Driving Digital

Payments through
E-Commerce
Market System
Intervention ADD TO CART

E-commerce report

Karandaaz Pakistan
—
December 2023

Authors:

Rana Nadeem, Rafay Ahmed, Ayesha Hussain, Malik Haider Iqbal, Omer Bin Ahsan,
Adam Dawood, Zain Muhammad Ali,, Karandaaz Pakistan, KPMG Pakistan
Contents
05
01 Introduction
07
02 E-commerce Overview
11
03 E-commerce Landscape
19
04 Comparative Analysis with Peer Markets
24
05 Problem statements: Challenges Faced by Merchants
32
06 Understanding Consumers’ Motivation for Use of Cash
36
06 Recommendations for Interventions

© 2023 KPMG Taseer Hadi & Co. a Partnership firm registered in Pakistan and a member firm of the KPMG global organization of independent
member firms affiliated with KPMG International Limited, a private English company limited by guarantee. All rights reserved.
Document Classification: KPMG Confidential 2
List of Abbreviations and Acronyms
B2B Business to Business NFIS National Financial Inclusion Strategy
B2C Business to Customer NSW National Single Window
B2G/G2B Business to Government/Government to Business P2M Person to Merchant
BNPL Buy Now Pay Later P2P Person to Person
C2C Consumer to Consumer PCI DSS Payment Card Industry Data Security Standard
C2G Consumer to Government PoS Point of Sale
CAGR Compound Annual Growth Rate PSEFTA Payment Systems and Electronic Fund Transfers Act 2005
CIC Currency in Circulation PSPs Payment Service Providers
COD Cash on Delivery QR Quick Response
EMI Electronic Money Institution RAAST An instant payment system developed by SBP
FY Financial Year RTO Return to Origin
GDP Gross Domestic Product SBP State Bank of Pakistan
IBFT Inter Bank Funds Transfer SECP Securities and Exchange Commission of Pakistan
IT Information Technology SLAs Sevice Level Agreement
MDR Merchant Discount Rate SME Small and Medium Enterprise
MSME Micro Small and Medium Enterprise UNCTAD United Nations Conference on Trade and Development
UPI Unified Payments Interface

© 2023 KPMG Taseer Hadi & Co. a Partnership firm registered in Pakistan and a member firm of the KPMG global organization of independent
member firms affiliated with KPMG International Limited, a private English company limited by guarantee. All rights reserved.
Document Classification: KPMG Confidential 3
List of Charts, Figures and Tables
List of charts List of Tables
Chart 1 Cash in Circulation (CIC) as % of GDP Table 1 Smartphone and Account ownership: Pakistan vs Peer markets
Chart 2 Average outstanding Open Market Operation (OMO) Table 2 Top 10 e-commerce markets as per annual online sales
Chart 3 Annual change in CPI inflation Table 3 UNCTAD B2C e-commerce Index 2020
Chart 4 Growth in registered e-commerce merchants with banks Table 4 E-commerce Transactions by Value*
Chart 5 Growth in e-commerce transactions Table 5 Cash on Delivery Transactions
Chart 6 Growth in internet and mobile banking transactions Table 6 Change in cost of a smart phone worth PKR 100,000 to a
customer
Chart 7 Composition of payment cards
Chart 8 Share of cards in e-commerce transactions List of Figures

Chart 9 Global e-commerce payment methods Figure 1 Contribution of retail in GDP and share of online retail in total
retail sales
Chart 10 Payment Mode Preference
Figure 2 Industry wise breakup of online e-commerce spend in Pakistan
Chart 11 If you were to receive first few deliveries from an online store in
Figure 3 Composition of e-commerce market size
perfect condition would you then be willing to pay online?
Chart 12 Before you buy from an online store you have never shopped Figure 4 Market Size at COD assumption 90%
from before which of the following thing do you do?
Figure 5 Market Size at COD assumption 55%
Chart 13 Factors that most influence customer’s behavior when choosing
to pay digitally (select all that apply)
Chart 14 Most effective or preferred methods of incentives for promoting
digital payments on online check outs

© 2023 KPMG Taseer Hadi & Co. a Partnership firm registered in Pakistan and a member firm of the KPMG global organization of independent
member firms affiliated with KPMG International Limited, a private English company limited by guarantee. All rights reserved.
Document Classification: KPMG Confidential 4
01
Introduction
Background
Karandaaz Pakistan, in its effort to develop and design a sectoral uplift program, E-commerce Definition
engaged KPMG Taseer Hadi & Co. to conduct market research for the program and
design an intervention plan aimed at driving significant impact in terms of reducing For the purpose of this document e-commerce is defined as:
the use of cash in the e-commerce value chain.
Program Objectives: Buying and selling of goods or services including digital products
Assessment of the current e-commerce value chain and market system in Pakistan to through electronic transactions conducted via the internet or other
Identify potential areas for pivoting the e-commerce value chain towards digital computer-mediated (online communication) networks.
transactions and eliminating the use of cash.
Source: e-commerce Policy of Pakistan, 2019
About the Report
This comprehensive report focuses on a thorough assessment of the Pakistani e- Distribution
commerce landscape. Our team of experts conducted research, studying the
This report is intended for public viewing, acknowledging that due to data limitations,
Pakistani market including an estimation of the e-commerce market size and an
certain assumptions may be inherent. It should be noted that KPMG and Karandaaz
analysis of overall e-commerce landscape. Delving into the intricacies of the market,
bear no responsibility for decisions made based on this report. Please be aware that
particularly scrutinizing the challenges and customer preferences associated with the
this serves as an informational document and does not constitute any binding
prevalent use of Cash on Delivery (COD) over digital payment methods in e-
agreements or assurances. If you choose to quote or refer to this report, proper credit
commerce. The report has been crafted after conducting a detailed value chain
to the involved parties should be given.
analysis to identify the barriers created in the adoption of digital payments by the
regulatory landscape, challenges faced by merchants in accepting digital payments,
and motivations for consumers to transact using cash.
This publishable version of the report serves as a resource for stakeholders seeking
to navigate and transform the e-commerce landscape in Pakistan. We emphasized
not only on theoretical analysis but also practical insights derived from interviews,
focus groups and surveys. Moreover, the report goes beyond mere analysis by
translating insights from the assessment, including peer market analysis, cash in
circulation, and value chain analysis, into actionable recommendations that can
unlock the true potential of digitizing the e-commerce industry in Pakistan.

