After posting strong growth at of the end of last year, the e-commerce sector is presenting a mixed picture as of earlier this year, the latest data released by the central bank show. Reading too much into quarterly data can often be misleading - still, perhaps the slowdown in e-commerce transactions at the start of 2022 provides a clue into the state of consumer spending amid all the hardships. (The analysis below concerns digitally-paid/non-cash e-commerce transactions, not those ordered via cash-on-delivery).

First, the growth bit. Standing at 9.1 million transactions during Jan-Mar 2022, the volume of pre-paid e-commerce transactions was higher by a phenomenal 63 percent compared to the same period last year, as per the SBP data. The value of those transactions stood at Rs27 billion in the quarter under review, up by a proportionally-higher 76 percent year-on-year. Importantly, the average transaction size in Jan-Mar 2022 stood at Rs2,967, up by 9 percent compared to Rs2,732 average in the same period last year.

Now, the story of decline. The Jan-Mar 2022 non-cash-based e-commerce transaction volume of 9.1 million was massively by 33 percent over previous quarter (Oct-Dec 2021), whereas value of those transactions at Rs27 billion stayed almost flat quarter-on-quarter. One needs to wait for the Apr-Jun quarter transactions data to get an idea if there is some early trend for declining volumes in this segment and whether it is indicative of the broader hit the retail economy has presumably been taking these days.

The key to this analysis is the fact that higher number of e-commerce merchants have been registering with local banks, helping to improve data-capture of non-cash e-commerce transactions. As of March-end 2022, there were 4,445 e-commerce merchants registered with the banks, which was up by 76 percent compared to March-end 2021. Given this fact, one could argue that yearly growth in SBP-reported data for the Jan-Mar quarter (value: up 76%; volume: up 63%) owed to similar growth in registered merchants.

In that case, the 33 percent decline in volume of digitally-paid e-commerce transactions on quarterly basis was perhaps even worse. The number of bank-registered merchants at March-end 2022 was higher by 12 percent quarter-on-quarter over the number reported at Dec-end 2021. In effect, the transaction volumes declined by a huge margin quarter-on-quarter in the Jan-Mar 2022 period despite an increasing number of merchants reporting new data from the sector. Let’s see if the next quarter throws up a pattern.

Since the digitally-paid e-commerce transactions are inherently by users who are part of the banking system, one cannot use the above-mentioned data to say much about e-commerce spending in early 2022 by non-banked users or customers who prefer to order online using cash-on-delivery mode of payment. Be that as it may, if volumes kept on declining in the pre-paid e-commerce segment amid sharp PKR depreciation, it will negatively impact e-commerce sector valuations in the eyes of investors – at a time when more investments are required to improve coverage and quality of online shopping experience.