Research Paper
Unfolding the Fintech
Blueprint for
E-Commerce
Internet and mobile technologies are transforming the way we do business and e-commerce is a rapidly growing space that is
expected to continue its growth for the foreseeable future. Some countries have outperformed others in this area. In terms of retail
e-commerce sales, China leads the world and is ranked at number 1 with 46.3% of total e-commerce retail sales. The UK and South
Korea rank 2nd and 3rd respectively but China leads by a wide margin (See Appendix 1)
E-Commerce transactions can take place between Business-to-Business (B2B), Business-to-Consumer (B2C),
Consumer-to-Consumer, or Consumer-to-Business, and many more (see Appendix 1). There are many benefits associated with
conducting business online which include availability (online businesses are running 24/7), speed of access, wider reach, lower costs,
personalization of the shopping experience, etc. Others would argue that while there are advantages, there are clear disadvantages
as well, such as limited customer services, information, data, financial security, and wait time
Growing incomes, advancement in computer and communication technologies, widespread internet access,s and branchless
banking are only some of the reasons why e-commerce has been growing globally. The COVID-19 pandemic has necessitated a
change in the ways people do business and make purchases. The world witnessed a remarkable shift towards e-commerce and the
industry grew rapidly. Research on trends in eCommerce during the pandemic sheds light on how the very profile of online
consumers has changed along with online searches, the way payments are realized, and the methods through which goods and
services are delivered (Jílková & Králová, 2021). As the world opens up again, some consumers may inevitably return to offline or
brick-and-mortar modes of shopping, but the reality is that customer and business interactions online are on the rise. These and
many more factors must be considered by economies wanting to improve their performance in e-commerce
This document has benefited from insights garnered from the TechTalk on the topic between Ms. Naureen Hyat – CEO ZoodPay
Pakistan and Mr. Ehsan Saya – MD Daraz Pakistan, and discussions with Mr. Muhammad Shariq – CEO BaadMay. Their contributions
are gratefully acknowledged.
link to TechTalk: https://www.youtube.com/watch?v=lMdcP2tXxEo
Being the fifth largest country in the world in terms of population, out of which its youth accounts for 64%, Pakistan is considered to
have huge potential for growth in e-commerce. Currently, Pakistan ranks as the 37th largest market for eCommerce with revenue of
US$ 6 billion in 2021. According to e-commerceDB, the Pakistani eCommerce market grew by 45% and contributed to the worldwide
growth rate of 29% in 2021.
According to the State Bank of Pakistan (SBP), the e-commerce market in 2020 is estimated to have expanded to PKR 235 billion, up
by 55.5% from the previous year. The number of e-commerce merchants registered with banks also increased by 45.76% in 2020. As
per the Ministry of Commerce, Pakistan’s e-commerce market posted a growth of over 35% by size in the first quarter of FY 2021.
Considering these impressive figures, it is also a fact that Pakistan is still largely a cash-based economy with the majority of its
transactions (apart from the ones requiring banking instruments like bank drafts and pay orders) being conducted in cash. Generally,
to conduct an e-commerce value chain analysis the key components that need consideration are logistics (both inbound and
outbound), operations, marketing, and sales along with services that are key to any value chain. Furthermore, procurement,
technological development, human resource management, and infrastructure also need to be refined and improved.
For Pakistan, there are many key challenges the e-commerce industry faces that merit elaboration, discussion, and resolution.
Digitization of businesses is difficult and for existing, established businesses, with conventional or legacy systems and operations, the
cost of going digital needs to be factored in.
With these many considerations, a question to ask is which areas must be addressed first for the future of Pakistani e-commerce.
According to the Managing Director of Daraz, the factors that need foremost attention are payments, logistics, and building customer
trust. We look at these factors in more detail below.
https://www.pta.gov.pk/en/data-&-research/publications/annual-reports
E-Commerce Market
Digital payments are important for e-commerce and much needs to be done to resolve the debate of cash vs. digital in Pakistan. There is a prevalence of Cash on Delivery (COD) as the mode of payment and e-commerce suffers from many issues and bottlenecks2 . Data from the State Bank of Pakistan (SBP) shows that while e-commerce in Pakistan is increasing, a large portion of the total transactions is made via COD (approx. 60% in value). Since experts believe that COD slows down economic activity, it is important to improve other modes of payment.
(Mechanism Needed to Improve E-Commerce: CAP, 11.02.2021.)
