Variations and violations in ecommerce transactions in India Research paper published in 2014 Praffull Manekar Technology consultant, Speaker, Author, Filmmaker Variations and violations in ecommerce transactions in India by praffull Page 1
Variations and violations in ecommerce transactions in India Sub Theme: E-commerce Delegate Type: Corporate Author: Praffull Manekar Contact Details: Praffull Manekar (Director) Soham Consultants, 3 rd floor, Shivaji Complex, Amravati (Maharashtra-India) 444605. Author s business site: www.sohamglobal.com Email ID: praffull@outlook.com Mobile: 9890925745 Variations and violations in ecommerce transactions in India by praffull Page 2
Index 1) Abstract 2) Keywords 3) Research Objective 4) Introduction to E-commerce and E-business transactions 5) Ecommerce in India 6) India s growing customer base 7) Key players and sub sectors 8) Facts about India s Ecommerce compared the nearest competitor China 9) Logistics infrastructure to be the weakest link in the Indian e-commerce 10) FDI Pours In Despite Legal Restrictions 11) Varieties in ecommerce service delivery a. Based on licensing model b. Based on Communication model c. Based on data exchange d. Based on device 12) Drivers of Growth of Ecommerce in India 13) Violations: the legal aspects of E-commerce 14) Recommendations 15) Future of Ecommerce in India 16) Conclusion 17) References Variations and violations in ecommerce transactions in India by praffull Page 3
Abstract Ecommerce is performing business transactions like selling, buying, payments, funds transfer, etc. over internet. With more than 250 million internet users in the country opening online stores and making a wide range of products and services available to the customers is a business of the future. It has come with great features and varieties like SAAS, B2B B2C, etc. for giving better experience to the customer. Government needs to look into the legal aspects of ecommerce like FDI while promoting use of technologies in the nation. Keywords Ecommerce, FDI, SAAS, B2B, B2C, EDI, Payment Gateways, Internet Research Objective The main objective of the research is to find out penetration of ecommerce services in various business sectors in India and to analyze the violations of laws in the delivery of ecommerce services in India. Introduction to E-commerce and E-business transactions E-commerce (electronic commerce) is the buying and selling of goods and services, or the transmitting of funds or data, over an electronic network, primarily the Internet. These business transactions occur either business-to-business, business-to-consumer, consumer-to-consumer or consumer-to-business. The terms e-commerce and e-business are often used interchangeably. The term e-tail is also sometimes used in reference to transactional processes around online retail. E-commerce is conducted using a variety of applications, such as email, fax, online catalogs and shopping carts, Electronic Data Interchange (EDI), File Transfer Protocol, and Web services. The benefits of e-commerce include its around-the-clock availability, the speed of access, a wider selection of goods and services, accessibility, and international reach. Its perceived downsides include sometimes-limited customer service, not being able to see or touch a product prior to purchase, and the necessitated wait time for product shipping. Variations and violations in ecommerce transactions in India by praffull Page 4
To ensure the security, privacy and effectiveness of e-commerce, businesses should authenticate business transactions, control access to resources such as webpages for registered or selected users, encrypt communications and implement security technologies such as the Secure Sockets Layer. Electronic commerce draws on technologies such as mobile commerce, electronic funds transfer, supply chain management, Internet marketing, online transaction processing, EDI, inventory management systems, and automated data collection systems. Modern electronic commerce typically uses the World Wide Web for at least one part of the transaction's life cycle, although it may also use other technologies such as e-mail. E-commerce businesses usually employ some or all of the following practices: Provide Etail or virtual storefront on websites with online catalogs, sometimes gathered into a "virtual mall" Buy or sell on websites or online marketplaces. Gather and use demographic data through web contacts and social media. Use electronic data interchange, the business-to-business exchange of data. Reach prospective and established customers by e-mail or fax (for example, with newsletters). Use business-to-business buying and selling. Provide secure business transactions Retailers are prioritizing investment in e-commerce platforms above in-store IT systems as businesses prepare for more high street store closures with the move to online, according to research. The research also found cloud-based computing is becoming mainstream, with 35% of retailers using one or more application in the cloud, and a further 28% planning to do so. The most important retail application run in the cloud is e-commerce, it said. Variations and violations in ecommerce transactions in India by praffull Page 5