© 2023 KPMG Taseer Hadi & Co. a Partnership firm registered in Pakistan and a member firm of the KPMG global organization of independent
member firms affiliated with KPMG International Limited, a private English company limited by guarantee. All rights reserved.
Document Classification: KPMG Confidential 6
02
E-commerce
Overview
The E-commerce Market Overview

~$6 bn
Merchants accept and
Largest e- Growth in E-commerce
Rank
commerce
Annual E-commerce
online share of total 90% make payments in
Cash by Volume
markets
worldwide
sales (USD) retail sales 34% growth
Digital Transactions by Value Source: Express Tribune – Pakistan changing e-commerce landscape
Pakistan is the 47th largest 1 China 2.78 tr 52% With number of e-commerce users

market for e-commerce with a total

2 US 843 b 19%
reaching to 6,889 in 2023, e-
commerce transactions saw growth
E-commerce Readiness
revenue of USD 6.4 billion in 2023. Countries Ranking out of 154
contributing to PKR 142 billion in
3 UK 169 b 4.8% value.
Pakistan 116
MARKET SIZE 4 Japan 144 b 3%
30% decline
Source: SBP payment system review
Bangladesh 115
There was an increase of 45% in 5 South Korea 120 b 2.5% Digital Transactions by
the e-commerce market of Pakistan Egypt 109
6 Germany 101.5 b 2.1% Volume
with a contribution of 15% to the E-commerce transactions decreased Indonesia 83
worldwide growth rate for e- 7 France 80 b 1.6% from 46M to 32M transactions in Source: UNCTAD B2B e-commerce Index 2020
commerce. It is expected that
Growth Opportunity by 2025
2023 due to fall in small ticket
8 India 67.5 b 1.4%
Pakistan’s yearly growth rate is transactions
going to be 7% between 2022 to 9 Canada 44 b 1.3%
2025 compared to global average of
10%.
10 Spain 37 b 0.72% Payment Mode by Value
$9.1 bn Revenue

55% COD
I DO NOT HAVE A CARD OR MOBILE WALLET

PERIENCE PAYING ONLINE

I / MY FAMILY HAVE HAD A BAD EX

I DO NOT TRUST THE STORE / SELLER

33%
23%
19% 40% Digital
$36 mn Contribution
to economy

I DO NOT KNOW HOW TO PAY ONLINE

I DO NOT TRUST THE LOGISTICS COMPANY

10%
08% 05% IBFT/ Card 4 mn Jobs in the
economy
Source: Shopistan – Pakistan’s ecommerce industry
Source: AE-commerce policy Document Classification: KPMG Confidential 8
The E-commerce Overview of Pakistan
Introduction Financial Inclusion
Pakistan in recent times is going through an economic downturn with rising inflation, Financial inclusion in essence refers to having an access to formal financial services and
rupee devaluation and widening of trade imbalances. Consequently, the tightening of means to avail them. In order to transact digitally, one needs to have a smartphone
monetary policy and increased policy rates at 22% have caused economic slowdown in device, a formal account with a financial service provider, and an internet connection.
the country and deteriorated consumer and investor confidence.
— Access to smartphone devices: Proliferation of smartphones and internet
The government of Pakistan has since been taking measures to uplift economic pressure connectivity are crucial drivers of retail e-commerce which enable people to research,
by restricting imports to reduce current account deficit. However, according to the World order and pay for goods online. Smartphone ownership in Pakistan has increased
Bank, Pakistan’s severe economic challenges reflect long standing structural over time and now stands at 31%, but this is still low compared to peer economies
weaknesses which are expected to persist going forward and demands revamped where penetration has reached up to 89%, empowering the masses through financial
infrastructure to stabilize the situation. inclusion.
Pakistan is still largely a cash-based, informal economy. The majority of transactions are — Access to formal financial services: Account ownership in Pakistan is limited to
conducted through cash, except for large value transactions requiring a bank draft or pay 21% which includes formal accounts with financial institutions including banks and
order. Studies suggest that up to 60-80 percent of the economy is informal, with the mobile service providers. Branchless banking has been a major enabler in catalyzing
majority of local companies, particularly SMEs, undocumented and outside the tax net. financial inclusion in rural areas due to its convenience, speed and cost effectiveness.
However, most of the e-commerce transactions are processed through payment
GDP Growth cards or Interbank Bank Funds Transfers (IBFT). Only 13% of people in the country
According to the International Monetary Fund, real GDP growth in Pakistan declined to have debit cards, while 1% have credit cards, and this data does not take into account
0.29% during 2023, compared to 6 and 5.7 precent in previous years. Whereas GDP multiple card ownership.
growth rate for India and Bangladesh was 5.9 and 5.5 percent respectively for the same Table 1: Smartphone and Account Ownership: Pakistan vs Peer Markets
period. The growth rate is expected to remain under pressure due to political and
Smartphone Ownership (%) Account Ownership (%)
economic uncertainties.
Pakistan 31.0 21.0
India 66.2 77.5
Bangladesh 30.4 52.8
Indonesia 68.1 51.8
Malaysia 88.9 88.4
Egypt 64.2 27.4
Iran 74.4 90.0
Source: World Bank Global Findex Survey 2021 , Global System for Mobile Communications Association

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member firms affiliated with KPMG International Limited, a private English company limited by guarantee. All rights reserved.
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Macroeconomic Factors Driving Cash Usage in the Economy
Chart 1: CIC as % of GDP An informal Landscape and proclivity to evade taxes favors cash usage
2018 2019 2020 2021 2022
— CIC has historically been high in Pakistan compared to some of the peer
18% CAGR 8%
markets as a result of a large informal and undocumented economy unwilling
16%
CAGR 5% to transact through financial intermediaries due to fear of taxation. The high
14% cost of digital payments also plays a significant role in merchants' preference
for cash over digital payments.
12%
CAGR 3% — The CIC as a % of GDP in Pakistan has increased from 12% in 2018 to 18%
10%
in 2022. In comparison, the CIC to GDP ratio in peer markets has observed
8% minimal growth over the same period.

Data not reported

CAGR 3%
6% CAGR 2% Inflationary pressure has increased the demand for money in the economy
4% — The increasing CIC in Pakistan is a result of macroeconomic instability. High
2% inflation rates observed after 2021, due to a global spike in oil and commodity
prices, followed by a sharp devaluation of the Pakistani Rupee against the
0%
Pakistan India Egypt Bangladesh Indonesia US dollar in 2022, have increased the demand for cash in the market.

Chart 2: Average Outstanding OMO* Chart 3: Annual change in CPI Inflation Takeaway’s for Pakistan from India’s growth in digital payments
(+) amount means net injections 28.2% — India has been a success story among peer countries, witnessing a
(-) amount means net Mop-ups
substantial increase in digital payments from Indian Rupee 42 trillion to Indian
* Open Market Operations in PKR Billion
12.2% Rupee 166 trillion between 2019 and 2023. This growth can be attributed to
the Unified Payment Interface (UPI) system, an interoperable payment
system with low transaction costs that incentivizes customers for both
10.6%
8.9% Business to Business (B2B) and Business to Customer (B2C) transactions.
6.8% Furthermore, the Indian Government has supported the digital landscape by
4.7%
demonetizing up to 86% of the currency and introducing various incentives to
formalize the undocumented segments of the economy.

2018 2019 2020 2021 2022 2023

Source: KPMG Calculations; Statista | Bangladesh Bank | State Bank of Pakistan | Central Bank of Egypt

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member firms affiliated with KPMG International Limited, a private English company limited by guarantee. All rights reserved.
Document Classification: KPMG Confidential 10
03
E-commerce
Landscape
The E-commerce Landscape in Pakistan
E-Commerce in Pakistan
— Pakistan is the 47th largest market for e-commerce with a globally estimated market of
USD 6.4 billion in 2023. This represents largely the online B2C retail market that only
form 9.5% of the total retail industry, showing a significant potential for e-commerce in
the country to grow. Owing to the abysmal state of financial inclusion in Pakistan, a
considerable share of country’s e-commerce is not captured in existing data including
prepaid orders via interbank funds transfer and hence not reflected in overall card-
based e-commerce transactions. Figure 2: Industry wise breakup of online ecommerce spend in Pakistan
— Retail is the major contributing sector to Pakistan’s economy with 18% share to the
GDP making retail 3rd largest sector and 2nd largest employer in the country. As per
Chainstore Association of Pakistan, retail has been growing at 10% despite the
adverse economic conditions and constant devaluation of rupee. Such a large sector is
34.1% 28.8%
mostly operating unofficially and hence due to the limited access to financing its
growth is hamstrung.
Electronics & Media Furniture & Appliances
Figure 1: Contribution of retail in GDP and share of online retail in total retail sales

18% 9.5%
20.4% 10.6% 6.1%
Share of Retail in GDP Share of Online Retail Fashion Food & Personal Care Toys, Hobby & DIY
Source: ecommerceDB.com

— The popularity of e-commerce is rising in Pakistan. With the launch of dedicated e- Source: ecommerceDB.com
commerce policy in 2019 as part of overall digital Pakistan policy, the government also
views it as a crucial catalyst for growth of the in the economy. Various federal and
provincial government departments now have online service offerings to enhance
consumer and business confidence indicating a positive market outlook. With
significantly young population and increasing tele density, the e-commerce sector is
anticipated to experience consistent growth and expansion.
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member firms affiliated with KPMG International Limited, a private English company limited by guarantee. All rights reserved.
Document Classification: KPMG Confidential 12
The E-commerce Landscape in Pakistan
Regional e-commerce landscape E-commerce Readiness
The pandemic pushed disruption into hyperdrive. The rate of growth of e-commerce in Although the pace of increase in e-commerce adoption in Pakistan has been
the developing countries of Asia is much higher than elsewhere in the world, particularly encouraging over the past few years, the country still lags behind the regional and
in high population countries like China and India. China has now superseded the USA as comparable economies in terms of e-Commerce. According to e-commerce Readiness
the largest e-commerce market, whereas India is amongst the fastest growing e- Index by United Nations Conference on Trade and Development (UNCTAD), Pakistan
commerce markets in the world, with an annual growth rate of about 70%. Pakistan has ranks 116 out of 152 countries in terms of e-commerce readiness while its peer countries
been a slow mover in its e-commerce journey compared to its peers as the retail industry are ranked higher with Iran ranking 44, India 71, and Bangladesh 115. Projected growth
in Pakistan has lagged behind in adopting new technology and trends. A detailed of regional markets are in double digits, e-commerce in Pakistan is expected to grow at
comparison of Pakistan’s e-commerce industry with its regional peers are discussed CAGR of 6.2% over the next 5 years, due to currency devaluation of rupee and
later in the report. subsequent cuts in economic growth forecasts.

Table 2: Top 10 e-commerce markets as per annual online sales Table 3: UNCTAD B2C e-commerce Index 2020
Largest e-commerce markets E-commerce share of total retail S. No. Country Rank
Rank Annual online sales (USD)
worldwide sales 1 Malaysia 30

1 China 2.78 tr 52% 2 Iran 44

2 US 843 b 19% 3 India 71

3 UK 169 b 4.8% 4 Indonesia 83

4 Japan 144 b 3% 5 Egypt 109

5 South Korea 120 b 2.5% 6 Bangladesh 115

6 Germany 101.5 b 2.1% 7 Pakistan 116

Source: UNCTAD e-commerce Index 2020
7 France 80 b 1.6%
8 India 67.5 b 1.4%
9 Canada 44 b 1.3%
10 Spain 37 b 0.72%
Source: https://www.business.com/articles/10-of-the-largest-ecommerce-markets-in-the-world-b/

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The E-commerce Landscape in Pakistan
E-Commerce Market Size
Table 4: E-commerce Transactions by Value*
— Measuring e-commerce is a prerequisite for understanding its role in the economy USD/PKR Rate
and its contribution to GDP. According to the UNCTAD, there are two main PKR (Billion) USD (Million)
(Quarterly Average)
approaches followed by national bodies of developed countries to gather data on total
Quarter 1 of FY23 33.5 225 149
value of e-commerce in the economy.
Quarter 2 of FY23 34.2 223 153
i. Direct approach – businesses are asked to report a monetary value for their e-
Quarter 3 of FY23 36.6 261 140
commerce sales
Quarter 4 of FY23 37.7 286 132
ii. Share approach – businesses are asked to provide the percentage share of e-
Total** 142 ~574
commerce sales to their total revenue with some countries also requesting for a *Includes transactions on international e-commerce websites through domestic issued cards
breakdown of the share by type of e-commerce, sales channels and payment **Rounded to nearest 100 million.
methods etc. Source: SBP, SBP Historic Exchange Rates

— In the absence of such official national statistics, a range of other sources are relied — While recorded data on e-commerce transactions is publicly available, no recorded
on to measure e-commerce based on best estimates available. These sources may data is available on cash on delivery transactions. This can only be estimated using
include official statistics on online transactions which represent only a small portion of the market assumptions on the percentage of orders fulfilled through cash on
B2C e-commerce and analysis of sources such as payment card transactions data or delivery.
logistics volumes.
— In Pakistan’s context, value of e-commerce market can be estimated based on State
Table 5: Cash on Delivery Transactions
Bank of Pakistan’s (SBP) published data on transactions conducted through e-
commerce gateway and cash of delivery transactions. Assumption 1 Assumption 2
Figure 3: Composition of e-commerce market size COD percentage 60 to 90% 55%*
 Based on transaction volume  Based on transactions value
Rationale and  Does not take into account  Does not take into account
E-Commerce Market Size
Limitations orders fulfilled through fund orders fulfilled through fund
transfers transfers
Source: Assumption 1: Market assumption, Assumption 2: E-Commerce Policy of Pakistan