Source: State Bank of Pakistan
One such mode is Buy Now Pay Later (BNPL). For customers, BNPL is appealing as it provides a solution to people who have limited
or reduced purchasing power but have the need or desire to make large/expensive purchases. For merchants, BNPL can help drive
sales by increasing conversion rates and lifting average ticket sales. However, there are challenges as well. BNPL is very attractive and
convenient for financially literate consumers, who have a good credit score and history, and have easy access to credit, BNPL for them
can give benefits in terms of timing payments and ease at POS. For consumers already struggling with their finances, BNPL can be a
source of spending beyond their ability to pay (Lux et al., 2022)
In Pakistan, the BNPL market is very nascent, its market structure and competitive environment are in a state of flux. For example,
most e-commerce companies in Pakistan that are offering BNPL or equal monthly installment (EMI) plans do so through banks.
Banks have their regulations and screening requirements which makes it inconvenient to set up the EMIs on e-commerce websites.
Regulations may cause bottlenecks, such as a 7-day waiting period for approval for transactions to go through.
As mentioned, currently, EMIs are being provided through banks and mostly to credit card customers. The BNPL market has a much
wider scope than this. The number of credit cards issued in Pakistan is approximately 1.7m, which includes multiple cards issued to
the same individual by different banks. On the other hand, the number of debit cards in Pakistan is nearly 30m which can be
considered potential customers for the BNPL market. The market is developing as new e-commerce companies such as Baadmay
(BNPL services provider) are providing services to both credit and debit card customers. This is an encouraging sign and will enable
the market to grow.
Another part of the e-commerce network that requires further improvement and innovation is the area of payment gateways. The job
of a payment gateway is to capture data, ensure the availability of funds, and get the merchants paid. Therefore, any business that
runs online or accepts credit/debit card payments needs a payment gateway. With Raast, the payment gateway system developed by
SBP, the potential applications and uses in e-commerce have been expanded.
Presently, from an e-commerce company’s perspective, working with payment gateways in Pakistan is not simple and can be costly
with MDRs (Merchant Discount Rates) and tax payments involved. Action is needed in the domain of taxation, pricing, and
convenience.
For the e-commerce industry to flourish, competition is essential. It augments the seller’s exposure and should be taken positively.
The objective, however, needs to be the industry’s long-term growth. With Pakistan’s growing population, there is sufficient space for
players that have the financial muscle to invest in creating awareness, training and providing a myriad of services. Currently,
Pakistan’s e-commerce sector offers various consumer products and services including consumer electronics, education, financial
and advisory services, sale and purchase of vehicles, food, groceries, etc.
Mainstream e-commerce companies nowadays are competing with sellers doing business offline and through social media platforms
like Facebook, TikTok, and Instagram. These sites enable sellers to position and direct their products to the right customers. The
prevailing trends like product videos, influencer marketing, and live shopping can help fledgling businesses grow. This adds to the
convenience of the consumers, as they can find out everything about a product within the app.
With all these transactions happening, large e-commerce firms enjoy the advantage of fetching an abundance of data collected
through their users. This trove of consumer data can be put to meaningful use. Other countries, for instance, India, have e-commerce
repositories that carry data related to creditworthiness. This enables them to decide whether or not to give a loan to an individual. Like
this, e-commerce companies can target customers who qualify for BNPL/EMI schemes so that defaults can be avoided. In developed
countries, rapid progress has been made in data collection and management. However, Pakistan’s market is lagging behind. It gets
hard to evaluate creditworthiness without the availability of such data and analytics. This necessitates the establishment of Credit
Bureaus.
Many Pakistani e-commerce companies are using data to evaluate customer creditworthiness. Furthermore, Zoodpay, for example, is
also rating its products along with its internal credit scoring system for its customers. Products that have a very high resale value have
a higher risk of default and therefore the e-commerce company needs to decide which products to include in their BNPL schemes.
To give another example, Baadmay does not offer products that have a higher value or can be easily resold such as commodity/staple
items, electronic gadgets, and mobile phones as part of their lineup to manage default risk.
Building and maintaining customer trust is one of the main pillars of any commercial endeavor and it is even more essential for
e-commerce. Lack of trust hinders growth. The e-commerce experience needs to be smooth and easy so that the customer prefers
digital methods of payment over cash. This can be done by consistently improving the digital and e-commerce ecosystem and
involves work from all stakeholders including the businesses, regulators, and all intermediaries. An example of this would be creating
an enabling environment for payments. Making interoperability a norm where individuals can make payments across any channel
seamlessly and legally. As companies focus on improving the customer experience more, the entire ecosystem will grow.