E-commerce in India India has an internet user base of about 250.2 million as of June 2014.. The penetration of e- commerce is low compared to markets like the United States and the United Kingdom but is growing at a much faster rate with a large number of new entrants. The industry consensus is that growth is at an inflection point. Unique to India (and potentially to other developing countries), cash on delivery is a preferred payment method. India has a vibrant cash economy as a result of which 80% of Indian e- commerce tends to be Cash on Delivery. However, COD may harm e-commerce business in India in the long run and there is a need to make a shift towards online payment mechanisms. Similarly, direct imports constitute a large component of online sales. Demand for international consumer products (including long-tail items) is growing much faster than in-country supply from authorized distributors and e-commerce offerings. Just a few years ago, in 2009, the Indian e-commerce market was worth a mere US$2.5 billion. By 2012 this number had expanded to US$8.5 billion and further grew by an astounding 88 percent last year to reach US$16 billion according to a survey from the Associated Chambers of Commerce and Industry of India (ASSOCHAM). A joint report by the Internet and Mobile Association of India (IAMAI) and audit firm KPMG estimate that India s e-commerce market has grown at an average annual rate of 34% since 2009, and placed the 2013 value of the Indian e-commerce market slightly lower than ASSOCHAM s at US$13 billion. According to ASSOCHAM projections, e-commerce in India will reach a value of US$56 million in just 10 years time. India s Growing Consumer Base The staggering 88 percent overall growth rate of India s online retail sector is indicative of its relatively nascent stage of development. E-commerce in India accounts for less than 1 percent of the country s mostly unorganized retail market, and continues to lag far behind that of China and the United States. Variations and violations in ecommerce transactions in India by praffull Page 6
In comparison to India s US$13-16 billion e-commerce industry, e-commerce in the U.S. and China is now valued at US$224 billion and US$220 billion, respectively. After years of relatively slow growth in China, the country s e-commerce sector experienced an explosion of activity last year as internet giants Alibaba and Tencent battled for dominance of the domestic market. India s population size and demographics will likely be the driving force behind e-commerce s expansion in the near future. According to the IAMAI, India had 213 million internet users at the end of 2013 a number expected to rise to 243 million by June of this year. With this projected increase, India will cement its status as the second-largest internet base in the world after China s more than 600 million reported internet users, and ahead of the United States estimated 207 million internet users. While statistics indicate many of India s internet users do not log on very frequently, there is good cause to believe this will change as the usage of smartphones and tablets increases, and 3G and 4G broadband coverage expands. Last year, smartphone sales in India grew by between 170 and 180 percent year-onyear, with over 40 million units shipped to the country according to tracking agencies International Data Corporation (IDC) India and Cyber-Media Research. By 2020, these increases will make India the world s youngest country with 64 percent of its population in the working age group. These findings are especially significant as young people in that age range make up a large percentage of India s online shoppers. Last year, AMOCHAM reported that 90% of India s online shoppers were aged 35 or younger, and over half were between the ages of 26 and 35. Survey data additionally indicates that young people in India are generally more open to the idea of purchasing products online spending around 16 percent of their disposable income on online purchases. Key Players and Subsectors India s US$13-16 billion retail e-commerce industry is currently dominated by the travel sector, which accounts for 70 percent of e-commerce in India, and is comprised of transportation, accommodation and holiday packages. Within the travel sector, transportation currently has the largest presence online. Travel research firm PhoCusWright estimates that over half of India s air market will move online and reach a value of US$6.6 billion by 2015, while hotel bookings for now remain grounded in the real world with fewer than 10 percent of bookings currently made online. Variations and violations in ecommerce transactions in India by praffull Page 7
The sale of consumer goods (particularly within electronics and fashion) also make up a significant portion of India s e-commerce industry. In recent months, e-commerce in consumer goods has attracted significant media attention as well-known international firms such as ebay and Amazon seek to establish a more robust presence in the country. While both companies have launched operations in India, neither has gained a strong foothold in the local market partly due to the dominance of FlipKart and Snapdeal the two leading online retail sites in India. FlipKart and Snapdeal are each projected to reach annual sales exceeding US$1 billion in the next few months, well ahead of their 2015 target date. In response, both Amazon and ebay have begun experimenting with local partnerships and acquisitions to expedite their expansion in the marketplace. In 2012, Amazon entered the market after acquiring the Indian price comparison site Junglee.com, and the consumer-to-consumer firm ebay invested in Indian competitor Snapdeal. Facts about India s Ecommerce compared to the nearest competitor China Alibaba came close to generating double digit sales on Singles Day, clocking an impressive $9 billion (Rs 55,000 crore), and beating its own record of $5.9 billion last year. But to really put those numbers in context, consider this: India s entire e-commerce industry was worth only $11 billion in 2013. Of this, a mere $2 billion was from sales of physical goods, whereas most of Alibaba s $9 billion in sales came from actual goods rather than services. Here are five interesting insights from the report. 