One of the many reasons behind the plan to demonetise Rs 500 and Rs 1,000 notes by the Prime Minister was to make India a cashless economy.
The initiative initially brought a lot of cheer to the startup ecosystem. Reactions started pouring in from companies, lauding the government’s move. They unanimously supported the idea, expecting it to give a push to online payments — which form a very small percentage of total payments in the startup ecosystem — in the long run.
However, with cash on delivery accounting for 60–70 percent of the total orders, the immediate effect has surely not been in favour of startups.
According to Nielsen’s Global Connected Commerce Survey, 83 percent of consumers in India said they had used COD for an online purchase “in the past six months,” when surveyed in Q4 2015.
As per a study conducted by Forrester Research, “in the next one–two months, demonetisation may hurt e-commerce companies.”
Last week, LocalCircles, a citizen engagement platform, conducted a survey and revealed that a high percentage of startups are experiencing a slowdown in receivables and transaction flow as a result of demonetisation of high-value currency notes.
Recently, talking to media at a public event, Sanjay Sethi, CEO and Co-founder of Shopclues, said customer traffic on his platform has fallen 30 percent after the announcement of demonetisation of Rs 500 and Rs 1,000 notes by the government.
Earlier, before the November 8 announcement, he was expecting a GMV of around $2.5 billion in 2017 but now he expects the company’s top-line to be around $2 billion.
Sanjay Thakur, President, eSeller Suraksha, an association of e-commerce sellers, says the seller community has witnessed a slump of 60 percent in business in less than a month.
Himself a seller of IT products on various marketplaces, he adds that post the announcement of demonetisation, his business has just remained 25 percent.
“Businesses with higher average selling price (ASP) are the worst hit. However, businesses with smaller ASP, which is around Rs 500, are less affected. A large percentage of online buyers don’t make online purchase. And when products are of higher ASP, online payments are extremely low. Online buyers often prefer to make cash payments,” explains Sanjay.
When asked whether he can meet business targets by the end of this fiscal, he retorts, “Only if the cash situation normalises as soon as possible. This month is extremely important for business. If we fail to catch up, we won’t be able to achieve the year-end target.”
If e-sellers are facing the backlash of demonetisation, so are marketplaces.
According to a RedSeer Consulting report, e-tailing businesses witnessed a decline of 15–20 percent in November.
Swati Gupta, Co-founder, Industrybuying, says, “Of our total business, 40 percent is cash on delivery. And in the past few weeks, we have observed a slump of 25 percent.”
She, however, adds that she is putting a lot of marketing effort into bringing customers to the cashless mode of payment. In fact, if she is further able to push customers to adopt online payment, the company will achieve the year-end target.
Aloke Bajpai, CEO and Co-founder, ixigo, says the impact of the government scrapping Rs 500 and Rs 1,000 notes on the e-commerce industry as a whole has been significant. For a short while, shopping and food delivery websites are expected to face a blow as most of them have been compelled to put the cash-on-delivery method of payment, one of the most preferred options by customers, on hold for now, especially in tier 2 and 3 cities.
Talking specifically about the travel industry, he says that in the short term, they are expecting the move to negatively impact offline travel businesses.
“Besides cash crunch, the market is affected by negative sentiment as well,” says Satish Meena, Analyst, Forrester.
He explains that there are two kinds of online buyers in the market — cash payers and online clients. The former has no money and the latter has no enthusiasm. In the online segment, only the grocery category has been able to benefit from the demonetisation move.
“Post Diwali, the e-tailing industry was looking forward to this month and the early days of January next year, when there is festive euphoria among people. However, considering the cash reality on the ground and the mood of buyers, e-tailing companies will not be able to meet the target of this quarter and the next,” says Satish.