E-commerce a fast-growing trend in the Arab world

Friday 22/05/2015
Source: PAYFORT® THE STATE OF PAYMENTS IN THE ARAB WORLD 2014

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.

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