Digital Transactions Cash on Delivery

(E-Commerce gateway) Transactions

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The E-commerce Landscape in Pakistan
— Using the data from table 4 and COD assumptions from table 5, estimated market Chart 4: Growth in registered e-commerce merchants with banks
size based on the two assumptions can be computed as follow: 34%
Figure 4 – Market Size at COD assumption 90%
63%
Value of
USD ~574 Value of
transactions
through E- Million USD 5,166 Million Cash on
Delivery
76% 6,889
Commerce 4,887
Gateway 24% 25%
3,003
1,362 1,707

Market Size: ~USD 5.7 Billion

FY19 FY20 FY21 FY22 FY23
Source: SBP Payment System Review Report 2022-23

Figure 5 – Market Size at COD assumption 55% Chart 5: Growth in e-commerce transactions
34%
Value of
transactions USD ~574
Value of 75%
USD 702 Million Cash on
through e- Million Delivery
Commerce
Gateway 74%
40% 34%
Market Size: ~USD 1.3 Billion

FY19 FY20 FY21 FY22 FY 23

— Market size in USD terms is projected to be much lower for FY23 given the steep
currency devaluation. Based on interviews conducted and our analysis, we believe Value in PKR billion 26 35 61 106 142
the true market size of B2C e-commerce in Pakistan is between the range of USD 1.3 Volume in million 9 10 22 46 32
to 4 billion.
— Covid 19 accelerated digital payments in FY 21 and onwards owing to a shift in
— However, for the purposes of this report and for comparability with peer markets we preference for payment methods for health reasons and increase in online shopping
have used the market size estimated by e-commerceDB by Statista at ~USD 6.3
billion. — Number of ecommerce transactions dropped in FY 23 due to decrease in small
ticket transactions.
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member firms affiliated with KPMG International Limited, a private English company limited by guarantee. All rights reserved.
Document Classification: KPMG Confidential 15
Digital Payment Trends in Pakistan
Digital Payment Infrastructure Payment cards market overview
— In developed nations, widespread credit/debit card access enhances financial
33 11 5 4 inclusivity and personalized services.
— Strong financial infrastructure and high smartphone/internet use in advanced
Banks Microfinance PSO/PSPs EMIs
economies drive digital wallet adoption for efficient low-value transactions.

115,288 6,889 ~58 m

Chart 7: Composition of payment cards
4%
Chart 8: Share of cards in e-commerce transactions

POS Devices E-commerce Payment Cards 46%

Merchants*
19% Debit cards Debit cards
*E-commerce merchants registered with banks/MFBs Transactions
48 million Social welfare Cards cards
— The value and volume of transactions have increased with double digits growth on cards value
Payment Cards
annual basis between FY19 and FY23. Despite, upward trends card transactions, Cards cards PKR 314 billion 54%
internet and mobile banking, overall proportion in terms of cash usage is much
lower. Currency in circulation stood at PKR 8 trillion as of March 2023 with an 76%
increase of nearly 5 percent from previous quarter.
Chart 9: Global e-commerce payment methods
Chart 6: Growth in internet and mobile banking transactions
Digital wallet 54% — Digital wallets are expected to grow
25,000
Internet banking Mobile banking 49%
rapidly as they offer quick and simple
16% payment process for consumers.
20,000 Credit card 20%
15,000 10% — Global cash usage is expected to
Debit card 12% decrease as (Quick Response) QR
10,000
10% codes and Account-to-account
* A2A 9%
5,000 Transfers (A2A) gain widespread
6% popularity for their cost-effectiveness
0 ** BNPL 5%
FY 19 FY 20 FY 21 FY 22 FY 23 and interoperability
Source: SBP Payment System Review Report 2022-23 CoD 1%
2% — BNPL is gaining traction as it serves
the unbanked populations without
— The widespread use of smartphones and improved mobile connectivity has made Others 3% 2022 2026 (forecasted)
credit cards access.
3%
internet and mobile banking more accessible. Mobile wallets, such as Raast, are
further fueling the growth of mobile banking in Pakistan. Source: FIS Global Payments Report 2023 *A2A: Account-to-Account, ** BNPL: Buy-Now-Pay-Later,

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Regulatory Initiatives Supporting Digital Payments
The timeline below illustrates the key policies and initiatives that have been taken in recent years to facilitate e-commerce and strengthen
the digital payments ecosystem in Pakistan.

2018 National Financial 2018 Digital Pakistan Policy 2019 e-commerce Policy of Pakistan 2022 Raast
Inclusion Strategy (NFIS) The Ministry of IT and the Telecom industry Launched in 2019 as part of the broader Digital In collaboration with Karandaaz, the
The NFIS was set by the SBP with launched the Digital Pakistan Policy 2018 Pakistan program, the policy aims to establish SBP introduced a micro-payment
the intention of proliferating the use with the objective of becoming a strategic an enabling environment for the comprehensive gateway “Raast” that achieves the
of formal financial services and enabler for an accelerated digitization growth of e-commerce across all sectors of the dual objective of increasing financial
promoting financial literacy in ecosystem. The goal is to expand the country. The primary objectives include inclusion through a simplified account
Pakistan through programs such as knowledge-based economy and spur socio- safeguarding the interests of consumers and opening process and promoting the
the National Financial Literacy economic growth. sellers, with a particular emphasis on the use of digital financial services by
Program. development and promotion of SME’s increasing interoperability in the
banking system.

2019 regulations for Electronic 2022 QR Payments for Person to 2022 SBP mobile 2023 incentive for payment
Money Institutions (EMIs) Person (P2P) and merchant payments Applications (Apps) security acceptance
The objective of EMI regulations were to SBP with an aim to increase interoperability for guidelines The SBP has abolished the lower
provide a regulatory framework for financial P2P transactions and retail payments using QR Introduction of guidelines for range Merchant Discount Rate (MDR)
service providers and foster innovation in the technology launched standards for QR developing mobile applications for and mandated all e-commerce
digital payment ecosystem of Pakistan. The payments. The unification of QR codes will allow financial service providing assistance payment acquirers to accept domestic
launch of EMI regulations assisted in users of different devices and bank accounts to in building a robust security payment cards for card-not-present
introducing and promoting the use of electronic make QR payments regardless of the issuer or framework for enhancing consumer transactions to increase digital
money in Pakistan. the scheme. protection and confidence payments in Pakistan.

