Online retailers advised to incentivise consumers for cashless transactions

KARACHI: The central bank advised online retailers to incentivise consumers and facilitate low-cost fund transfer to promote cashless transactions and increase documentation in the economy.

“Any strategy for a smoother transition to electronic payments should involve incentives to consumers (e.g., discount or value added services such as prioritised delivery) to transact online,” the State Bank of Pakistan (SBP) said in its latest report on the state of economy.

“At the same time, there is a need to create a platform that is compatible with the transfer operations of all commercial banks and offer low-cost funds transfer.”

SBP said a total of 571 local ecommerce merchants were accepting payments through banking channels as of end-June 2017, with cumulative annual sales worth Rs9.8 billion.

But, ninety percent of online orders were still fulfilled using cash-on-delivery (COD) in the past fiscal year, it said, citing statistics of Pakistan Telecommunication Authority.

“Businesses are also hesitant to offer online payments options given considerable upfront development costs (as this involves expenses on reliable and secured infrastructure, negotiating contracts with payment gateway providers, etc.),” the central bank added.

The State Bank of Pakistan said most of the online retailers allow online payment through debit or credit cards only, while payment through other modes, such as mobile wallet and bank transfers are less common and limited in scope despite flexible interoperable environment with interconnect banking channel as well as regulatory environment.

Several banks restrict use of debit cards for electronic transaction, which can be lifted by contacting their help line.

“This further hinders the adoption of digital exchange mediums by the customers,” it added.

The central bank said business to consumer e-commerce is on the rise in Pakistan on growing incomes, coupled with advancement in communication technology and expansion of internet access and branchless banking.

A range of businesses with physical as well as online retail services, called click-and-mortar, has shifted to this medium to cater to the growing demand and to remain competitive in the changing market environment.

“Businesses are venturing into digital platforms to increase their reach (relative to brick-and-mortar stores).

Additional benefit comes from low operating costs and flexibility in inventory management (based on feedback, recommendation, and just-in-time mechanisms) which results in increasing margins,” SBP added.

“Various benefits such as comfort (shopping from home), wider selection variety, ubiquity (24x7 service), and interaction possibilities (reviews, etc. to make an informed decision) are the main sources of attraction to the consumers.”

The State Bank of Pakistan said payment on delivery brings it own set of challenges for e-businesses as risks of nonpayment are shifted to business, and their operations become geographically constrained.

“From the consumer perspective, a preference for cash and low financial literacy accentuates the need for COD. Even those customers who are financially literate feel hesitant to share their personal information online due to security concerns,” it added.

“A second major issue that keeps consumers from adopting towards advance payment mechanisms is the fear that their products might not be delivered or they might be different in nature or quality from the items mentioned online.”