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The Mobile Way: Shift from e-commerce to m-commerce

January 25, 2017

 

The rapid deployment of mobile infrastructure and the growing availability of affordable smartphones have led to an increased usage of mobile-only internet in developing countries, which, in turn, is boosting mobile commerce in these countries. India with over 1 billion mobile connections is optimistic about a surge in m-commerce transactions, which will change the way online business is conducted in the country and lead to a marked shift from the prevalent e-commerce to an m-commerce business model.

According to a report by venture capital firm KPCB, India is one of the countries that have a high share of mobile-based e-commerce sales. Several online businesses that had once disrupted the offline mode of commerce have now realised the potential of mobile in driving transactions and thus revenues. According to these companies, 70-75 per cent of their online traffic comes from mobile phones today.

As per industry estimates, the Indian m-commerce market will grow from $2 billion in 2015 to $19 billion by 2019.

A look at the key drivers for the growth of this market in India…

Smartphones and internet usage

In recent years, the Indian handset market has been flooded with affordable smartphones. This has helped connect several people, particularly in the country’s hinterland, through the internet. Low-cost data plans being offered by operators have further encouraged people to use mobile internet in a big way and consequently engage in online shopping. Increasing smartphone penetration and growing internet usage are the pillars of growth of the Indian m-commerce industry. According to the CII-Grant Thornton report, m-commerce accounts for around 60 per cent of online sales in the country.

According to WorldPay’s research, around 350 million Indian citizens are already online, and the number is expected to reach 600 million by 2020. The expansion of 3G and 4G networks in Tier 1, Tier II and Tier III cities will drive mobile shopping, especially among the millennial generation. At present, about 70 per cent of the population in India is below the age of 35, and more open to embracing digitisation. Further, smartphone-based retail sales are growing owing to improved features such as broader screens, compatibility with recent technology standards, and an emerging app ecosystem that offers better mobile search, content-driven discovery and enhanced buying experience. E-commerce players are also investing in building lighter apps/mobile sites that get uploaded within seconds and even on a 2G network.

Opportunities in Tier II and Tier III markets

Despite poor internet speeds and connectivity infrastructure in Tier II and Tier III cities, the m-commerce business has been growing in these areas. This is essentially due to the limited presence of big brands in such markets. As a result, users, typically youngsters, resort to m-commerce applications to buy from their preferred brands online through low-cost internet-enabled mobile phones. Currently, 30-40 per cent of online transactions take place in these cities. This number is set to grow as operators enhance their 3G/4G penetration in these areas.

In rural areas as well, mobile phones will be a primary tool to access the internet, thus providing a fillip to mobile-based transactions. Moreover, internet connectivity across rural areas is expected to improve significantly, once the government’s BharatNet project is launched.

Mobile payments and demonetisation

The m-payment industry has recorded a significant growth over the past few years as users have realised the ease and convenience of transacting on the go through their handsets. As per industry estimates, mobile wallet transactions grew tenfold from 60 million worth Rs 10 billion in 2012-13 to 600 million amounting to Rs 490 billion during 2015-16. Reserve Bank of India figures show that mobile transactions tripled in the second quarter of 2016 as compared to 2015.

This growth is set to further accelerate as more Indians are taking the digital payment route following the recent currency demonetisation. As per industry reports, the subscriber base of m-payment channels/mobile wallets has grown manyfold post demonetisation. Paytm, for example, hit a record five million transactions a day within a week of the government’s announcement. Similarly, MobiKwik app downloads doubled and the provider added 2,000 users every day during the initial week. Meanwhile, Ola Money, the digital payment solution from the Ola mobile app, reported a 1,500 per cent increase in recharges across the 102 cities of its operation, a day after the note ban. Oxigen also stated that all the previous records of money loaded on its app, or transaction counts, were broken during the week following demonetisation. Meanwhile, the National Payments Corporation of India, an umbrella organisation for all retail payment systems in India, claimed that between November 8 and 9, 2016 the usage of its domestic card scheme RuPay almost doubled to around 800,000 transactions a day as against a daily average of 400,000 transactions earlier.

Telecom operator-owned wallets have also seen some growth in business post demonetisation. For instance, Idea Cellular saw a significant rise in the usage of its wallet, along with a surge in money being loaded in the wallet by customers through debit cards and internet banking.

Further, demonetisation is expected to play a key role in increasing merchant acceptance of digital money, which continues to be extremely poor in India. Merchants in India have always insisted that payments be made in cash, as electronic payments eat into their margins. However, with cash draining out of markets in the past couple of weeks, merchants and retailers, who earlier operated only in cash-and-carry mode, have been forced to accept mobile payments. They are now working on tie-ups with digital wallet companies. For instance, Paytm claimed that offline person-to-merchant transactions have grown to contribute over 65 per cent to their overall transactions. FreeCharge, too, has announced its plan to ramp up the on-boarding of merchants on its platform and attract one million merchants during the next year. Telecom operator-owned wallets are also aggressively working on getting more merchants on board. Significant activity in the m-payment market will be extremely beneficial for the evolving m-commerce ecosystem in India.

Long way to go

While the uptake of m-commerce services in India as suggested by various industry reports and surveys has been quite encouraging, these have a long way to go to reach mass acceptance and a longer way for it to become a way of life for people. Currently, retail payments in India are dominated by cash and cheques with less than 10 per cent of transactions done electronically. Further, WorldPay’s report states that about 75 per cent of India’s population does not have the means to make online payments.

However, the scenario is changing with the expanding internet reach, which is likely to drive the penetration of mobile banking/payments in the country. This will develop confidence in people to use mobile phones for buying online purchases, thus fuelling the growth of m-commerce.

The country is set to witness significant investments in infrastructure, technology, digital payments and consumer awareness over the next few years, which will pave the way for m-commerce to become the future mode of conducting business.

 
 

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