© 2023 KPMG Taseer Hadi & Co. a Partnership firm registered in Pakistan and a member firm of the KPMG global organization of independent
member firms affiliated with KPMG International Limited, a private English company limited by guarantee. All rights reserved.
Document Classification: KPMG Confidential 17
Key Regulatory Elements Enhancing the E-commerce system
Increases e-commerce adoption Boosts online shopping
The share of e-commerce in total retail
1. Merchant Support 2. Consumer Trust Concerns about online security and
transactions remains very low in Tax guidelines for market privacy, and a preference for traditional
Personal Data Protection Act,
Pakistan due to challenges on both the places – Finance bill 2021 in-store shopping experiences.
2020
demand and supply sides. From the Additionally, limited trust in online
Electronic Transactions
merchants' perspective, high tax rates Cybersecurity – Prevention of sellers; makes customers skeptical
Ordinance, 2002 :
and MDR charges strongly electronic crimes act about the authenticity of online
disincentivize businesses from SBPs merchant onboarding businesses, the quality of products,
National e-commerce
registering and digitizing their guidelines & E services by and the reliability of delivery services.
consumer protection statute
operations. SECP Furthermore, unfamiliarity with digital
Privacy statute of general payment methods can contribute to
Protection of Intellectual
application this constraint.
Property rights – IPO Act 2012
Promotes cross border trade Accelerates volume of digital
payments
Pakistan is taking steps towards 4. Trade Facilitation 3. Digital Payment Enablers
increasing cross border e-commerce While the financial market
transactions. The revised SBP SBPs regulatory framework for Funds Transfer Act (PSEFTA) infrastructure satisfies the
regulatory framework for cross border B2C e-commerce exports by SBP prerequisites for digital transactions,
e-commerce transactions and the Regulations for Electronic the use of financial intermediaries for
Pakistan National Single
launch of the NSW program has eased Money Institutions e-commerce transactions remains low
Window (NSW) Programme
regulatory requirements for exporters Standards for interoperable QR due to a lack of consumer trust.
and simplified business procedures. Special Technology Zones Act codes Financial institutions and the
Micropayment Gateway government are required to play a
crucial role in encouraging merchants
to adopt digital solutions by providing
incentives and spreading awareness
among consumers to utilize digital
modes of transactions.
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member firms affiliated with KPMG International Limited, a private English company limited by guarantee. All rights reserved.
Document Classification: KPMG Confidential 18
03
Comparative
Analysis with Peer
Markets
E-commerce Growth Drivers
For peer market analysis, we developed a weighted average index that measures
the strength of the presence of fourteen e-commerce growth drivers in in six
countries shortlisted on the basis of similar demographic and socio-economic
indicators.

Demography E-commerce Metrics Culture of payments Infrastructure

— Urban population density — E-commerce sales as — Number of transactions per — Account ownership
proportion of total retail card
— Percentage of young — Smartphone ownership
sales
population — Cash usage - use of debit — Fixed broadband
— Annual E-commerce card for cash withdrawals
— Digital literacy subscriptions
growth rate (lower is better)
— Logistics Performance Index
— E-commerce Index Score — Share of COD transactions
(lower is better) — Ease of doing business

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 Peer Market Analysis
Chart 10: Peer market comparison based on ecommerce growth drivers

Quadrant A Quadrant B
8%

A B
— Above average economic growth — Above average economic growth
supporting consumption. supporting consumption.
7%

India — Lower levels of e-commerce — Higher levels of e-commerce

penetration and presence of e- penetration and stronger presence of
commerce drivers. e-commerce drivers.
6%

— Slower transition from traditional retail — Accelerated transition from traditional

Bangladesh to e-commerce. retail to e-commerce.
GDP Growth Rate FY23

Indonesia — Less developed infrastructure — Developed infrastructure supporting

5%

supporting e-commerce. e-commerce.

Malaysia
4%

C Egypt D Quadrant C Quadrant D

— Below average economic growth — Below average economic growth
3%

affecting consumption. affecting consumption.

— Lower levels of e-commerce — Higher levels of e-commerce
Iran penetration and presence of e- penetration and stronger presence of
2%

commerce drivers. e-commerce drivers.

— Slower transition from traditional retail — Accelerated transition from traditional
to e-commerce. retail to e-commerce.
1%

— Less developed infrastructure — Developed infrastructure supporting

Pakistan supporting e-commerce. e-commerce.

0 10 20 30 40 50 60 70 80 90 100
E-commerce Growth Drivers Index (0 – 100)
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Peer Market Analysis
Demography E-Commerce Metrics
E-commerce E-commerce
Indonesia Egypt Pakistan Indonesia Egypt Pakistan
Metrics Metrics
Limited infrastructure and E-commerce sales High preference for cash
Urbanization (%) 58 43.1 37.9
connectivity. as proportion of total 10 3.0 2.0 transactions and in-store
retail sales shopping.
Young population Key driver for e-commerce
49.5 50.1 51
(%) growth Low economic growth rate and
Annual e-commerce
10.4 14.8 6.2 investments in e-commerce
growth rate
industry.

Infrastructure E-commerce Index

Score
84 102 117 -

E-commerce
Indonesia Egypt Pakistan
Metrics

Account ownership 51.8 27.4 21 Low financial inclusion. Culture of payments

E-Commerce
Smartphone
68.1 64.2 31
High cost of ownership in Indonesia Egypt Pakistan
ownership Pakistan. Metrics

Fixed broadband Number of card

Pakistan ranks 149th in Fixed 29 15 21 Approximately 96% of payment
subscriptions per100 4.5 9.9 1.3 transactions per card
broad band speed (OOKLA) cards are debit cards, primarily
people
utilized for cash withdrawals
Poor road network and packaging, ATM withdrawals as signaling preference for cash.
Logistics 60.5 70 76
3 3.1 2.4 unhygienic carrying conditions and percentage
Performance Index
inadequate facilities.
Share of COD Lack of consumer trust results in
Ease of doing Regulatory complications, lack of 53 80 90
73 114 108 transactions greater COD transactions
business support for business

