the eCommerce industry in Pakistan unless buyers and sellers are informed and educated about their online buying and selling options and the scope that it provides them to enrich their lives as a result of its enormous reach and variety of available options. The major method for creating awareness and driving traffic towards eCommerce companies is by running ads online. Facebook, at this stage, is still the primary channel for such exposure, however over the last year there have been major changes have been witnessed. We have seen a greater influx of other marketing channels being utilised alongside facebook. Some of these have been listed below:

• TV has been heavily relied upon by OLX and Kaymu.pk with Daraz.pk, Jovago and Carmudi also launching independant ads. Even UMall and TCS Connect have been mentioned in ads by their parent companies.

• Billboards have been heavily utilised by FoodPanda and EatOye and to a smaller extent by Tohfay, Bytes.pk, Daraz, Lootlo, Dekhawa, Symbios.pk and TCS Connect.

• Radio was used by several companies as well with Savers.pk who ran a fairly large campaign on the ariwaves.

In addition to online only stores marketing more aggressively, we have seen a greater influx of large local brands creating online stores to complement their retail outlets as well. The online presence of these stores has led to a greater acceptance of online shopping given the brands are already known physically and command a reasonable customer base as it is.

As we begin to see a greater number of marketing channels being used, the push towards online sales becomes more apparent. As always branding is a crucial first step in creating trust and the foundations for a healthy online market.

Conclusions

It is important to keep in mind that most of the challenges facing the eCommerce industry in Pakistan today are not debilitating to its future in anyway. With due diligence and the proper systems in place our partners in this field can collectively rise over and above current expectations but they cannot achieve this working in isolation from one another. Each section of this industry needs to work hand in hand, from the eCommerce marketplaces, to the sellers, the payment gateways and the logistics providers. If Pakistan’s eCommerce community wishes to achieve its rightful place in the overall scheme of things, all of the components of this industry need to start working together like a well oiled machine towards their collective goals.

f the above mentioned challenges though can be solved in a much more fluid manner by attracting more capital to the industry. Therefore with this I add my last tenant to grow the overall eCommerce industry:

REPORTS + INVESTORS

To really push the growth rate the industry we need to start attracting more investors. The overall dynamics of the country are sound and recent growth has been very strong. By investing more money throughout the value chain i.e in 3PL’s, Payments Companies, alongside the eCommerce companies we can grow the entire industry.

With a population of 200m and a growing broadband user base the fundamentals for the country to be a major hub for eCommerce transactions is very large. To attract investors we need to be more transparent and start publishing authoritative numbers on the growth of the industry. This will give any potential investors at every level from Seed to Private Equity insights into the industry and increase chances of investment.

The added investment will only act as fuel to power us into greater adoption and with the market entering its second stage of growth now is the perfect time for investors to gain strong returns with relatively small investment.