How demonetisation will affect e-commerce industry

Therefore, while those aggregators and e-commerce companies that have higher card and wallet consumers stand to gain the most in the short term, those that are heavily dependent on cash-on-delivery will be impacted. Further, all digital intermediaries being part of the organised sector will benefit more than the unorganised sector for goods and services from the increase in card and wallet based payments.

Online wallets, allow consumers to electronically store cash and use that to pay for goods and services online. Demonetisation has, needless to say, led to a surge in the use of these online wallets.

Overall, the demonetisation (in addition to being a part of the government’s efforts to fight black money), aims to move India towards a cashless and digital economy, driving e-commerce, encouraging more people to undertake online transactions, with advance payments making logistics simpler for providers of goods and services.

Undoubtedly, the cash crunch has encouraged people who generally depended on their local kirana stores to buy their groceries online through the various grocery portals. Third party logistics companies which deliver e-commerce purchases to consumers are now exploring the option of accepting payment on delivery through cards, netbanking and online wallets.

But whether such change in the purchase and payment patterns of consumers continues when normality returns to the circulation of cash remains to be seen and a lot will depend on how e-commerce companies and payment gateways cope with the surge in their usage and continue their efforts at changing consumer behaviour.

While consumers in India have historically relied on cash, preferring to hand it over only after being satisfied with the goods received, a cultural shift to electronic transactions online will take time to evolve and permeate the economy, but that cultural shift is happening.

In the long run, the temporary drop in sales of goods will rebound with the introduction of new currency notes, mitigating the impact on the e-commerce players dependent upon cash on delivery.

While the ultimate effect of the government’s bold move is yet to be seen, it does appear that the situation is improving. The move will provide an impetus for the people living in Tier – II and Tier –III cities to adopt alternative modes of payment and the purchase of goods and services online.

With “Digital India” being one of the government’s flagship schemes, the road ahead appears to be bright for the Indian e-commerce industry, with an increasing array of goods and services becoming available online, with new payment mechanisms eroding the dominance of cash in the economy.

(The author is an Associate with Indus Law. Views express are personal.)