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Success factors
Factorsin peer
Peermarket
Markets
01 02 03 04 05 06
India Egypt Indonesia Malaysia Bangladesh Iran
 Developed an  Enabled mobile  Implemented an  Exempted sales  Mandated escrow  Investments in the
interoperable and money services. interoperable and taxes on digital services for all e- fiber-optic network
low-cost digital low-cost QR- transactions. commerce have helped
 Digitally
ecosystem through based payment platforms. increase mobile
transformed SMEs  Reduced digital
the UPI. system. phone access and
through the Digital transaction cost by  Permitted foreign
broadband
 Transformed Egypt project.  Strengthened the restructuring investors to own
speeds, thereby
consumer e-commerce interchange fees 100% of e-
 Improved boosting Internet
payment behavior, industry by on digital commerce entities.
Information and penetration rate
leading to the enforcing strict payments.
Communication  Facilitated the
demonetization of licensing  E-Namad, a
Technology  Offered incentives smooth
currency. requirements. government-
infrastructure. for online shopping onboarding of
backed online
 Subsidized digital  Promoted locally through discounts. merchants through
 Encouraged review platform,
payment produced goods E-KYC.
innovation through  Implemented the addresses trust
installation modes and services
technology parks. SAYA Digital  Boosted digital concerns of e-
through Payment through
Literacy Program. transactions and commerce
Infrastructure  Implemented the government
financial inclusion customers by
Development National Single incentives.  Provided e-
by introducing accrediting
Fund. Window for services and
 Lowered import mobile financial websites through a
Foreign Trade logistics to online
 Enhanced financial tax threshold value services. rating system
Facilitation. sellers operating in
inclusion through on consumer based on
the Malaysia
the PM Jan Dhan goods sold via e- qualifications.
Digital Free Trade
Yojana program. commerce stores.
zone.
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04
Problems
Statements:
Challenges Faced
by Merchants
Verticals of E-Commerce
E-Commerce transactions between two business E-Commerce Transaction between business and customers

B2B B2C

Goods and services provided by one consumer to another Use of internet for government related operations i.e. e-procurement Consumer pays for utilities, taxes and other services digitally

C2C B2G /G2B C2G

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Challenges Faced by Merchants from Value Chain Players
Customers

Low rate of Limited digital Limited internet Perception of cash Lack of trust in
financial inclusion literacy penetration being cheaper and online services
convenient

Limited awareness
on alternate digital
Payment service providers

payment options
Informal business
landscape

Suppliers
Absence of
internationally
accepted viable Challenges faced by
payment systems merchants
Tax evasive
Inefficient behavior
technical
infrastructure

High cost of digital

payments

Expensive Lack of awareness No incentive to

technology on cost of promote digital
integration handling cash payments

Technology and logistics service providers

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Problem Statements
Challenges faced by merchants from customers Lack of trust
E-commerce value chain in Pakistan is principally cash-based as there is a distinct lack
Financial Inclusion of trust in digital payments system in the country. Consumer survey unveiled 79% of
respondents prefer cash on delivery compared to other payment methods, out of which
Promotion of Pakistan's e-commerce businesses depends in large part on financial 49% cited reasons signifying lack of trust in digital payments.
inclusion. Pakistan has 62% of its population living in rural areas where access to formal
finance and financial services is a major challenge. People in rural areas are heavily Brand reputation – difficulty for new entrants
dependent on informal financing sources and lack access to pre-requisites of digital — In Pakistan, the top 10 brands make up majority of the ecommerce market where new
payments and e-commerce at large. and small scale brands find it difficult to build there own space. 76% of merchants in
Financial account ownership our survey cited brand / store reputation as the most influencing factor that drives
customer’s behavior when choosing to pay digitally. 62% of respondents claimed that
— Despite the popularity of branchless banking through mobile wallets like Easy Paisa they would be willing to make an e-payment if the store they are purchasing from has
and Jazz cash, Pakistan still has large unbanked population living in rural areas. a good history of delivering quality goods. As many smaller merchants struggle in
According to the Findex 2021, only 21% of Pakistan's population has a formal maintaining high standards of service and delivery.
account with a bank or mobile service provider, compared to 78% in India, 88% in
Malaysia, and 90% in Iran. — 90% of the respondents said trust is the most significant factor influencing customer’s
decision to pay digitally. The prevalence of fake or manipulated reviews can make it
Smartphone ownership challenging for customers to gauge the credibility of a seller/ If customers suspect that
reviews are biased or dishonest, trust in the e-commerce platform erodes.
— Pakistan lags far behind its peer countries in terms of smartphone ownership which is
a basic means for engaging in any type of e-commerce. Pakistan has a smartphone — According to research, a significant challenge arises as customers are either reluctant
ownership rate of 31%, compared to 66% in India, 89% in Malaysia, and 74% in Iran, or unable to save their payment cards within e-commerce platforms. This hesitancy
affecting digital payment adoption. poses a hurdle for businesses aiming to streamline transactions and enhance user
convenience, hindering the desired increase in digital payments.
Access to formal financing
— Globally, the consumer buying patterns show that people tend to pay through credit Limited Digital Literacy
cards when purchasing a large value item such as electronics or furniture. However,
in Pakistan, only 4% people have credit cards which limits their access to formal — Digital literacy or ICT literacy is the ability to access, understand, and communicate
financing. with a technology platforms. Having basic skills to operate a digital platform is key to
making a digital payment. Pakistan ranked 94 out of 134 countries in the Wiley’s
digital skills index compared to India 56, Indonesia 47 and Malaysia 10. This large lag
is due to insufficient access to practical education and awareness programs in
Pakistan.
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Problem Statements
Limited Internet Penetration Challenges faced by merchants from payment service
— Internet is one of the key enablers of e-commerce eco-system. As of 2023, Pakistan
has 87 million internet users with a penetration rate of 36.7 percent compared to
global average of 64.6 percent. Access to reliable connectivity and affordable devices
providers
is a challenge for Pakistan as evident by a sizable usage gap between smartphone
ownership and 3G/4G network subscriptions. Cost of accepting digital payments
Merchant Discount Rate (MDR)
Perception of cash being cheaper and convenient — Interviews with e-commerce market players that operate on thinner margins
— Cash is still viewed as king in Pakistan because of its widespread acceptance, (electronics, home appliances etc.) revealed that MDR charges have a significant
familiarity, and no requirement of pre-requisites such as national ID, smartphone, or a impact on their business profitability. Many of them hence, pass on the MDR charges
financial account. to customers making COD appear cheaper. Market players that enjoy healthy
margins also cited high cost of transactions as a major concern given the high
— Cash is also perceived as cheap and the visibility of cost of carrying cash is often
inflation and economic slowdown. 53% of the respondents in our survey believed that
overlooked in contrast to high cost of transactions which are often passed onto the
cost of receiving payments digitally outweigh the cost of handling cash.
consumer further making cash appear cheaper.
— The SBP in its PSP & OD Circular Letter No 01 of 2023 have lowered MDR charges
— The exhibit below illustrates how service charges if passed on to a customer affects
by abolishing the minimum charge of 1.5%. The SBP has further directed payment
customer behavior, consequently driving the payment mode preference towards cash.
acquirers operating in Pakistan to enable acceptance of local payment scheme,
PayPak, for card-not-present transactions on their respective payment gateways by
Table 6 – Change in cost of a smart phone worth PKR 100,000 to a customer 30 June 2023. However, this may not be effective as cards issued by local payment
Payment Methods Charges Cost to Customer (PKR) schemes only account for 4 to 5 percent of total cards issued and banks may not
Cash on Delivery 0 100,000 actively market the uptake of these cards against cards issued by international
Bank Transfer 0.1% 100,100 payment schemes.
Debit / Credit Card ~2% – 2.7% 102,200 Payment Gateway Fee
Mobile Wallets ~2.5% 102,500
— Service providers charge recurring fees for their payment gateway in addition to setup
charges where applicable. Combined with the MDR charges on acceptance, the cost
of accepting digital payments becomes unviable for smaller e-commerce merchants
and hence continue to prefer cash payments.

