Online shoppers shifting away from cash payments: EY report
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Bengaluru: Indian online shoppers are starting to shift to cashless payments and shed their preference for cash on delivery, according to a report by EY, the consulting firm formerly known as Ernst and Young.
As much as 71% of regular online shoppers in India prefer cashless transactions, be it using credit cards, debit cards or net banking, according to the findings of a survey by EY, which polled about 700 online respondents in six cities.
Additionally, about 45% of the people in the 31-54 age group, who also happen to be the highest spenders online, prefer online payment; cash-on-delivery is a popular option for consumers younger than 30 or older than 55.
To be sure, said the EY survey, as much as 60% of all e-commerce transactions in India are still paid for in cash, which is way higher than 40% in China, 28% in Indonesia and 24% in Brazil.
Still, the survey’s finding that regular online shoppers prefer cashless payments should encourage top e-commerce companies, which are building their payments businesses and investors who have funded several payments start-ups.
This possibly explains why e-commerce firms such as Flipkart Ltd, Snapdeal (Jasper Infotech Pvt. Ltd) and Amazon India (Amazon Seller Services Pvt. Ltd) are seeking to strengthen their payment offerings.
Snapdeal bought utility payment service provider FreeCharge for $400 million in March 2015 in the biggest domestic consumer Internet deal. Amazon acquired Emvantage Payments Pvt. Ltd for an undisclosed amount in February.
Market leader Flipkart acquired payment services start-up FX Mart Pvt. Ltd, which holds a prepaid wallet licence, in September last year. In March, the company launched mobile wallet Flipkart Money, 18 months after shutting down its payment gateway PayZippy.
E-commerce firms are seeking to increase the proportion of cashless transactions and reduce operational costs stemming from cash-on-delivery payments.
The EY survey reaffirmed that e-commerce in India is still driven by discounts and incentives. About 61% of the respondents said they will stop buying online if discounts cease to exist.
This week, the government, while allowing 100% foreign direct investment in online marketplaces through the automatic route, outlawed discounts.
The new regulations put at risk high-profile events such as Flipkart’s Big Billion Day sale during the festive season and Amazon’s Independence Day sale. The high valuations of Flipkart ($15 billion), Snapdeal ($6.5 billion) and Paytm (more than $3 billion) are based on their flying sales growth, which in turn is dependent to a large part on their ability to offer discounts. To be sure, Paytm also derives a major part of its valuation from its e-wallet service and a payments bank licence.
According to the EY report, in order to build a sustainable business, e-commerce firms should look to offer targeted discounts, develop a hybrid pricing strategy by introducing measures such as introductory pricing and peak pricing, as well as offer bundled products to encourage higher consumption at lower operational costs.