Twenty-year-old Saher opens her favourite online shopping website and browses for a while, after which she orders a dress with matching shoes. She proceeds to the payment stage and clicks on the ‘Cash on Delivery’ (CoD) option as her preferred mode of payment. Content, she smiles and closes the site. Saher has successfully shopped for the day while at work.

Till only a couple of years ago folks would visit a mall to purchase a dress, but today they increasingly buy it online, thus strengthening the e-commerce and mobile commerce (m-commerce) trend tremendously. Statistics project the size of e-commerce market to be approximately Rs1.3 billion while that of m-commerce is said to be around Rs15bn.

However the rising popularity of e- and m-commerce does not translate into a culture of online payments in Pakistan. Qualitative and quantitative data shared by the founders of e-shopping sites as well as analysis carried out by payment specialists reveal the opposite: CoD is cemented as the most-preferred payment method in the country, as of now.

“I find CoD safe, reliable and suitable because I don’t have to worry about my financial details being hacked or over-shopping. Cash keeps you safe and within budget,” says Saher, explaining that goods are delivered at the address provided whenever a CoD mode of payment is selected.

Saher isn’t the only one relying on CoD as her preferred mode of payment. Despite the boom of online banking in Pakistani urban centres, prevalent online shopping culture centres around consumers not relying on online payments or plastic money to complete their transactions. This is despite the rapidly changing needs, attitudes and behaviours of today’s consumers owing to the constant evolution and rapid penetration of technology.

Farees Shah, co-founder of Daraz.pk, a renowned shopping website, believes that consumers will continue to prefer CoD payment for the next five years at least. He argued that many consumers choose this option mainly for two reasons: firstly, there’s a wide gap between the number of internet users and credit / debit card owners, and secondly, customers are reluctant to use such cards due to the perception of a high risk of frauds being involved.

“Basically, the infrastructure of online banking hasn’t matured in South Asia yet as compared to European countries to facilitate safe e-payments. Our neighbour, India, is primarily a cash-driven economy with 75pc Indians relying on CoD and so is Nepal.”

“About 90 per cent of our customers prefer CoD because a large number of them aren’t credit or debit card owners, but have access to the internet and wish to conveniently shop online. Therefore, we make shopping easy for them by enabling the CoD option. Those who possess a debit or credit card are hesitant and fearful of scams,” says Shah. “Basically, the infrastructure of online banking hasn’t matured in South Asia yet as compared to European countries to facilitate safe e-payments. Our neighbour, India, is primarily a cash-driven economy with 75pc Indians relying on CoD and so is Nepal.”

Shah’s inferences were further substantiated by the statistics provided by Faisal Khan, a payment consultant for banks and FinTech start-ups, who has also studied e-payment methods used globally and thoroughly analysed the case of e-payments in Pakistan. He drew a comparison between plastic card holders and internet users elaborating that while there are about 700,000 to 800,000 ATM cards only, 600,000 to 700,000 unique credit cards in Pakistan and 21m debit cards versus 25m internet users and 15m smartphone owners (according to Internet Service Providers Association of Pakistan), making CoD clearly the preferred mode of payment by the customers.

Likewise, Khan confirmed that online payment frauds are prevalent and people who make e-payments are very prone to frauds, as it is easy to steal online and difficult, if not impossible, to track and prosecute the criminal. “Payment frauds can be conducted via stolen credit cards, compromised online accounts (while making a Card Not Present [CNP] purchase) and certain web and browser-based malware,” he divulged.

“Therefore, many banks have blocked direct online credit/debit card payments services. Customers need to request their respective banks to open it for them, make payments quickly and close it. Whilst making payments, one needs to be very cautious as their bank account and its complete details are available online.”

Apart from the frauds in online payments, another reason why many merchants and consumers avoid e-payments in Pakistan is because of the absence of new licensed Payment Service Providers (PSPs). PSPs offer merchants online service for accepting electronic payments via variety of payment methods. Currently, the most prominent operators are 1-Link and MNET.

The State Bank of Pakistan (SBP) has recently released certain unfortunate rules for Payment System Operators (PSO) and Payment Service Providers (PSP). The policy requires new operators to register for a license worth a whopping Rs2 billion that will impede the entrance of new licensed PSPs in the country.

“Payment frauds can be conducted via stolen credit cards, compromised online accounts (while making a Card Not Present (CNP) purchase) and certain web and browser-based malware.”

Abid Qamar, chief spokesperson of the SBP, negated the implications, saying the policy will actually ensure the safety of e-payments. “The SBP realises the number of POS points in the country is still lower than global or regional average. Under the newly issued rules for PSOs and PSPs, the SBP aims to attract new service providers, which is likely to improve the adoption of POS services in the country,” he said.

Unfortunately, the SBP fails to realise that extremely high costs of registration can by no means facilitate the entrance of budding e-payment operators, who are much-needed in Pakistan, especially given the absence of established and international payment processors such as Paypal.

Considering the current turbulent situation of online payments, it is not surprising that merchants here have not started accepting Bitcoin yet, a software based online payment which uses its own unit of account called bitcoin, that is becoming popular worldwide.

Khan explains that Bitcoin can make inward remittances and domestic payments much easier and hassle-free. “However, we need to raise awareness about this virtual currency firstly and then train people to sign up and use Bitcoin wallet safely. Also, we need to convince the politicians and bureaucrats about its benefits for the country.”

Only one e-marketplace that is encouraging most of its customers to experience online payment is foodpanda. A rather recent and famous e-food ordering platform, foodpanda has a large chunk of customers paying online. Ahsan Mateen, its Managing Director, said, “It hasn’t been long that we’ve enabled e-payment option and surprisingly the percentage of online payments has escalated to double digits already. Frankly, we were expecting it to remain in single digits for a long time. This shows people are willing to experiment with online banking.”

The likes of foodpanda usually report a considerable volume of online payments because customers usually use their e-wallets on such sites. E-wallet is online prepaid account through which one can make small payments without having to enter credit/debit card details. A substantial percentage of people have begun using e-wallets services like EasyPaisa and UBL Omni instead of plastic cards. An amount as low as Rs10 can be deposited to activate an account. “E-wallet is safer because it is a pre-paid account. In case of an online scam, you will only lose the money you have deposited in the account unlike paying via credit and debit cards where complete details of your bank account are available online,” Khan explained.

E-wallets experience can gradually lead people to start trusting online credit/debit card payments. However, e-businesses will continue to rely on CoD till a better and safer online payment infrastructure is created, which will benefit entrepreneurs and small-scale businesses. It becomes difficult for them to bear the costs of riders and the risk of cash theft, as half of their earnings are consumed in paying numerous hefty taxes. A reliable e-pay system will definitely facilitate customers, merchants and the country’s economy.

Published in Dawn, Sunday Magazine, February 22nd, 2015

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