Continuing with the assessment of how digital payments fared during the quarter of lockdowns associated with the coronavirus (Apr-Jun 2020), the payments within the local e-commerce sector are analyzed below. The analysis, using latest SBP data, has a particular frame of reference of transactions relating to only those locally-registered e-commerce merchants that have their bank accounts with Pakistani banks. This frame is essentially a subset of the overall e-commerce sector, but some trends may overlap.
First, the overall growth trend! On a relatively longer time horizon, it is evident that the local e-commerce sector has been on a continued growth path. Between FY17 and FY20, the only years for which data are available from the SBP’s Payment Systems Reviews, the e-commerce transactions grew nearly nine times to reach 10.2 million transactions in the year ended June 30, 2020. In terms of value, the pie has grown four times to reach Rs35 billion in the same period.
Since it is based on banking sector reporting, the SBP dataset doesn't provide transaction breakdown in terms of products or regions. (Perhaps, the PTA, the SBP and the Commerce Ministry need to join hands to set up a robust reporting system that covers the whole of the e-commerce sector and provides public access to disaggregated datasets for an informed analysis of stakeholders).
The higher volumetric growth than value growth over past several years could suggest a number of things. It could be that a) number of low-ticket items have grown in buying and selling online (scope) or b) usage is spreading to lower income groups (scale), or c) more mom-and-pop e-commerce stores are coming up online that sell low-priced, everyday-use items than a more balanced product portfolio in terms of value, or d) a combination of these and host of other interrelated factors.
Be that as it may, there has been a slowdown in growth, contrary to the expectations of exponential growth in the sector. This is linked with the slowdown in registrations of new e-commerce merchants with banks. For instance, in FY17, the data from first 571 merchants was reported by banks to SBP; in FY18, there was a 92 percent growth in such merchants; but in FY19 and FY20, the growth had dropped to 24 percent and 25 percent, respectively. As of June 2020, 1,707 merchants were registered with banks.
Now, moving to the performance amidst the peak pandemic quarter in Pakistan, there is a mixed trend observed in the Apr-Jun data, something that does not qualify the lockdown-related period as a breakout period for the sector in the analysis frame. On one hand, at 2.3 million, the number of e-commerce transactions had declined by 18 percent in the corona quarter (Apr-Jun 2020) compared to the pre-crisis quarter (Jan-Mar 2020).
The argument that people shopped more and more online during lockdowns thus appears weak. There were also practical difficulties faced in logistics, as timely last-mile delivery was compromised by lockdown-related mobility restrictions. Besides, vendors faced troubles stocking up on inventories of most-frequently ordered items online.
On the other hand, the value of e-commerce transactions in the corona quarter, at Rs9.4 billion, was 32 percent higher than the pre-crisis quarter. The higher value growth amid lower volumes in Apr-Jun led to a 61 percent increase in average transaction size to Rs4,087 over previous quarter. The higher transaction size could suggest that folks, faced with lockdowns affecting sales of non-essential and discretionary items, might have resorted to online purchases of such relatively higher-priced goods.
The “yearly” growth in the corona quarter reads a rather different tale, but one that is consistent with long-term trend. While the volumetric growth in Apr-Jun 2020 was 35 percent higher year-on-year, it was lower than the 89 percent yearly growth seen in the same quarter last year. Similarly, the 22 percent yearly growth in transaction value was lower than 51 percent growth seen in the same period last year. At the very least, the lockdowns didn't reverse the trend of deceleration in yearly growth.
While this reliable dataset is a reasonable proxy for analyzing e-commerce trends in the formal segment, it cannot be projected to the whole of e-commerce sector as customers relying on cash-on-delivery (COD) mode of payment may have different attributes and purchasing behavior than those who make pre-payments for their online purchases digitally. Calculating market size for overall e-commerce sector based on just the SBP data is also fraught with risk as customer propensity to use COD varies considerably with the price of good ordered online.
But so far as the local, formal and banked e-commerce segment is concerned, which provides good amount of visibility on transactions, there is a declining growth trend. This deceleration in growth is also visible in payments data relating to international e-commerce transactions done from within Pakistan. The new e-commerce policy has its work cut for itself to actually unlock the vaunted exponential growth in this space.
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