1. India is almost 10 years behind China in the e-commerce space. 2. Travel is where the real money in India s e-commerce is. Online travel accounts for nearly 71% of e-commerce business in India. 3. Alibaba, the Chinese company makes an operating profit of 40% compared to industry standard (US and China) of 8-10%. Indian players, the report points out, are not even thinking of profitability yet. It s a game of market share and market penetration. Variations and violations in ecommerce transactions in India by praffull Page 8
4. For every Rs 100 spent on e-tailing, Rs 35 is spent on supporting services like warehousing, payment gateways, and logistics, among others. Presently, aggressive pricing in India is leading to e-tailers making losses on every segment. 5. Demand in India exists across 4,000-5,000 towns and cities, but there is no significant presence of physical retail in almost 95% of these. Logistics infrastructure to be the weakest link in the Indian e-commerce story: Logistics in developing economies such as India may act as the biggest barrier to the growth of the e-commerce industry. Till date, logistics models developed in India target the metropolitan and the Tier-1 cities where there is a mix of affluent and middle classes and the internet penetration is adequate. In India, about 90% of the goods being ordered online are moved by air, which increases the delivery costs for the e-retailers. Most e-retailers were initially dependent on third party delivery firms. However as the market evolves and customer expectations increase, city or geography centric service levels are becoming the need of the hour. Moreover, issues specific to e-retailing such as the problems associated with fake addresses, cash-on-delivery and higher expected return rates have made e- retailers consider setting up their captive capital intensive logistic businesses. For instance, Flipkart has set up several regional warehouses and is constantly increasing the supplier base across the country to achieve low transportation cost by ensuring delivery from the nearest supplier or regional warehouse. Flipkart is growing its logistics arm E-Kart whereas Amazon India is building capacities with its logistic arm Amazon Logistics. While establishing the captive logistics infrastructure was a consequence of need for better service delivery by actively controlling the logistics chain, it has pushed up the delivery costs. According to industry benchmarks, the delivery cost in the captive logistics models are 10 to 20% expensive than the 3PLs whose expertise lies in quick delivery at an affordable cost. Further, the logistics set-up and requirements in developing countries are also dependent on the purchasing behaviour of the customers Variations and violations in ecommerce transactions in India by praffull Page 9
FDI Pours In Despite Legal Restrictions In recent months, FDI has been pouring into India s e-commerce sector despite legal restrictions and FDI caps. Just last month, Snapdeal raised US$133.7 million in an investment round led by ebay, and last October FlipKart raised US$360 million in its own investment round. Deals tracker VCCEdge reported that e-commerce deals amounted to US$602 million in 2013, while there have already been US$288 million in deals this year spread out across 10 transactions. As an increasing number of large deals are made in India s e-commerce industry, foreign investors have signaled an eagerness to get in on the action regardless of government restrictions on FDI. Despite permitting 100 percent FDI in business-to-business (B2B) e-commerce, FDI in business-toconsumer (B2C) e-commerce remains strictly prohibited and bound by FDI restrictions on the retail sector more generally. Because the travel and tourism industry is not subject to stringent restrictions on FDI in retail, however, travel-related e-commerce has remained relatively uninhibited by FDI regulations. Many foreign investors have worked around India s retail FDI restrictions by adopting the increasingly popular marketplace model, whereby local independent merchants sell goods directly to consumers, and the platform earns commissions from those merchants. Varieties in Ecommerce Service Delivery Ecommerce based Licensing models: On Premise E-commerce On-premise E-commerce software usually requires initial one time purchase investment in terms of licensing fees. Also, it implies extra costs related to hardware and installation services as well as data migration and on-going maintenance fees that are usually charged on a yearly basis for software updates and support. It can be easily customized, security of data is better and gives high performance but it has large initial investment and maintenance can be a problem in the long run. Variations and violations in ecommerce transactions in India by praffull Page 10