Profitability is important for e-commerce players. There are multiple elements associated with profitability and there are many ways
to improve it. Pakistan’s economy is experiencing hyperinflation and with capital drying up, assessing market conditions and setting
the right path for a business is essential. As discussed by M.D. Daraz Pakistan, Mr. Ehsan Saya, e-commerce businesses must focus on
strengthening business fundamentals and not just aim for hyper-growth having a strategy that focuses on the core business and
building a sustainable business. The aim should be to create a business model that enables the business to grow and can be passed
on to the next generation. Profitability should sustainably accompany growth.
One way of doing this, for example, is to analyze and revise the commissions and fees structure like the shipping fees charged to
customers and sellers. Other payment fees should not be prohibitive so that businesses are able to go on and grow
Another way to grow an e-commerce business is by creating value-added services. Apart from growing and increasing the
profitability of the core business, there are other services such as advertising and monetizing the advertising of brands from the
platform that can bring in revenue. Increasing footfall to the website and analyzing consumer behavior with data collected can offer
valuable dividends. Businesses can work on what consumers see, how they see it, the way they search, and what happens when they
search can be used to cater to customers’ needs and habits.
Another area of the e-commerce business that can also be monetized is operations, particularly, warehousing and fulfillment. One
way to ensure a seamless e-commerce value chain is to offer a smooth, bottleneck-free process for the customers (both buyers and
sellers). According to Mr. Ahsan Saya, establishing smart distribution centers is the solution. The scalability of the business is
dependent on smart distribution. It reduces the turnaround time in the fulfillment of orders and Daraz’s case there has been a 90%
reduction in shipment errors since Alibaba’s logistics arm partnered with Daraz to open smart distribution centers in Karachi and
Lahore. Such endeavors, if used to support and grow SMEs can increase their outreach to international markets.
As discussed earlier. COVID-19 brought momentum to e-commerce now is the time to keep the momentum going. Many measures
can be taken to make this happen, such as increased competition and improved government support through policies. There is a
need for more formal e-commerce companies in the industry. When there is less competition, experiences can be poor and there is
less accountability for all involved. Policies can play a positive and supportive role as well. While there is a need for policies to protect
consumers, government policies need to be supportive enough so that the growth of this nascent industry is not inhibited; for
example, forgoing short-term tax revenue for long-term jobs creation and SME empowerment.
One largely overlooked factor in Pakistan’s e-commerce landscape
is its role in gender support. Fintech and especially e-commerce can
be a powerful equalizer and can be used to provide women the
agency they desperately need to improve their economic conditions.
The e-commerce industry is uniquely positioned to empower
women in Pakistan and create digital entrepreneurs and therefore
play a role in uplifting communities. Furthermore, companies must
incorporate the female perspective in every aspect of their business.
Insights on user experience, the way women use social e-commerce,
and how e-commerce websites look like if women designed them
are all questions that can help not only improve and grow their
business but also grow communities
In conclusion, the fintech blueprint for e-commerce is multifaceted,
and for the industry to grow the players must focus on operations,
profitability, and building customer trust. The right policies and
enabling environment are as important as deploying methods to
increase footfall, the number of orders placed, and the retention of
their customers. Data must be used for segmentation and value
creation and the sustainable and long-term growth of the industry.
Reducing reliance on COD can be done by developing consumer
trust in digital technologies. The focus needs to be on long-term
growth and profitability by providing an enabling and secure
environment
References
Jílková, P., & Králová, P. (2021). Digital Consumer Behaviour and eCommerce Trends during the COVID-19 Crisis. International
Advances in Economic Research, 27(1), 83–85.Add Your Heading Text Here
https://doi.org/10.1007/S11294-021-09817-4
Lux, M., School, H. K., Epps, B., Batra, I., Blumenfeld, M., Freiberg, S., Friedman, D., Goldman, A., Gupta, A., Hutton, T., Marcus, M.,
Mildenhall, T., Newman, J., Srivastava, T., Tambor, R., & Underwood, N. (2022). Grow Now, Regulate Later? Regulation urgently needed
to support transparency and sustainable growth for Buy-Now, Pay-Later. M-RCBG Associate Working Paper Series.
https://doi.org/10.1007/S11294-021-09817-4
Mechanism needed to improve e-commerce: CAP. (n.d.). Retrieved December 15, 2022, from
https://www.brecorder.com/news/40062711/mechanism-needed-to-improve-e-commerce-cap
Acknowledgement
The author extends special thanks to Syed Nadeem Hussain (Chairman – PFN) & Mr. Fahad Sajid (CEO – PFN) for their invaluable support and advice