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Problem Statements
Absence of internationally accepted and viable payment Challenges faced by merchants from logistics service
system providers
— Lack of internationally accepted and viable payment system leads to online service
providers (freelancers) using third party service providers to process their remittances
into local bank accounts. As a result, the remittances are delayed and subjected to Inefficient logistics
various service charges and varying conversion rates before they are credited to the — Merchants acknowledge that logistic companies have played a pivotal role in
end users. improving ecommerce. Pakistan however, still ranks second to last in the peer market
logistics index. Macro issues such as poor road infrastructure, limited and costly air
Inefficient technical infrastructure freight and high delivery times are factors that contribute to inefficiencies in logistics.

Goods are at times delivered quicker when using COD High Return to Origin (RTO)
— Merchants showed particular concern with the payment process efficiency of digital — For merchants trying to scale up their businesses, losses from RTO can make a huge
payments citing high processing time to authenticate large ticket transactions. difference to their bottom-line affecting their cashflow. RTO occurs either when
Multiple interviewees revealed that merchants are requested from their payment address or other information of the buyer is incorrect; the customer is not available to
service providers to hold back pre-paid orders for 24 working hours to allow for receive the package or simply when the customer denies receiving the order.
authentication of transactions with cardholders. This in result leads to increased Interviews with logistics providers unveiled RTO was a major concern especially for
delivery time on digital payments compared to COD. orders fulfilled through COD.
When questioned on reasons, interviewees cited following reasons for refusal on
Inefficient process of payment gateway integration/ Onboarding delivery:
— More than 45% respondents in our survey were dissatisfied by the gateway a. Cash not available on delivery
onboarding process. Owing to absence of self service platforms, and lack of plug-in b. Order placed without the real intent of buying (Impulse buying)
APIs, merchants often experience delays and seek help from service providers c. Orders by price-sensitive customers (finding cheaper product elsewhere)
multiple times, which greatly compromises the merchant onboarding experience. d. Bogus orders made by habitual fraudsters

Lack of awareness on available payment acceptance options

— Many of the small merchants interviewed operating without a website through social
media platforms lack awareness of alternative platforms and payment methods
available to them. Majority of these merchants prefer pre-payments to manage their
cashflows but rely only on account and wallet transfers.
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Problem Statements
No incentive to promote digital payments Challenges faced by merchants from suppliers / sellers
— All respondents in our merchant survey believed that offering incentives for digital
payments would encourage a shift in customer behavior. There are currently no
incentives for logistic service providers to promote digital payments.
Informal business landscape
Pakistan’s business landscape is pre-dominantly informal, driving
Awareness on cost of handling cash the use of cash which is considered both cheaper and convenient.
— During interviews, logistic providers cited cost of theft in handling cash only make up — In Pakistan, the informal sector accounts for 70 to 80% of the GDP. These
to 0.1 – 0.5% of their revenue. They however, overlooked the operational costs and businesses majorly belong to marginalized segments who are financially excluded
inefficiencies associated with handling cash. and conduct transactions in cash.
— The shadow economy makes it difficult for the government to design effective policies
Technology Integration and regulate the sector leading to lack of transparency, accountability, and increased
risks of fraudulent activity. The e-commerce Policy of Pakistan, recommended using
— Inefficient return & reverse logistics, inadequate real time tracking, outdated an “incentive-based model” to encourage informal businesses to register themselves,
warehouse and fleet management systems are some of the technological challenges instead of forcing documentation with SECP.
that logistic firms are currently investing in and require further improvement.

Taxation
Perceived high tax burden by e-commerce businesses due to
transparency of transactions in digital payments
— For some businesses, operating informally is a survival strategy. The informal sector
provides flexibility and agility, enabling businesses to navigate economic uncertainties
without the burden of stringent regulations.
— Digitization provides transparency in transactions leading to financial obligation on
businesses to pay taxes, which otherwise they could avoid as a means of informal
business. Therefore, it is often perceived that authorities may use transparent
transactions as a basis for imposing higher taxes and hesitate adopting digital
payments.

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Problem Statements
Complex procedures of tax compliance discourage informal Cashflow Restraints
businesses to register with SECP Financial Challenges Impacting Cash Flow
— Small and informal businesses often lack the resources and expertise required for — E-commerce merchants, particularly small-scale businesses engaged in purchasing
complex tax compliance. The prospect of adhering to intricate processes to comply and supplying, face a notable challenge when their funds get tied up with logistic
with tax regulations associated with digital payments poses a significant challenge in service providers and payment gateways. To address this issue, an effective solution
the pursuit of digital payments. should be implemented to expedite fund transactions and ensure a smoother financial
— This pressing issue has been raised times and again by various platforms including flow for these businesses.
Ministry of Commerce itself in the E-commerce Policy Framework of Pakistan 2019 in
which progressive initiatives have been suggested as next steps such as reducing tax
on e-goods, simplifying compliance procedures, exempting sales and service tax on
e-commerce & tech businesses, and harmonizing sales tax regime. However,
interviews revealed, no such initiative has been taken so far.
Increased cost of business due to taxation impacts competition with
informal counterparts
— Taxation pose a significant challenge to businesses, impacting their cost structure
and overall competitiveness as it makes the cost of doing business higher compared
to its undocumented competitors who manage to evade taxes by maintaining financial
opacity. These businesses then pass on the additional cost to consumers making
their products less competitive in the market hindering a company's ability to stay
competitive and invest in growth opportunities.
— E-commerce stores who operate as omnichannel are subjected to varying tax rates
owing to different federal and provincial tax laws which acts as a disincentive to them
to promote digital payments amongst their customers.