Software as a service (SaaS) E-commerce Software as a Service (SaaS)- is a cloud based delivery model in which applications are hosted and managed in a service provider's datacenter, paid for on a subscription basis and accessed via a browser over an internet connection. It needs low initial investment and upgraded by the ecommerce provider. Sometimes it can have some security concerns and control limitations. Open source E-commerce Open source e-commerce is a free of charge platform that doesn t imply licenses fee. Software products that are distributed as open source are generally free, and users can access and modify the source code. It is a free of cost solution but can have problems of quality and standards. Ecommerce based on communications Business-to-Consumer (B2C) In a Business-to-Consumer E-commerce environment, companies sell their online goods to consumers who are the end users of their products or services. Usually, B2C E-commerce web shops have an open access for any visitor, meaning that there is no need for a person to login in order to make any product related inquiry. Business-to-Business (B2B) In a Business-to-Business E-commerce environment, companies sell their online goods to other companies without being engaged in sales to consumers. In most B2B E-commerce environments entering the web shop will require a log in. B2B communications take place for activities like payments, information retrieval, etc. Variations and violations in ecommerce transactions in India by praffull Page 11
Consumer-to-Business (C2B) In a Consumer-to-Business E-commerce environment, consumers usually post their products or services online on which companies can post their bids. A consumer reviews the bids and selects the company that meets his price expectations. Consumer-to-Consumer (C2C) In a Consumer-to-Consumer E-commerce environment consumers sell their online goods to other consumers. A well-known example is ebay or OLX. Ecommerce based on data exchange In order to retrieve the information, two types of data exchange are taken into account. Integrated E-commerce In integrated E-commerce, a part of the software solution is installed inside the back-end system. This means that the connection between the business logic and database of a back-end system is configured automatically. Information that is available in the back-end system is being re-used and displayed in the front/back end of the E-commerce system. An integrated E-commerce software product thus doesn t require to invest in recreating a separate database or business logic. Instead, it re-uses those of the back-end system. Integrated E-commerce software is mostly used in a B2B and B2C scenario. Interfaced E-commerce In interfaced E-commerce, the software solution is installed on top of the back-end system. This means that the connection between the business logic and database of a back-end system is setup manually. Information that is available in the back-end system is being duplicated into the E- commerce software. An interfaced E-commerce software product thus has their own database and business logic that are being synchronized constantly through a connection to a certain backend system. Interfaced E-commerce is mostly used in a B2C scenario. Variations and violations in ecommerce transactions in India by praffull Page 12
Device based Ecommerce Mobile Commerce The phrase mobile commerce was originally coined in 1997 by Kevin Duffey at the launch of the Global Mobile Commerce Forum, to mean "the delivery of electronic commerce capabilities directly into the consumer s hand, anywhere, via wireless technology." Many choose to think of Mobile Commerce as meaning "a retail outlet in your customer s pocket." Mobile commerce is worth US$230 billion, with Asia representing almost half of the market, and has been forecast to reach US$700 billion in 2017. According to BI Intelligence in January 2013, 29% of mobile users have now made a purchase with their phones. Walmart estimated that 40% of all visits to their internet shopping site in December 2012 was from a mobile device. Bank of America predicts $67.1 billion in purchases will be made from mobile devices by European and U.S. shoppers in 2015. Mobile retailers in UK alone are expected to increase revenues up to 31% in FY 2013 14. Mobile commerce can be used to perform activities like- Mobile Money Transfer, Mobile ATM, Mobile ticketing, Mobile vouchers, purchase and delivery, payments, Location-based services, Information services, Mobile Banking, Mobile brokerage, Auctions, Mobile marketing and advertising Drivers of Growth of Ecommerce in India Rising incomes, busy lifestyles and a greater variety of goods and services that can be bought over the internet is making buying online more attractive and convenient for consumers all over the country. We believe it s the simplicity of the transaction processes which will facilitate and encourage adoption of e-commerce. Hence we continually review and reengineer our processes to make them easier and simpler for our customers. Building consumer confidence is key and overcoming concerns about the risk of fraud is essential. The enhanced security measures introduced by the Reserve Bank of India through second factor authentication was an important development, making transactions safer by Variations and violations in ecommerce transactions in India by praffull Page 13
