The Middle East is reaching the internet in greater numbers every day, and there are high hopes that the region can become the next great e-commerce hub. The market remains entrenched in social and structural norms, however, and has proven difficult to penetrate.
The future of the internet in the Middle East is no longer a mystery. Nations across the region are dialing up, logging in, and investing in broadband and fiber optic technologies they hope can be a catalyst for economic growth and fruition. And with over 130 million people now online, global retailers and e-commerce businesses are hoping to capitalize upon what is still a mostly untapped online market.
Big names such as PayPal and JP Morgan have high hopes for the region, and with good reason. Total online spending in the Middle East is expected to grow from $9 billion in 2012 to more than $15 billion next year, with close to $5 billion coming from mobile-commerce. PayPal recently launched an Arabic version of its mobile app, and is looking to set up a customer services base to cater to its Arabic-speaking users.
Global retailers are hoping to reap the benefits of a growing Middle East online presence as well. According to the AT Kearney Global Realty Index, four Gulf states – UAE, Kuwait, Saudi Arabia, and Oman – are among the top growth markets for global retail expansion. Behind oil, retail is the second largest industrial sector in Gulf Cooperation Council (GCC) member states.
While global names such as Ebay and Amazon have a visible market presence, domestic sites such as Souq Namshi, and MarkaVIP have remained the most popular. And although PayPal has partnerships with most of the major Middle Eastern e-commerce sites, it still has only 500,000 active customers in the region. Its market share stands at just 5 percent.
Global businesses face local challenges
PayPal’s struggle to penetrate the Arab online space underscores the difficulty of entering a market still restricted by structural and social practices. According to the World Bank, some 82 percent of the Middle East’s population is unbanked, leaving most people heavily dependent on cash transactions. Just two per cent of the population uses credit cards.
Most online transactions are currently paid for with cash upon delivery. This poses a unique challenge for PayPal and others who do not offer transactions in local currencies. Furthermore, research finds that a majority of the population remains skeptical of banking and credit cards, citing concerns over fraud and a lack of trust in online payment.
Even if cash is paid upon delivery, many Middle Eastern nations still lack the proper global address systems to govern a complex supply chain. Addresses within undeveloped areas across the region are often unstructured and inconsistent, and normally have to be manually verified with customers before delivery. This creates an inconvenience for customers still hesitant to use the online marketplace.
Local governments and companies offer solutions
Fortunately, businesses and local governments across the Middle East are working to streamline the online payment process and offer customers more trustworthy and accessible payment and delivery options.
Global logistics company Aramex, which delivers goods purchased through many popular Middle Eastern online retailers, recently launched an address verification system called “My Address.” The system allows customers to pinpoint their exact location on a map before delivery, helping to improve the retailer’s efficiency, reduce shipping costs, and streamline the customer purchasing process.
The larger issue of creating trustworthy online payment methods has been tackled head-on by local governments, especially in the Gulf. Dubai established a government payment portal called “e-Pay,” which allows citizens to pay for government services online. Qatar has a similar system named “Hukoomi,” which saw over 2.4 million transactions in just the first half of 2012.
As the population grows more comfortable with making payments online, Middle East e-commerce will continue to gain size and traction. With governments, global and local businesses all teaming up to improve the online marketplace, investors can rest assured: Middle East e-commerce is a safe bet.