India has an internet users base of about 450 million as of July 2017, 40% of the population. Despite being the second-largest user base in world, only behind China (650 million, 48% of population), the penetration of e-commerce is low compared to markets like the United States (266 million, 84%), or France (54 M, 81%), but is growing at an unprecedented rate, adding around 6 million new entrants every month. The industry consensus is that growth is at an inflection point.
In India, cash on delivery is the most preferred payment method, accumulating 75% of the e-retail activities. Demand for international consumer products (including long-tail items) is growing much faster than in-country supply from authorized distributors and e-commerce offerings.
In 2015, the largest e-commerce companies in India were Flipkart, Snapdeal, Amazon India, and Paytm.
Since 2014, the Government of India has announced various initiatives namely, Digital India, Make in India, Start-up India, Skill India and Innovation Fund. The timely and effective implementation of such programs will likely support the e-commerce growth in the country. Some of the major initiatives taken by the government to promote the e-commerce sector in India are as follows:
Reserve Bank of India (RBI) has decided to allow “inter-operability” among Prepaid Payment Instruments (PPIs) such as digital wallets, prepaid cash coupons and prepaid telephone top-up cards.
Finance Minister Mr Arun Jaitley has proposed various measures to quicken India’s transition to a cashless economy, including a ban on cash transactions over Rs 300,000 (US$ 4,655.1), tax incentives for creation of a cashless infrastructure, promoting greater usage of non-cash modes of payments, and making Aadhaar-based payments more widespread.
The e-commerce industry been directly impacting the micro, small & medium enterprises (MSME) in India by providing means of financing, technology and training and has a favourable cascading effect on other industries as well. The total size of e-Commerce industry (only B2C e-tail) in India is expected to reach US$ 101.9 billion by 2020.
Technology enabled innovations like digital payments, hyper-local logistics, analytics driven customer engagement and digital advertisements will likely support the growth in the sector. With the increase in the number of electronic payment gateways and mobile wallets, it is expected that by the year 2020, cashless transaction will constitute 55 per cent of the online sales. The growth in e-commerce sector will also boost employment, increase revenues from export, increase tax collection by ex-chequers, and provide better products and services to customers in the long-term.
TRANSACTION TO E-COMMERCE IN INDIA
Much has been said about India’s accelerated digital transformation. Like the fact that we are the world’s fastest-growing internet market, adding 40 million users per year on average. In fact, despite the digital divide, India boasts the second highest active internet user base with 1 out of 3 people online.
The corollary to this story is the country’s red-hot ecommerce pie, which according to a new study has the potential to become far bigger, driven by more than 500 million Indians who will constitute the next wave of online consumers. The size of the opportunity up for grabs is a whopping Rs 3.44 lakh crore.
The report, titled ‘Unlocking Digital for Bharat: $50 Billion Opportunity’, released by Bain & Company, Google and Omidyar Network, claims that India has the potential to unlock over $50 billion in online commerce in India by driving awareness, usage and transactions among the current and next set of internet users and shoppers.
But the road to get there is far from smooth. Based on a survey of 3,400 customers, the study puts the spotlight on some major barriers holding India back, beginning with India’s small transacting user base. Only 40 per cent of India’s 390 million internet users transact online. The remaining 60 per cent do their research online but complete the transaction offline.
In addition, there is the worrying number of dropouts. According to the report, 54 million users – across the affluent socioeconomic segments that comprise 80% of the user base alone – stop after the first online purchase due to issues with user experience.
Significantly, it takes three to four months for a typical Indian internet user to make the first online transaction and among users who have been on the internet for two or more years, 61 percent transact online. The number of “transactors” drops to 27% among new users, who have been online for just 4-6 months. This underscores the need for ecommerce players to retain customers through content, experience and fostering trust.
The study points out that India can “double the current product transactor base” by retaining the number of people who give up after a trial purchase and by beefing up its current numbers. For the latter, one can start by focussing on the 160M content consumers who draw the line at online transactions, which has the potential to boost ecommerce by $14-18 billion.
Then there is the massive non-user base, just waiting to be tapped. The report estimates 370 million non-internet users across India’s affluent socioeconomic strata and 620 million across the mostly-untapped lower income segments. While the latter are out of the scope of the survey, their sheer numbers spell a massive future opportunity.
“Digital India is at a very interesting point – a large internet user base with significant variations across demographics, and only a small portion actually transacting online. While online spends are still low given lower per capita incomes, there is huge potential to unlock value by addressing user concerns at various stages of the digital curve,” said Arpan Sheth, partner, Bain & Company, and one of the authors of the report. “However, the path won’t be easy for businesses and they will have to innovate and be patient to monetize this user base and generate value.”