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05
Understanding
Consumers’
Motivation for
Use of Cash
Understanding Consumers’ Motivation for Use Of Cash
Chart 10 – Payment Mode Preference Chart 13 – Factors that most influence customer’s behavior when choosing to
pay digitally (select all that apply)
Cash on Delivery 79%
Payment Cards 12% Brand / Store Reputation 79%
Mobile Wallets 06% Discounts 71%
Bank Transfers 03% Payment Experience 63%
Return and Refund Policy 50%
Chart 11 – If you were to receive first few deliveries from an online store in Order Value 46%
perfect condition would you then be willing to pay online?
Location 42%
Yes 62% Product / Service Category 33%
No 21% Gender 21%
I do not have a way to pay online
(Financial Inclusion)
11% Shipment Time 17%
I do not know how to pay online
(Financial / Digital Literacy)
05% Chart 14 – Most effective or preferred methods of incentives for promoting
digital payments on online check outs
Rank
Chart 12 – Before you buy from an online store you have never shopped from Platform incentives (discounts, free delivery, etc.) 1
before which of the following thing do you do?
Bank offers (discounts, rewards and installment option) 2
Check reviews on social media 66%
Integration of buy now pay later services (BNPL)
Just buy what I want 24% 3
Ask friends and family 23% Payment on delivery 4
Read their refund policy 20% Additional charges on Cash on Delivery 5
Contact their customer service 09%
Source: KPMG merchant survey, DYL ventures customer survey

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Detailed Statements 0f Challenges
E-commerce consumers are vulnerable to
Clustered websites or mobile apps that fraudulent activities i.e. fake websites,
are difficult to navigate, have confusing phishing scams, and delivery of counterfeit
interfaces, or lack user-friendly features Complex Frauds & products. Instances of customers
lead to frustration and compromise the User receiving counterfeit or poor-quality
user’s experience. Scams products, or not receiving their orders at
Interface all, erode trust in online shopping. Weak
and inefficient consumer protection laws
and concerns on data security further
Concerns about the
elevate consumer’s concerns.
reliability of delivery services
and return policies
discourages customers from
making online purchases. Delivery & User Consumer Lack of
Delays, damaged goods, or Experience Challenges Trust
cumbersome return
Returns
processes often undermines
trust in the entire e-
commerce experience.

The Lack of well-trained staff, poor

According to reports, 55% of consumers Use of Non- redressal systems and limited “help your
Non-Customer customer make a wise decision”, platform
around the world make their purchases native
online in their native language. However, policies are unable to onboard skeptical
languages Centric Policies customers of e-commerce. As a result,
most platforms operating in Pakistan do
not offer any language options. recurrent transactions from customers
remains low..
.

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06
Recommendations
for Interventions
Recommendations for Interventions
Key Area Recommendation Relevant Stakeholders
Online Business Review Platform
Development of an independent review platform endorsed by all major players allowing consumers Private Sector
to share their experiences. Helping others make better choices and encourage e-commerce players
to level up their game.
Lack of Trust
Escrow Service Payment Service Provider &
Creation of a independent third party payment escrow service provider between buyer and seller to Merchants
protect both parties.

Refund SLAs and service commitments

Payment Service Provider &
Guidelines and SLAs between merchants and payment service providers establishing both Merchants
accountability and responsibility to ensure all digitally paid orders and refunds are timely processed.

Promote Tokenization / PCI DSS Certification Deployment

Assist e-commerce stores in obtaining PCI DSS Certification so that they may safely store Payment Service Providers
customer payment data and make the ordering experience seamless when using digital payments
Payments
Same-day Settlement Program Payment Service Provider &
The same day settlement program aims to partner with local PSPs enabling them to instantly settle Merchants
payments received via digital transactions into the merchants account by providing them credit.

Tiered and Capped MDR

SBP and Payment Service
Adoption of tiered or capped MDR to facilitate merchants operating on thin margins allowing them Providers
to absorb cost of accepting payments and promote digital payments.

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Recommendations for Interventions
Key Area Recommendation Relevant Stakeholders
Digital payments on delivery
Make availability of digital payment option mandatory for all logistics service providers on COD Logistic Providers & Payment
orders. Service Provider
Logistical
Infrastructure
Partial pre-payment on COD orders Logistic Provider, e-commerce
Collect partial pre-payment on suspicious orders to reduce RTO. Platform & Payment Service
Provider

E-commerce accreditation platform E-commerce merchants,

Regulatory driven initiative or an association of e-commerce companies that provides a verified Logistics companies, Software
check mark to trusted e-commerce stores meeting certain conditions and criteria. houses

Development fund for incentives

Merchants in the survey ranked platform and bank discounts as most effective methods of Government
Regulatory incentives for promoting digital payments on online check outs. Incentivizing digital payments can
provide greater value to merchants than cash and drive demand for digital payments.

E-commerce data collection

Ministry of Commerce / Pakistan Bureau of Statistics / State Bank of Pakistan to periodically collect Government
data from all e-commerce players so that value of e-commerce can be reliably measured and data
on key metrics is made available for market players.

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Recommendations for Interventions
Key Area Recommendation Relevant Stakeholders
Promote local schemes, RAAST P2M and mobile wallets
Active promotion of local payment schemes, P2M transfers and mobile wallets can result in Government
widespread adoption of digital payments making cost of transactions for merchants and consumers
cheaper.

Awareness campaigns on digital payment, product and services

Nation-wide awareness and education campaigns for merchants especially smaller merchants
Financial & Digital operating through social media platforms on available digital payment acceptance options. Active Government
Literacy marketing and promotion of products and services like payment acceptance links for smaller e-
commerce merchants who lack resources and operate through social media platforms.

Promotion of BNPL services integration into platforms

Only 4% of merchants in our survey features BNPL on their websites. To cater for low financial
PSPs, Credit agencies
inclusion i.e. penetration of credit cards in Pakistan, active promotion of BNPL services may to be
encouraged to benefit customers from value in digital payments and ease financial constraints
when making high value purchases.

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KARANDAAZ PAKISTAN is a not-for-profit special purpose vehicle set up under Section 42 in August The information contained herein is of a general nature and is not intended to address the
2014. Karandaaz is the implementation partner of the Enterprise and Asset Growth Programme circumstances of any particular individual or entity. Although we endeavor to provide accurate and
(EAGR) and Sustainable Energy and Economic Development (SEED) programme of UK's Foreign, timely information, there can be no guarantee that such information is accurate as of the date it is
Commonwealth & Development Office (FCDO). SEED is grant funded by FCDO whereas EAGR is received or that it will continue to be accurate in the future. No one should act on such information
co-funded by FCDO and Bill & Melinda Gates Foundation (BMGF) on grant basis. without appropriate professional advice after a thorough examination of the particular situation.

Karandaaz promotes access to finance for micro, small and medium-sized businesses through a double © 2023 KPMG Taseer Hadi & Co. a Partnership firm registered in Pakistan and a member firm of the
bottom line investment platform and financial inclusion for individuals by employing technology enabled KPMG global organization of independent member firms affiliated with KPMG International Limited, a
solutions. private English company limited by guarantee. All rights reserved.

The KPMG name and logo are trademarks used under license by the independent member firms of the
KPMG global organization.

www.karandaaz.com.pk kpmg.com/socialmedia
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Document Classification: Confidential