E-commerce and its potential in Pakistan

Pakistan is still largely a cash-based, informal economy (undocumented or shadow economy). This encompasses transactions conducted in cash, unregistered business operations and off-the-books employment. According to a World Economics recent report, the total size of the informal economy in Pakistan was around $457 billion (35.7% of the economy). However, the estimates from SMEDA indicate that the informal economy has a market share of more than 40% of the GDP. The majority of transactions are conducted in cash, except for large ones requiring a bank draft or pay order. Several studies suggest that up to 60 percent of the economy is informal, with the majority of local companies, particularly SMEs, undocumented and outside the tax net. 

A number of government departments have started to offer services via internet. In the private sector, four Pakistani airlines now offer e-ticketing and almost all local banks offer online banking services. In addition, last year, the State Bank of Pakistan (SBP) issued No-Objection Certificates to five applicants for initiating digital banking services. This segment of the economy is expected to grow steadily as there are nearly 87.4 million Internet subscribers in Pakistan, a figure that is expected to grow significantly over the next five years. As per local trade resources, Pakistan is the 46th largest market for eCommerce with a revenue of $5.2 billion in 2023.

There are also more than 7.3 million Facebook users in Pakistan and several local companies now use social media to promote their products and services. According to the Pakistan Telecommunication Authority (PTA), the number of 3G and 4G users in Pakistan reached 124.1 million by the end of February 2023, and the mobile banking sector shows promise.

The year 2023 could see Pakistan’s e-commerce market reach a revenue of US$6.4 billion, growing annually at 6.23 percent. By 2021, the market had hit US$4.2 billion, ranking Pakistan 46th globally in this field.

The e-commerce sector has focused mainly on consumer products and accessories. Online customers in Pakistan search for and purchase consumer electronics, make employment queries, receive online education and counseling services, sell/purchase and gather information on vehicles, computers, financial, food and groceries, and countless other products and services. Consumer choices and the records they generate also produce a trove of data that is used in targeted advertising. According to ECBD, the online share refers to the proportion of the retail volume that is transacted via the Internet. It includes purchases via desktop PC, tablet or smartphone, both via website or app. Only retail of physical goods is taken into account. In the Pakistani retail market, the online share is 2.9% and will increase by an average of 0.5% to 3.0% by 2027.

Google Chrome is the most popular browser, accounting for 56 percent of total visitors, followed by Microsoft Internet Explorer/Edge (21 percent). The remaining 23 percent of searches are through Android, Safari, Opera, Opera Mini, UC Browser, Safari, and Maxthon respectively.

The biggest player in the Pakistani eCommerce market is bagallery.com. The store had a revenue of US$24.6 million in 2022 (ECDB Reported).

Popular eCommerce Sites

Some leading eCommerce websites in Pakistan include:

• OLX
• daraz
• Spotify
• PakWheels
• Zameen
• Shophive
• Naheed Super Market
• Cheetay
• Food Panda

According to industry reports, 94 percent of e-companies receive payments for their online orders via cash-on-delivery. This increases the liquidity requirements for e-commerce companies and also forces them to have dedicated teams that manage cash receipts for the company, thereby raising operational costs. The larger players in the e-commerce space have started to utilize digital payments and are optimistic that the industry will come together to coax consumers into moving away from cash-on-delivery to online payments. Digital payments also represent a hurdle for Pakistan’s e-commerce sector. While a number of products like EasyPaisa, JazzCash, and uPaisa – which are mobile banks – are available today, none of them have high market penetration. This, coupled with the fact that only 24 percent of the country’s population has a bank account, significantly increases the cost of doing business for e-commerce companies.

The Pakistani eCommerce market in 2022 in terms of offered payment methods is fragmented and dominated by a few providers with Cash on delivery (Cash on delivery) covering the largest share with 93.9% of all online stores checked. Other offered payment methods in the Pakistani eCommerce market in 2022 are VISA (Cards) with 67.8%, Mastercard (Cards) with 64.3%, and Bank transfer/cash in advance (Bank transfer) with 58.3%. With 43.5% Invoice (unknown) has already a significantly smaller coverage compared to Cash on delivery (Cash on delivery).

In 2021, the State Bank of Pakistan (SBP) launched an indigenous digital payment gateway called “Raast”, to enable individuals, businesses, and government to conduct financial transactions. This payment system was launched with the intention to enable small-value retail payments as well as provide cheap and universal access to all players in the value chain of the local financial industry. 

With the introduction of 3G/4G services, internet penetration has risen rapidly. Internet subscriber growth in Pakistan is averaging over 35 percent per year and total subscribers crossed over 100 million marks. Cheap smartphones, low cost of 3G/4G services, and a consumer-goods obsessed middle class have meant that Pakistan’s e-commerce sector is “mobile first”: some e-commerce start-ups claim that over 75 percent of their total business is online.

E-commerce entrepreneurs enjoy heavy traffic on Pakistani holidays and event seasons such as Eid-ul-Fitr (April), Eid-ul-Adha (July), Black Friday, New Year and Wedding Season (October through April). Major sporting events can also drive purchases of related equipment and merchandise.

The introduction of mobile broadband coupled with affordable smartphones has driven social media use and the popularity of Facebook, Twitter, Skype, and Instagram.

There were 71.70 million social media users in Pakistan in January 2023 (equivalent to 30.1 percent of the total population) with gender wise distribution of males at 72% followed by 28% females. Among these, 53.20 million users aged 18 and above using social media in Pakistan at the start of 2023, which was equivalent to 39.1 percent of the total population aged 18 and above at that time.

 Facebook leads social media with more than three billion connections per day and more than 43.7 million user accounts in Pakistan. Google, YouTube, and Instagram are also popular.