Pakistan’s e-commerce market is consistently celebrated for its double-digit growth and USD $3 billion valuation. However, despite an 80% internet penetration rate, e-commerce still accounts for only a fraction of the estimated $150 billion retail market. State Bank data shows only 3000++ Ecommerce players in the market. One of the core issues for these low rates are “Logistics and Payments”.
E-commerce businesses in Pakistan face several challenges that are hindering their growth. One of the biggest obstacles is the high rate of returns, especially from tier 2 cities. Even though some businesses have tried to mitigate this by contacting customers before dispatching orders, many customers still place orders with no intention of paying for them upon delivery or returning items due to a “Change of mind”. This creates logistical and profitability issues, particularly for bulk orders exceeding 7 kg and for out of city orders. Even with consent, customers are still known to refuse acceptance of the orders for any frivolous reason.
Requesting pre-payment or advance payments can significantly decrease the size of orders and limits the markets an online store serve, since more than 80% of customers demand cash on delivery (COD).
Secondly, Courier / 3PL companies in Pakistan are not geared towards e-commerce businesses as they have no incentive to ensure high delivery rates. Orders are typically prepaid and the shipper covers the cost of returns. This often leads to poor handling of orders, particularly in tier 2 cities with inadequate addressing systems. Couriers also often do not call ahead before delivery nor are tasked for the same.
One easy solution to mitigate this could be for courier companies to provide shippers with access to customers’ return data to identify any potential issues before shipping the order. Shippers will be alerted to mobile numbers/addresses with high return rates and can make informed decisions accordingly. Not only will this create value addition for ecommerce merchants but will also serve to punish users for frivolous ordering. In banking terms, such a service or directory can become the equivalent ECIB of the logistics industry,
Delay in payments by courier companies is another issue that businesses face, with disbursements often taking up to a month. This can have a significant impact on cash flow, and the lack of automated payment disbursement requires additional management to release funds on time.
This is simple to setup for any courier company. Automated payments are offered by any bank or Fintech and it’s simply a funds transfer sent to the shipper within 3-6 working days of the delivery of the order.
Finally, the high fees for last-mile delivery are forcing online shops to develop their own biker networks, which increases operational challenges and costs. However, not doing own delivery results in high delivery charges per order and a payment deduction of up to 2.5% on every delivery.
It is essential for policymakers and businesses to collaborate to address these challenges and create a more conducive environment for e-commerce in Pakistan. Reducing the rate of returns, streamlining payments, and lowering the costs of last-mile delivery can make e-commerce more accessible and profitable for all.
What are your thoughts on the challenges facing e-commerce in Pakistan? Let’s start a conversation in the comments below.
Accelerate - by Umair Mohsin 