The Indian eCommerce market is still in its infancy and it has a long way to go before it becomes a major player. The problem with the Indian eCommerce industry is not so much about demand, but supply – of both goods and services.
Retailers have been slow to invest in the online segment because they fear that they will be unable to keep up with rising demand from customers who are increasingly shifting their shopping habits from offline stores to online ones.
On top of this, there are some other factors inhibiting growth of eCommerce in the country. I am trying not to be negative but here are some factors that make eCommerce in India so difficult.
Major Challenges Faced by eCommerce Businesses in India
Here are 15 major reasons why eCommerce might be a tough nut to crack in India.
01: Lack of trust and confidence in online transactions
One of the major reasons why eCommerce has not taken off in India is because there is a lack of trust and confidence among consumers when it comes to making online payments. This is largely due to the fact that credit card fraud rates are high in India, compared to other countries.
02: Cash on delivery is the preferred payment mode
Many consumers in India prefer to pay for goods only after they have received them, and this is the reason why cash on delivery (CoD) has become popular. In fact, CoD payments were estimated at around $200 million per month as of 2016. This
is a major hindrance for eCommerce businesses as it increases the cost of doing business.
03: High shipping costs
Another reason why eCommerce has not taken off in India is because of the high shipping costs. Many online retailers have been forced to shut down as they simply cannot afford the rising cost of delivery. The average value per shipment handled by logistics companies declined from more than $20 in 2011-12 to around $14 last year due to an increase in third-party deliveries and low weight shipments, according04: Poor infrastructure for eCommerce
04: Poor customer service and high return rates
Another reason why eCommerce has not taken off in India is because of poor customer service. Many online retailers have a very low return rate and this reflects poorly on the overall quality of their services – which means that it will be difficult to attract more customers.
05: Limited credit card penetration
Even though the number of credit cards issued by banks in India has gone up significantly over the years, it’s still not enough to cater to all potential online customers.
This means that a large fraction of people who could otherwise shop more often if there was greater confidence in eCommerce transactions are left out because their preferred payment options are not available or accessible .
The fact that many people in India don’t have bank accounts limits their purchasing potential as they can only spend what money they have with them at any given time.
This results in fewer orders being placed on eCommerce websites by Indians compared to countries where almost everyone has access to credit cards.
06: Poor Customer Service
One factor behind low return rates is a poor customer service – many retailers make it difficult to get refunds or replacements when there are problems with orders.
This discourages users from shopping more frequently than they would otherwise do if their concerns were addressed better.
07: Indian Customers Return Much of Their Products They Buy Online
Customers often return their purchased goods. Indian customers are known to return a large percentage of the products they buy online, often because they were not what they expected or the quality was not up to par. This can be quite costly for retailers and results in lost profits.
In one of our very own surveys, the Return to Origin(RTO) rates were found to be as high as 17.5%.
08: Inconsistent Postal Address
The lack of consistent postal address data is another major hurdle for eCommerce in India. For example, a large number of addresses do not have pin codes or there are multiple versions of the same address available online and offline. This makes it difficult to accurately deliver goods to the intended recipients.
09: Phone Security and Privacy
Many people are hesitant to provide their phone numbers to online retailers, as they fear that their personal information may be compromised. This decreases the likelihood of them making purchases on websites.
10: Unfamiliarity With English Language And Online Purchasing Processes
Only a small fraction of Internet users in India are familiar with the English language and only they can comfortably navigate through eCommerce websites.
This lack of familiarity means that there is still some reluctance among people to buy things online, as few Indians feel comfortable shopping for items on foreign sites because their level of proficiency in English might not be good enough.
11: Supply Chain Issues
The supply chain in India is still not as efficient as it needs to be in order for eCommerce to take off. This leads to longer delivery times and increased costs, which makes it difficult for online retailers to compete with the brick-and-mortar stores.
12: High Failure Rate of Payment Gateways
There is a high failure rate of payment gateways in India. In some cases as much as 30%. In some cases, more than half of all transactions fail due to technical issues or fraud – which means that a large number of potential customers are discouraged from making purchases on websites simply because they cannot complete their payments successfully.
13: Feature Phones Still Rule
Even though the number of smartphone users in India is growing rapidly, the majority of Indians (more than 60%) still use feature phones.
This means that they are not able to take advantage of many features that eCommerce websites offer, such as including product reviews, comparing prices between different sellers, and making purchases through apps.
This limits their ability to make informed decisions about the products they want to buy and hampers their overall shopping experience.
14: Logistics Issues with Rural India
Another challenge for eCommerce in India is the fact that a large number of people living in rural areas do not have access to reliable logistics infrastructure.
This leads to longer delivery times and increased costs, which makes it difficult for online retailers to compete with the brick-and-mortar stores.
15: Overfunded Competitors
One of the biggest challenge for any new player in the eCommerce space is to compete with the well-funded incumbents.
This is especially difficult in India, where the top three players (Flipkart, Amazon, and SnapDeal) have raised billions of dollars between them. This gives them a significant advantage over any new entrants into the market.
Despite these challenges, there is still great potential for eCommerce in India. The market is growing rapidly and the number of Internet users is increasing every day.
I am hopeful that in the coming future, as the awareness about online selling increases, Indian businesses will enjoy a lot of benefits.
More problems also mean more avenues of growth. These pressing issues have actually been addressed by many startups.
If online retailers can overcome some of these hurdles, they will be able to capture a large share of this burgeoning market.