Background discussions indicate that local e-commerce sector has received a fillip after the pandemic started last year. Latest data from the State Bank of Pakistan (SBP) also point towards major growth in in e-commerce. The SBP’s dataset pertains to non-cash/digital e-commerce transactions that are reported exclusively by locally-registered e-commerce merchants that have accounts with Pakistani banks.
The SBP data show that during the Jan-Mar quarter of 2021, the non-cash e-commerce transactions stood at 5.6 million in terms of volume and Rs15.3 billion in terms of value. Compared to the pre-pandemic quarter of Jan-Mar 2020, this represents a 100 percent growth in volume and 115 percent increase in value. As value growth outstripped volume growth, the average e-commerce transaction size had increased by 8 percent year-on-year, to reach Rs2,732 in the quarter under review.
What are the factors that have caused this huge amount of growth? One clue lies in the fact that since the pandemic began, there has been a noticeable increase in the number of e-commerce merchants registered with the banks. As of March-end 2021, there were 2,523 registered merchants, up from 1,559 registered entities as of March-end 2020. Net addition about a thousand e-commerce providers in a single year says something about both the level of the e-commerce activities in the market and the comfort level merchants are developing with the banking system.
Therefore, there is cause to attribute a large part of yearly growth in non-cash e-commerce transactions in the analysis period to the burgeoning number of e-commerce merchants getting on board with the banks and those banks reporting the additional transaction numbers to the central bank. It remains to be seen when things become normal if this mid-pandemic mushrooming of merchants whittles down.
In a span of one year since the pandemic began in earnest, the non-cash e-commerce transactions having more than doubled in value is a good omen, even if these pre-paid, digitally-paid transactions remain a subset of the larger e-commerce market that majorly runs on cash. The previous doubling of transaction value had taken nearly two years. The average transaction size has witnessed a decline over past three years – from above Rs5,000 per transaction in 2018 to below Rs3,000 per transaction in 2021.
Over a slightly longer stretch as well, these transactions are growing at a brisk pace. SBP data show that during the Jul-Mar FY21 period, there were 15 million non-cash e-commerce transactions worth Rs42 billion, reflecting a growth of 91 percent in volume and 66 percent in value over 9MFY20. With the final quarter yet to post results, the nine-month transactions have already exceeded the overall FY20 level. At this pace, full-year FY21 numbers will likely post the best annual growth rate over the past three years.
The non-cash e-commerce transactions – which, using latest SBP data, can be extrapolated to about $360 million per annum – can provide a crude proxy for what is is going on in the broader e-commerce market dominated by cash-on-delivery (COD) payments. If the COD has a market share in the range of 70 to 80 percent, then the overall e-commerce market size lies in the range of $1.2 billion to $1.8 billion. Market size hinges on COD market share estimate, but no single number is agreed upon in the market.
This proxy is not 100 percent reliable due to channel differences between pre-payments and COD that affect average transaction size as well as what kinds of goods are ordered more than the others. However, it still sheds some light on the potential scale for pre-payments away from costly COD channel, so that the business model is smoother for sellers and shopping experience comfortable for buyers.
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