Plagued by fraud and unsustainable business models, recent policy guidelines and fresh funding could prove to be the double shot in the arm needed to strengthen the sector in 2022
Despite setbacks, of which there were many in 2021, the e-commerce sector still saw growth, backed by continuous improvements in online banking and fintech and the rise of a tech-savvy demographic with high purchasing power.
Covid-19 sped up that growth as people started adopting digital shopping due to lockdown restrictions and soon, e-commerce platforms started mushrooming everywhere.
According to the e-Commerce Association of Bangladesh (e-CAB), official reports, and industry insiders, online sales rose about 70% in 2020 from the previous year, and market size of the industry stood at nearly $2 billion as of August that year.
E-CAB Vice President Mohammad Sahab Uddin estimates that valuation of the sector in 2021 might have crossed Tk20,000 crore — about $2.32 billion.
By 2023, the market is predicted to reach a size of $3 billion.
But the journey was not easy for the sector, and these difficulties, in part, were prompted by investigation into the irregularities of Evaly.
One reason why Evaly got away with its business model for so long was the absence of a regulatory body and a policy framework for the sector.
There were no specific operating guidelines till the middle of this year, although a digital trade policy had been passed in 2018.
Sahab Uddin says these setbacks actually helped them identify significant problems in the sector, “which are being addressed continuously” and which will help the industry pick up even more pace in 2022.
“We did not have a policy or guideline for a long period, but that is not the case anymore. The framework will evolve further as the market develops even more,” the e-CAB official added.
Crime and punishment
Complaints of undelivered products, refusal to pay refunds, and a cult of personality surrounding Evaly boss Rassel dominated the first half of the year.
But as these complaints started to pile up, several banks and mobile financial services (MFS) cut ties with the platforms under suspicion.
When patience ran out, several people started filing cases with the court against Evaly, Dhamaka Shopping, eorange, Sirajganj shop, and Qcoom.
Later, Evaly CEO Mohammad Rassel and his wife Shamima Nasrin were arrested on allegations of embezzlement and fraud.
Law enforcers also arrested Ring-ID Director Saiful Islam on charges of misappropriating Tk200 crore in just three months by alluring people to its investment scheme promising online income.
E-commerce platform eorange.shop’s owner Sonia Mehzabin, her husband Masukur Rahman, and Chief Operating Officer Aman Ullah are also currently behind bars for embezzling Tk1,100 crore from consumers.
Investigations by several authorities also revealed embezzlement and irregularities against various other e-commerce sites that had gone under the radar till then.
The Criminal Investigation Department (CID) also prepared a list of e-commerce companies that reportedly swindled large sums of money from customers in the name of selling products, online investments, and e-loans on their platforms and social media.
In July 2021, the Digital Commerce Operation Guidelines went into effect.
The guideline provided proper instructions for deliveries, pricing, and showcasing of products, which led to several platforms shutting down as they could no longer take advantage of the advance-first model — a model eliminated by the introduction of the escrow system.
But that soon gave birth to a new problem.
Stuck in escrow
Following the guidelines, the central bank started acting as a third party by holding the payments and transferring those to sellers only after the delivery of the product.
However, the system was not automated. Requirement of manual input for verifying transaction receipts led to huge delays in disbursing funds.
Since October 14, customers paid over Tk512 crore to the payment gateways, of which Tk298 crore had already been paid to the platforms by the financial service providers.
The remaining Tk214 crore got stuck in the different financial service-providing organizations such as SSL, shurjoMukhi, Foster, bKash, Nagad, and Southeast Bank.
From the funds that were stuck in the payment gateways, more than Tk165 crore belonged to Qcoom online shopping, paid by its customers with Foster Payments, while Tk49 crore has been stuck in other payment gateways, according to the central bank.
“It also taught us that capacity enhancement and integration of technology are essential to enable an ecosystem that can safeguard both businesses and customers,” said Sahab Uddin.
“The association has been vocalizing the automation of the escrow system from the very start. We already have seen how even a solution can cause further disruptions if not executed properly,” the e-CAB official further added.
Experts think cooperation among different bodies such as the Ministry of Commerce, Bangladesh Bank, e-CAB, and the law enforcement agencies is a must for the implementation of guidelines and rules as well as incorporating advanced tools to automate the escrow system.
In September, the Commerce Ministry had also formed a 16-member committee to recommend measures to discipline the e-commerce sector that initially proposed forming a new regulatory body as well as new laws to regulate the sector.
Still, business insiders and industry stakeholders felt over-regulation might harm the growing sector, which led the committee to conclude that a new regulatory body would not be needed and amendment of existing laws and upscaling regulatory bodies should suffice.
The committee, however, recommended the registration of all businesses of the sector including those based on F-commerce (Facebook-based businesses) to be brought under the registration process, which is to be launched in January 2022.
More investment needed
According to e-CAB, entrepreneurs in the sector are still working through various limitations.
“Banks or financial institutions are reluctant to invest in this sector. Providing services at the marginal level has been tough and such a huge blow during the crucial hours of development has slowed down the momentum of the sector,” said one industry insider.
“Entrepreneurs have been working through various problems and limitations in this sector since its inception, and with the much-needed intervention of the government to regulate the sector, we have been able to return to our initial trajectory of continuous growth,” an e-CAB official said.
According to the association, businesses that want to serve the buyers properly have not backed down and have also seen demands for their services rise, with potential for more growth.
“Many small entrepreneurs in the e-commerce sector are women, and the policy support for expansion that ensued following the scams was certainly positive,” said Nasima Akhter Nisha, additional secretary of e-CAB.
“However, much needs to be done to increase investment and develop infrastructure. The small businesses will work to maintain the trust that they have built through their service. But consumers can also help by availing services and buying responsibly,” she added.
Mohammad Abdul Wahed Tamal, general secretary of e-CAB, said that the sector has not yet seen profit.
But it is creating employment, contributing to the overall economy of the country, he added.
E-CAB estimates 100,000 new jobs were created in the e-commerce sector during the lockdowns, and there will be 500,000 jobs in this sector in the next three to four years.
“We are working with the government along with the platforms to cater to the growth of the sector, which is already visible,” Tamal further said.
Doing it right
Although scams took the most attention this year, a few platforms have been doing it right by building trust and understanding what is most important for a consumer — good customer service, a long-term plan, and learning from mistakes.
A report published by the Directorate of National Consumer Rights Protection (DNCRP) shows that several platforms were able to resolve customer complaints most successfully.
These are homegrown Pathao, Chaldal, alongside Uber and Foodpanda, some of which had heavily invested in ensuring consumer satisfaction through technology, as well as developing human resources, rather than discounts or subsidized products.
Pathao topped the list with a 99.25% grievance redressal rate.
Chaldal, which got an 88.95% grievance redressal rate, invested in technology to sustain the business through customer satisfaction rather than subsidizing products, especially in the challenging perishable goods segment.
CEO Waseem Alim said: “Rather than subsidizing products we have continually invested more in technology as well as in building a strong team to improve our services in the region, and this year has been a precedent for sustainable businesses.
“Assuring customers of our service quality takes a lot of effort. We had to invest a huge amount in just the supply chain to ensure customer satisfaction. Complaints are monitored heavily, as we are in the perishable business which means products can go bad very quickly,” the Chaldal boss added.
Industry insiders believe the year 2021 exposed the need for sustainable business models in the aftermath of investment ideology promoted by the fraudulent e-commerce sites to collect more money.Share this post: