The market size for business-to-consumer (B2C) e-commerce in Pakistan finally has a credible estimate. The State Bank of Pakistan (SBP), in its latest quarterly report on the State of Pakistan’s Economy, has put local B2C e-commerce merchants at a staggering 571 and their cumulative annual sales at Rs9.8 billion for the year ending June 2017. This is a documented figure, slightly below the $100 million annual sales often quoted by market participants.

The report’s special section on online payments highlights the fact that bulk of online shopping transactions happening in Pakistan – over 90 percent – are being paid-for via the cash on delivery payment (COD) method. Many years later, the COD trend continues to endure despite growth in bank accounts, plastic cards and mobile wallets as well as rising online shopping traffic.

The central bank has suggested a “smooth transition to electronic payments” to help increase “level of documentation in the economy”. But the COD phenomenon, which has its many advantages, will be hard to beat.

On the demand side, consumers, who are accustomed to holding cash, naturally prefer COD as is it convenient, safe and cost-effective to settle transactions. On the supply side, merchants usually don’t offer the online payment option as it is a complicated process involving extra expenses and tie-ups with organisations that demand SOPs and a look at the books.

As SBP has also highlighted, consumers can be encouraged to pay online via incentives such as discounts and early-delivery as well as financial literacy programs that help instill user confidence, but will such measures be enough to boost trustworthiness in the system? Probably not!

So the SBP is right to focus more on tackling the supply-side of the COD problem through supportive regulations that help build an ecosystem. The challenge is to have interoperability, third-party payment gateway that spans the entire spectrum of payment options like bank transfers, debit/credit cards and m-wallets issued by all service providers.

So far, there has been no concrete development on this front. The commercial banks were supposed to take the lead on this. But some of them restrict usage of debit cards for online shopping, something that was also pointed out by the central bank. Some Telco’s have taken the lead, but for some reason they couldn’t quite expand the payment umbrella to all channels. A few Fintech startups are also in the mix, but it isn’t clear how and when they’ll accumulate scale. One interesting thing to note is that reliance on COD may not be a “cultural” thing, as maintained by some experts. Compared to Rs9.8 billion spent on local e-commerce websites,

Pakistanis spent Rs20.7 billion on transactions on international e-commerce websites in FY17, as per the SBP report. That suggests that there are enough Pakistanis who won’t mind making online payments to domestic merchants if the latter have the variety of goods and offer them via a payment mode that is both cost-effective and safe.