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If the growth trend seen in non-cash-based e-commerce transactions is any guide, the overall digital economy may continue to be on its northward trajectory. While the digital payments’ space was already in growth mode pre-pandemic, the health-cum-economic crisis seems to have fastened the migration to online channels for both buyers and sellers. Whether the digital adoption trend will be tenacious post-pandemic remains to be seen!

The Oct-Dec 2021 quarter data on e-commerce, which was released last Friday by the State Bank of Pakistan (SBP) show that the digitally-paid e-commerce transactions (for which the SBP receives data from banks based on reporting of/from registered e-commerce merchants) had reached almost 14 million (year-on-year growth of 143%), with a total value of nearly Rs27 billion (year-on-year growth of 78%).

Growth is turning up the dial: non-cash e-commerce transaction volume just in the last quarter of 2021 was equivalent to what the SBP reported for entire 2020! On a full calendar-year basis, these transactions reached a volume of 38.7 million and value of Rs82.7 billion in CY21, translating into year-on-year jump of 165 percent and 91 percent, respectively. These growth rates are even higher than the steep growth rates seen in CY20, when volume had gone up 80 percent and value had risen 37 percent year-on-year.

The official data suggest that the local e-commerce market is increasingly documenting itself with the banking channel, as a result of which there is more visibility on transaction flows and consequently growth seen in officially-reported data. As of December-end 2021, there were nearly 4,000 e-commerce registered with the banks, per SBP data. It’s a net addition of: a) about a thousand merchants in the three months since September 2021, and b) 1,500+ merchants in the twelve months since December 2020.

Assuming non-cash/digitally-paid e-commerce activity makes for 25 percent of all e-commerce payments (with remaining 75% share presumably driven by cash-on-delivery (COD) mode of payments), Pakistan’s overall e-commerce sector is estimated at Rs331 billion per annum (by value). Taking average exchange rate of Rs163.12 per US dollar during 2021 (calculated by using SBP data), the market size stood at just over $2 billion in CY21. No wonder there is huge foreign tech investors’ interest in this attractive space.

Meanwhile, the average transaction size is becoming increasingly smaller in the digitally-paid e-commerce space. During CY21, the non-cash e-commerce transactions had an average bill of Rs2,137, which was a 28 percent drop compared to Rs2,973 average payment in CY20. The CY20 average transaction size itself was down 24 percent relative to Rs3,914 average seen in CY19. One needs more evidence, but the declining transaction size may suggest an underlying shift in this market.

It is plausible that online shoppers are diversifying their purchases away from high-priced products (e.g. electronics and mobile phones) and towards medium-range goods (e.g. apparel/footwear, health and beauty products) and low-priced items (e.g. groceries). Or perhaps there is change in consumer taste vis-à-vis which goods folks now prefer to shop online versus offline. It could also be that income demographic of e-commerce users is becoming more balanced. Or it could be that e-commerce merchants that have been on-boarded by banks in recent years are offering products mostly in medium to low price range.

Lastly, considering the macroeconomic challenges and deeply-felt inflationary pressures, the important question is: for how long can the local e-commerce space continue this growth momentum and remain immune from all the chaos around it? There is no crystal ball to predict, so let’s wait and see what 2022 has in store for this sector!

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