December 2, 2013, 12:34 PM

A snapshot of e-commerce in Pakistan

There are 31 million Internet users, and new e-commerce sites are emerging.

Pakistan is considered a “frontier market,” in that it serves as gateway to land-locked economies, including Central Asia, parts of Russia and northwestern China.  In this respect it’s similar to Nigeria and Bulgaria. In these economies businesses face many local challenges and risk but can achieve high return on their investments.  For example, Pakistani logistics companies can reach into these markets that are not easy to enter for international firms. And the growth of the Internet means e-commerce firms operating in Pakistan have the opportunity to sell into markets adjacent to Pakistan.

In Pakistan itself, there are 31 million Internet users, of whom 15 million browse through mobile devices, according to the Pakistan Telecom Authority. There are 9 million Facebook users, including 1.1 million who have joined in the last six months, Facebook says.  Pakistan’s 125 million active mobile device users, out of population of 190 million, give it the fifth-largest base of mobile phone users in Asia, says the Pakistan Telecom Authority. Pakistan’s market size and large online population lay a strong foundation for Internet retailing.

Internet retailing is not new in Pakistan. It started in late 1997 with brands like Liberty Books and Gift Express, with the first payment gateway provided by Citibank and e-store engineered by my company, The Cyber Bridge.  Since then, several stores have been set up in various categories, including gifts, books, music, movies, consumer electronics, computers, clothing and footwear. Classified site Craigslist and daily-deals site Groupon of the United States are replicated by OLX and DealsToday to fuel online shopping in Pakistan. Earlier this year, Kaymu launched as an online marketplace  where small retailers can sell online. It is funded by Rocket Internet, a German company that specializes in investing in e-commerce companies.  Rocket Internet has also invested in other Pakistani web sites, including daraz.pk, foodpanda.pk, carmudi.pk, lamudi.pk and easytaxi.pk.  Another sign of the growth of online retailing in the country is the launch in 2007 of BlueEx courier, which delivers items to consumers and accepts cash on delivery, which has become a prime form of Internet payments.

There is no formal estimate on online retail sales in Pakistan. That is because most payments are settled through cash on delivery or third-party payment gateways in the case of international sales by ethnic clothing retailers and gift shops. Internet retailers, such as women’s traditional clothing manufacturer GulAhmed, Sentiments by TCS and Tohfay, primarily cater to the international market, selling to Pakistanis living abroad who buy ethnic apparel for themselves or send gifts to loved ones back at home.

Pakistan has no barriers for international retailers selling their products and services online. U.S.-based Amazon.com Inc. ships items to Pakistan. And U.S. retailers like Macy’s Inc. and J.C. Penny Co. Inc. let visitors to their web sites choose Pakistan as the country of delivery and price items in Pakistani rupees;  international fulfillment provider Borderfree, formerly known as FiftyOne Global ECommerce, delivers items to Pakistan for those two retail chains.

Unlike in North America where most online consumers pay with credit and debit cards, Pakistani consumers prefer to pay through online banking or through cash on delivery. There is only one domestic payment gateway facilitated by UBL (United Bank Ltd), which processes Visa and MasterCard transactions.

Online stores focusing on selling products to overseas buyers generally opt for third-party gateways, such as 2CheckOut, Payza and Skrill for international sales. For local sales,  options include online bank transfer, branchless banking (mobile network accept payments  on behalf of banks, mostly from consumers without bank accounts) and mobile transfer. No major cases of fraudulent activity have emerged in Internet Retailing since it commenced in 1997.

Pakistan is primarily a consumer economy as compare to other economies which are based on manufacturing, tourism and form of economics. A large percentage of the country’s gross domestic product is spent on consumption, and thus consumer retail is a growing sector in Pakistan. Pakistan imports $40 billion worth of goods each year, exports only $24.6 billion and makes up the differences from remittances from Pakistanis living abroad of $13.2 billion annually.  The average Pakistani consumer is likely to purchase goods and services, construct housing and so on. Wholesale and retail sectors account for 17.1% of Pakistan’s economy, according to the State Bank of Pakistan.  

Although Pakistan has lots of opportunities in the Internet retail market, it will take time, effort and practice to create a successful and long-lasting Internet retailing model similar to those in other digital economies.

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