The most-recent central bank statistics on digital payments that were made available last week also show strong growth momentum in e-commerce transactions as of June 2022. With such growth, digital shopping’s quest to dominate retail shopping remains alive, albeit a weakening economy may slow things down now. One awaits the latest quarterly data (Jul-Sep 2022) to see to what extent the economic slowdown, rising inflation, and slow consumer credit took their early toll on the digital commerce sector.
During FY22, SBP data show that e-commerce transactions (defined here as digitally paid/non-cash/pre-paid e-commerce transactions) had grown by 108 percent year-on-year in volume to reach 45.5 million, with value growth of 75 percent year-on-year to reach Rs106 billion. That’s an estimated market worth of just over $2 billion per annum at June 30, 2022 exchange rates, if one assumes that digital payments account for 25 percent of all e-commerce transactions and cash-on-delivery accounts for 75 percent.
The growth run of digitally-paid e-commerce transactions has been phenomenal since the pandemic. By FY22, these e-commerce payments had jumped 8 times and 4 times the pre-pandemic levels in terms of volume and value, respectively. This is reflective of the broader trends in the overall e-commerce market. On the consumer end, rising mobile broadband subscriptions and increased smartphone usage have enabled online shopping. On the supply side, merchants are learning the value of earning user trust.
A major growth driver in the latest data is the rising number of e-commerce merchants that are choosing to register with the banks, thus helping the regulator record digital payments in a more comprehensive way. By FY22 (June) end, nearly five thousand e-commerce merchants were registered with the banks, which is an increase of 63 percent year-on-year. This net addition of almost two thousand registered merchants within a single year is the highest absolute growth observed in recent years.
Overall, the growth in prepaid/digitally-paid e-commerce transactions is coming from domestic transactions as well as international transactions. During FY22, domestic transactions had a 92 percent share in volume (41.7mn) and 78 percent share in value (Rs82.9bn) of non-cash e-commerce transactions. The rest of the digitally-paid e-commerce transaction volume (3.7mn) and value (Rs23.1bn) belonged to international e-commerce transactions settled through domestically-issued cards.
An interesting trend that can be captured from the latest SBP data is the consistent decline in the average transaction size of digitally-made e-commerce payments. During FY22, the average transaction size was Rs2,330, down 16 percent from Rs2,767 in FY21 and more than half since Rs5,500 in FY18. On the demand side, declining transaction size perhaps signifies the growing usage of e-commerce for small-ticket consumable items (e.g. groceries, medicines, household supplies) compared to big-ticket durable goods.
On the business end, however, declining average order value isn’t necessarily great. One of the criteria through which e-commerce stores and executives are deemed efficient by investors is when platforms are consistently able to attract shoppers to add more items to their carts. In a weakening economy, should one expect the average transaction size to decline further? Considering the economic headwinds, let’s wait for the latest data to see how e-commerce has been weathering the storm in the ongoing fiscal.