E-commerce a fast-growing trend in the Arab world
Amman - E-commerce in the Middle East was worth $14 billion in 2014 and is expected to total more than $20 billion by 2020 and is growing faster than in any region of the world, said a study released this month by Payfort, a Dubai-based online payment gateway.
The purchase of goods and services is growing by 45% a year in Arab countries, compared to 20% in Europe and 35% in Asia, the study said. At least 71% of the Arab e-shoppers are men, the study found, except in the United Arab Emirates, with the majority of the buyers being young women aged 26-35.
The study found that the UAE, Saudi Arabia, Egypt and Kuwait are the biggest Arab online markets, where sales run to several billions of dollars annually.
But one of the difficulties of expanding online business in the Middle East and North Africa is the heavy reliance on cash, instead of debit or credit cards. Cash-on-delivery is the most popular method in many countries and it reached 72% of the total online shopping in Egypt in 2014.
While the report said regional instability is the biggest barrier to growth, a significant trust deficit in peaceful countries in the region, such as Jordan, is also getting in the way of expanding business online.
Jawad Abbassi, founder and general manager of the Arab Advisors Group, a research, analysis and consulting company that focuses on communications and technology, said e-commerce in Jordan is unlikely to witness a boom, unless steps are taken to boost the public trust in paying online.
Even so, he says “It’s only a matter of time before the Arab world turns into a regional buying powerhouse and this will definitely accelerate e-commerce in the region.”
But for Amman social worker Luma Saad shopping online remains “outlandish … It’s like buying fish in the sea. If I can’t hold a blouse or a shirt in my hand, feel the material and try it out, I won’t buy it.”
Jordan, it seems, is lagging in the trust department. “I wouldn’t buy from the internet unless I feel that my credit card details are going to be safe. I don’t feel we have adequate laws to protect us from fraudulent merchants and hackers that may ultimately abuse these weak systems and rip off consumers,” said Amman resident Khalid Shikem.
“Credit cards in Europe and the US are more secure since consumers are insured against fraudulent charges. Even in the UAE trying to return merchandise bought online, for whatever reason, is not easy or even guaranteed,” he noted. “I’ve tried it and it’s a headache.”
The volume of e-commerce in Jordan averages $400 million a year, negligible compared to the actual potential and volumes elsewhere in the region, especially the Gulf.
Some 70-80% of Jordanian e-commerce transactions are cash-on-delivery, which is a major obstacle to increasing e-shopping volume since the need for delivery people to carry cash is a major risk, Abbassi told The Arab Weekly.
“Of the total, about 30% of cash-on-delivery are failed transactions,” he said. “Once the item’s delivered, the customer rejects it and doesn’t want to buy it.” Increasing people’s confidence in paying online by offering more secure means of payment would help solve the problem, he added.
Some stores are resorting to “cash on order” to avoid the problem, Abbassi said. “I expect the situation to improve over the next few years with the advent of better retail laws and banks getting on board with more credit card penetration but we also need to see more advertising and efforts to encourage people to buy online.”
Another drawback is add-on fees for logistics and the usually hefty customs tolls levied by governments. Some sites are adding fees for customs duties, which vary from shipment to shipment and country to country. In Jordan, buyers only pay customs and duty if their orders exceed 100 Jordanian dinars ($140).
Technology expert Abed Shamlawi told The Arab Weekly that another obstacle is that only 25% of Jordanians use banks and only a small percentage of those use credit cards.
“We need to get more consumer penetration into the credit card and other electronic payment methods,” he observed. “It’s also important to increase payment channels for users. In Jordan, there are laws for e-transactions and other relevant legislation, but there’s a real need for more awareness. Consumers need to be told that they will be safe online.”
With more than 11 million active mobile subscriptions in the Arab world, and internet penetration exceeding 74% and the fact that some 60% of operating handsets are smart phones, Shamlawi said e-commerce is bound to grow over the next few years.
“It’s equally important for some stores to turn from offline to online. Having more stores selling online will increase options available and competition,” he said.
“The fast pace of consumer adoption of tablets and mobile phones” has pushed these devices as methods of payment, access to information and communications said Kivanc Onan, regional director of PayPal Middle East, North Africa and Turkey, an international digital wallet-based business that allows payments and money transfers to be made via the internet.
In 2014, e-commerce globally was estimated at $220 billion but 20% of these transactions were made via mobile phones, as opposed to traditional online computer deals. “The mobile market segment alone is valued at $45 billion,” Onan said.
However, Abbassi stressed that there are challenges stemming from the lack of clear-cut regulations and online security. He said that governments should do more to promote this industry by developing a comprehensive regulatory framework to cover the legal aspects of electronic commerce in the internal market. Maybe then consumers would jump on board.