reducing fraud and risk. With comprehensive security standards in place, merchants must still be careful to choose an acquirer with a proven track record of service reliability and transaction speed to ensure a high level of customer service is achieved. In addition to the assurance of increased security, consumers are also likely to be tempted online by new and more convenient ways to pay. Violations: the legal aspects of E-commerce Back in 2012, the marketplace model - in which the e-company facilitates the coming together of buyers and sellers - helped Flipkart, Myntra, Jabong and others deflect the Enforcement Directorate's allegation that they had violated the foreign direct investment norm, given that FDI is not allowed in direct online retail in India. The companies, most of whom earlier stocked inventory, had restructured themselves into, and defined themselves as, 'technology platforms'. They, therefore, claim that they are not retailers, only facilitators between buyers and sellers. On September 15, the Karnataka government issued notices to around 100 sellers, mostly using Amazon's platform, but also present on Flipkart and Snapdeal, asking them to desist from selling on the online sites. Though the industry has come out strongly against the state government, with the National Association of Software and Services Companies (NASSCOM) calling for business friendly laws that 'catalyze growth', a closer look at the complex issue reveals that the state government's argument is not without merit, at least under the existing laws, and the warehousing model could fall foul not only of the state retail regulations, but also of FDI regulations. FOREIGN FUNDING NORMS Foreign investment is not allowed in e-retail Investment rules do not make a distinction between inventory-led and marketplace model In the marketplace model e-commerce companies define themselves as service providers and not as retailers, acting as hosts between buyers and sellers Wholesale trading within the group companies of an e-commerce retailer cannot exceed 25 per cent of its total turnover Variations and violations in ecommerce transactions in India by praffull Page 14
Laws during following ecommerce transaction are violated to more or less extent in India: Pricing Cyber Security: Telemedicine Online Gambling and Betting Ecommerce compliance Ebook publications Legal requirements for start ups Advertising Recommendations Flexible payment options It is observed that insecure and inconvenient payment options can keep customers away from online purchase of products and services. To promote ecommerce payment options, the most critical part of the process must be safe and simple. Care must be taken to ensure profitability of the ecommerce businesses to improve sustainability. Prompt delivery After purchase and specially payment customer wants the product in no time. Fast efficient pipeline should be created to deliver products to even the most remote customer the fastest. Higher delivery costs can result in withdrawal of free delivery by e-retailers on the back of high delivery costs and complex business models threatening already wafer-thin business margins. Quality Assurance The main goal of ecommerce is to create an online store, sell products, earn money thru online payment transactions but during this whole process quality in delivering all these services must be a priority. Better tools and technologies like cloud, better payment gateways, etc. can ensure Quality assurance in ecommerce services. Variations and violations in ecommerce transactions in India by praffull Page 15
Government Intervention: Ecommerce is a global phenomenon and runs across several countries. Rules and regulations of different countries can be different. Government of a country should deal with ecommerce transactions in the interest of the customers depending on their local policies. Government of India is also introducing a new set of laws to control ecommerce in India. Future of Ecommerce in India Mobile commerce is the next logical step for Indian merchants. With the growth of mobile phones and increased issuing and use of debit and credit cards, mobile commerce will deliver strong growth over the coming years. Mobile technology gives us the edge over our competitors. Mobile commerce solutions can help businesses meet the growing demands of the mobile and social media revolution. Social media networks such as Facebook are likely to increasingly become channels for sales and consumer engagement. With Google Wallet, millions of consumers will no longer need to carry their leather wallets. This mobile application securely stores credit cards, offers, gift cards and more on their mobile phone. This virtual wallet is changing the face of commerce by enabling customers to simply make tap and go payments with their mobile devices, while increasing loyalty at merchant locations. New and exciting developments in India will enable our merchants to attract new tech savvy customers who are ready to use their mobile devices for secure online transactions. Conclusion Ecommerce in India is growing rapidly. It is good sign for a developing economy that the use of technologies is gaining further momentum in all sectors and more and more and services are going online but government must enforce laws for the benefit of the customers without affecting the profitability of the ecommerce companies. Variations and violations in ecommerce transactions in India by praffull Page 16
References [1] http://en.wikipedia.org/wiki/e-commerce_in_india last accessed on 7th December 2014 [2] 5 things you didn't know about India's e-commerce industry, Business Standard, Online Edition Thursday, November 27, 2014 [3] E-commerce in India Understanding its uniqueness, Market Insight, ICICI merchant services [4] Evolution of e-commerce in India Creating the bricks behind the clicks, ASSOCHAM, August 2014 [5] http://www.roundedcube.com/blog/2013/quality-assurance-is-a-crucial-point-in-the-e-commerceprocess Variations and violations in ecommerce transactions in India by praffull Page 17