The driving forces behind India's rapidly expanding online shopping culture

India's consumer internet boom is reaching new heights to offer everything from food delivery to finance, while more traditional online shopping continues to expand and diversify in Asia's third largest economy. “Earlier, it was all to do with e-commerce,” says Vikas Kumar, the co-founder and chief technology officer of LoanTap, an online lending platform based in the Indian city of Pune. “If we see the evolution, airline ticketing went online, we saw fashion and technology moving next. Then in the last couple of years, people have become more comfortable bringing all other things online.” The number of internet users in the country of 1.3 billion is expected to surge to 627 million this year, up 10 per cent over last year, according to Kantar IMRB, a market research company. Food delivery services such as Zomato and Swiggy, ride hailing apps Uber and homegrown rival Ola, online financial services, travel, health care firms, and e-commerce sites selling products ranging from smartphones to prescription glasses, are all hugely popular in India. E-commerce and consumer internet services are still at a nascent stage in the country, but both are growing rapidly as more Indians gain access to the internet amid rising disposable income, analysts say. Wider internet use is also driven by the growing availability of cheaper smartphones and extremely low data costs in India amid fierce competition between telecom operators. Spurred by this digital revolution, e-commerce and consumer internet companies raised more than $7 billion in private equity and venture capital in 2018, according to a report by EY. “The Indian e-commerce and consumer internet sector has seen significant inflow of capital in 2018,” says Ankur Pahwa, the partner and national leader for e-commerce and consumer internet at EY India. “This massive opportunity has been unlocked by the increasing number of digital transactions, digital literacy and the rise of rural e-commerce, low mobile data tariffs and stimulus provided by the government of India’s Digital India programme,” Mr Pahwa explains. In turn, the rise of the consumer internet segment, which is creating new avenues for a wide range of sectors, is helping to boost India's economy and job creation, according to EY. Some of the biggest investments last year included a $1bn round into Bangalore-based food delivery company Swiggy, led by South Africa's Naspers, and an injection of capital into Swiggy's rival, Zomato, by Alibaba's affiliate Ant Financial. “The food delivery segment expansion has been breathtaking,” says Ravi Menon, a lead analyst, IT services, telecom and internet at Elara Capital, a financial services company based in Mumbai. “The quick move from browsing and using the internet for free entertainment to making transactions was expected to take considerably longer if we go by what we’d seen in China. But I think with 4G, the ease of completing a transaction has just lowered the barrier.” Other opportunities for innovation have emerged amid the expansion of the consumer internet sector in India. Devendra Parulekar is the director of SaffronStays, a hospitality company launched in 2014 which offers a network of more than 115 private holiday homes in India online, ranging from lakefront luxury farmhouses to cottages by the sea. “I think 10 years ago the Indian consumer had a lot of concerns about transacting on the internet, which were primarily concerns around security and unwillingness to try buying large internet transactions online,” says Mr Parulekar. “With the internet economy maturing, we've noticed customers are easily transacting $2,000, $3,000 worth of stays directly through the website.” Mr Pahwa at EY points out that while there's clearly enormous potential for the consumer internet segment in India, it is a highly cash-intensive industry and it is not an easy journey to profitability. “Looking at this space, execution of strategies for better operational management as well as greater control on the cash burn are important and companies also need to constantly innovate and engage consumers more effectively to continue on the journey of keeping them online,” he says. Meanwhile, online shopping is also evolving in India. A new report by RedSeer found that India's online retail market has long been dominated by sales of mobile phones, which used to make up about half of the market. Now, other categories including fashion, home products such as furniture, and fast-moving consumer goods are gaining traction, partly due to “a wider-than-ever selection, and better-than-ever shopping experience for other categories”, the report says. “It finally seems like things are changing, as the mobile category share started dropping below 40 per cent since 2018 and is likely to stay at about 35 per cent for 2019,” according to RedSeer. The stakes are high. Sales in India's e-commerce sector are expected to reach $200bn by 2027, according to investment bank Morgan Stanley. Shankar Prasad, the founder of two skincare product brands Plum and Phy, explains that the consumer internet boom in India has completely determined how his company does business. “Today, online sales account for nearly 70 per cent of our total business, and we're continuing to see very exciting growth,” says Mr Prasad. He says that this trend of people purchasing a wider range of products online has been helped by the fact that “the biggest hurdle - lack of touch and feel - has been successfully overcome by the proliferation of videos as a medium of communication, beauty influencers, and consumer reviews”. In addition, he says that purchases and deliveries have “become easier thanks to greater consumer trust and operating efficiencies of payment gateways and fulfilment services”. Beyond e-commerce, the digital revolution in India has enabled a wave of start-ups to flourish. Financial technology is one major area of focus for entrepreneurs in India, as customers in the country gradually become more comfortable when it comes to managing their finances online. The rise of digital wallets in India and the introduction of a real-time mobile payment system allowing the transfer of funds between two banks introduced in 2016, known as the unified payments interface, has made a big difference to the number of Indians transacting online, experts say. Aurko Bhattacharya, the co-founder of ePayLater, an Indian company which offers short-term interest-free credit for online purchases, is among those who have benefited from this. “In the last two years, ePayLater has seen a quadruple jump in the number of customers coming from [smaller] cities of India, a good chunk of whom are relatively new to the internet,” says Mr Bhattacharya. “The services have picked up and become very popular among these non-metro cities, and we believe a major driver for this adoption is easy and pocket-friendly access to mobile internet.” Mr Kumar at LoanTap says that credit card usage is still not as widespread in India as developed markets, which created “a bottleneck” for online transactions. But digital wallets - which surged in popularity after the government's demonetisation initiative in November 2016 which saw the two highest value banknotes banned - are enabling more and more Indians to make purchases online. Mr Kumar adds that there are still hurdles to be addressed, however. Language remains a major barrier, he explains, given that a lot of websites operate in English and do not cater to the wide variety of languages found across India. “Even fraud has started increasing,” says Mr Kumar. “Security will be a huge concern going forward.” But it will be hard for even these factors to hold back consumers' expanding dependence on the internet. “Things are moving much faster than people are predicting,” he says. “India's going with a vengeance.”

The driving forces behind India's rapidly expanding online shopping culture

Number of internet users surged 10 per cent over last year as more Indians shop, bank and book online