On November 8th 2016, India came to a standstill when Prime Minister Narendra Modi announced the demonetisation of Rs 500 and Rs 1,000 currency notes of the Mahatma Gandhi series. 86 per cent of the currency in circulation ceased to become legal tender after midnight of that day.According to Bloomberg data, the volume of cash transactions in India is 98 per cent as compared to 55 per cent in the U.S and 46 per cent in the UK. So does demonetisation spell doom for e-commerce in India?
Online Shopping Payment Trends in India
Online stores offer a wide variety of payment options like credit/debit cards, net banking, e-wallets and cash on delivery (COD). According to Ernst & Young, payment for 50 per cent to 80 per cent of online transactions in India is through COD. Compared to other countries, e-commerce in India has always been more dependent on COD. Flipkart was the first among the three major e-commerce players in India to push COD. In 2015, 72 per cent of Flipkart’s orders were COD and 90 per cent of orders from tier-2 cities were completed through COD. Amazon and Snapdeal too were not far behind when it came to executing COD orders.
Short Term Effects of Demonetisation
According to a statement by Amrish Rau, CEO of PayU India “Around 40 per cent of COD was driven by black money according to a study done two years ago.” Demonetisation cracked down the whip on black money forcing people to go digital. In fact, the first 2 months after demonetisation did see a decline in e-commerce growth in India as there was a reduction in sales. The cash crunch and cap on ATM withdrawal limits affected the buying capacity of majority of consumers, especially customers in tier-2 and tier-3 cities who are used to the payment mode of COD. Some of the online retailers had to temporarily suspend their COD payment option. Redseer Management, a research and advisory firm, projected in August 2016 that the e-commerce industry in India would see a growth of $79.41 billion by 2020. But demonetisation managed to upset the numbers and the growth for 2020 is currently pegged at $47.45 billion.
Growth of E-Commerce after Demonetisation
Though demonetisation brought with it a sudden decline in e-commerce transactions, the first quarter of 2017 has brought some positive changes. Demonetisation aims at pushing consumers towards making digital payments, thereby contributing to a cashless economy. NITI Aayog published a report on the growth of digital payments in India post-demonetisation. According to this report, digital payments have seen a whopping surge of 271 per cent in the very first month following demonetisation. The number of mobile wallet transactions has increased to 63 lakhs from 17 lakhs. Paytm, one among the biggest players in the mobile wallet space revealed that it served 45 million customers within 3 weeks after demonetisation. Transactions via RuPay cards have also increased suggesting that more JanDhan account holders have started using debit cards for online transactions. “We saw an initial decline in transactions for the 1st 10 days of demonetisation, however the transactions started getting back to normal from 1st week of December. As of February, we see a steady increase in transactions as well as online payments” as mentioned by Vikash Khetan, Founder Of CouponzGuru (A coupons and deals aggregator in India)
Changes in E-Commerce Segments
Despite bringing chaos in its initial days, demonetisation in the long run is considered beneficial to the growth of e-commerce in India. One of the long term benefits for the e-commerce industry is reduction in payments via COD. For online retailers COD involves additional cost and the risk of returns or thefts is higher in this form of payment. Here is how demonetisation has affected the 4 main segments of the e-commerce industry.
- Online Retail
Online retailers like Amazon and Snapdeal welcomed the Government’s move on demonetisation but they have also had to deal with a slump in business. There has been a 30 per cent-40 per cent reduction in COD orders. The final quarter of 2016 was definitely not as fruitful as in the previous years for giants in the e-commerce industry. The consumer is not in a mood to spend and this situation is expected to continue till the end of the first quarter in 2017. Most of the online retail stores continue to be dependent on cash payments as it is going to take some time for all customers to switch to digital payments.
- Payments
The digital wallet and payment segments have emerged clear winners post demonetisation. Local vegetable shops and paani puri vendors have been showcased on social media for displaying signs asking for digital payments. Payment gateways have already seen an 80 per cent growth and the number is increasing each week. There is a growth in low-value transactions too.
- Logistics
E-commerce based logistic firms have taken a hit as 20 per cent of COD orders were cancelled post the demonetisation announcement. In the transport industry most of the transactions are done through cash and this is expected to take more than a quarter to normalise. Sahil Barua, CEO of e-commerce focused logistics firm Delhivery stated that the firm has started accepting card payments and other modes of payment like wallets on delivery There are some other logistics firms that do not offer card payments and will require some time to scale up their operations.
- Hyper-local Delivery
This sector in the e-commerce industry has seen tremendous growth post demonetisation. Hyper-local delivery firms supply groceries, household items and food from restaurants to customers. The number of new customers that this segment receives is increasing by the day and there is a surge in pre-paid orders. Online food-ordering platforms like Swiggy and Zomato have seen a rise in transactions.
Increase in Online Transactions in Tier-2 and Tier-3 Cities
Payments made by customers from small cities and towns underwent a major change. Innoviti Payments Solutions manages point-of-sales terminals for merchants. According to the company’s chief executive Rajeev Agrawal digital transactions have seen a 150 per cent growth in tier-2 cities and 157 per cent growth in tier-3 cities. Demonetisation has caused an increase in digital transactions at these places by almost one-and-a-quarter times when compared to big cities.
To quote Robin Sharma “Change is hard at first, messy in the middle and gorgeous at the end”.. Demonetisation has opened up a Pandora’s Box but this one has some goodies. The digital wave as a result of demonetisation makes the future of e-commerce in India look promising.
