IMPACT OFDEMONETISATION ON INDIAN E-COMMERCE INDUSTRY: AN INDEPTH STUDY JyotirmayeeSahoo1JyotsnaraniSahoo2 Abstract While the world reeled from the shock resultof the US Presidential Elections, on November 9th, 2016, a nation of a billionof people faced an even bigger surprise as all existing currency notes of 500and 1000 rupees would be demonetised, with immediate effect. Since November 8,every Indian is in the dilemma of choosing a secure and convenient cashlesspayment option. The cashless payment options that are currently availableinclude credit/debit cards, e-wallets such as Paytm, Mobikwik, SBIe-wallet, etc.,RTGS, NEFTetc. This unpredictable action taken by the Prime Minister NarendraModi has not only impacted e-commerce but at the same time has an impact on theconsumers and their shopping behaviour through online shopping. Thus it becomesnecessary to study the impact of demonetization on e- commerce industry and thepurchasing habits of the people.
The main focus of the study is to understandand analyze the effect of demonetization on consumer’s frequency of buyingproduct and consumer’s mode of payment for online shopping post demonetization.The study reveals more positive than negative effects of Demonetisation onE-commerce industry. Keywords: Demonetization, ecommerce,online shopping, E-Payment, E-Wallet 1.Research Scholar,CommerceRavenshaw University,Cuttack, IndiaEmail: [email protected] 2.
Student, M.ComSchool of ManagementStudiesIndira Gandhi NationalOpen University, New Delhi, IndiaEmail:[email protected]
com 1.1 INTRODUCTIONE-commercewebsites in India like Amazon and Flipkart take payments in form of cash ondelivery and digital payment. Due to demonstration 500 and 1000 RS notes becameobsolete as well as there was a cap on money which can be withdrawn from banks.On November 8th when PM Narendra Modi suddenly announced demonetisation wholecountry was thrown into turmoil.
The mad rush to deposit now illegal tender ofRs 500 and Rs 1000 notes has resulted in long lines at banks and at the sametime lines and foot falls at shops and business premises have vanished. As cashgets rationed businesses and industry that depend on cash have been directlyimpacted. A surprise in this list is fast growing E-commerce industry in Indiaand is the reason is over dependence on Cash on Delivery as a payment method.Every E-commerce company either you talk about Amazon or flipkart or snapdeal,each of these companies are facing a great loss. Demonetisation Theterm Demonetization has become a household name since the Government pulled theold Rs 500 and Rs 1,000 notes out of circulation. This announcement by thePrime Minister Narendra Modi is perhaps the most significant step taken,targeted at ferreting out black money and curbing corruption. The effects andits impact is seen everywhere across industries.
CashKaro.com – India’s largestCashback & Coupons site did a survey recently to understand the ‘Effects ofDemonetization on Online Shopping’. Over 1000 people across India participatedin the survey. 85 per cent of the respondents said they are in favour of therecent move and agreed that it would be instrumental in reducing black moneyand corruption in the Indian ecosystem. Swait and Rohan Bhargava, Foundersof CashKaro.com commented, “We welcome Prime MinisterNarendra Modi’s bold decision to phase out the circulation of Rs 500 and Rs1000 bank notes as this will bring transparency and stronger accountability.The move has definitely given a boost to digital payments and has encouragedpeople to shop online more.
Wallets like Paytm have seen significant growth. Wehave seen an increase in the number of people clicking through CashKaro andgoing to our partner sites to purchase daily essentials and consumables. One ofthe main reasons for this increase is that the Cashback that members earn fromCashKaro is paid over and above applied discount coupons, bank & walletoffers. CashKaro Cashback is in the form of Real Cash and can be transferred touser’s Bank Account.” 1.2 OBJECTIVES 1. To analyze the growth rate of productspurchased through e-commerce websites before and after demonetization.
2. To analyze the impact of demonetizationon payments modes used by the customers through online shopping.3.
To identify reasons how CurrencyDemonetization will impact E-commerce Growth in India.1.3 RESEARCHMETHODOLOGYThis study is descriptive in nature. Thepaper is based upon the findings from relevant literature.
The present study isdescriptive type of research. Descriptive research is used to describe thecharacteristics of a phenomenon being studied. It does not answer questionsabout how/when/why the characteristics occurred. Rather it addresses (What arethe characteristics of the population or situation being studied?).
Thecharacteristics used to describe the situation or population is usually somekind of categorical scheme also known as descriptive categories.The study is based on the secondary data. Secondary data has beencollected through the entire relevant sources:??Discussions??Newspapers??Internet??Government reports and publications??Other ResearchArticle 1.4 REVIEW OF LITERATURE1. GaricanoLuis, Kaplan N Steven (2000) in their working paper”The effect of Business 2 BusinessE-commerce on Transaction Cost” have elucidated the impact of introductionof E-commerce, to measure processimprovement through internet-based firms.2. EleonoraLorenzini (2012) in the article “Innovation and e-commerce in clusters of small firms: The case of aregional e-marketplace” has evaluated literature on innovation in clustersand e-commerce to investigate how a particular kind of innovation project, theestablishment of a regional e-marketplace (REM),may contribute to regionaldevelopment.3.
KumarAshwani , Aggarwal Gourav (2016) in their article “A Conceptual Study on Demonetization and its effect onE-Commerce”, have analysed Demonetizationand its revolutionary effects in the field of e-commerce and technology.Demonetization shows how it helps to boost cashless economy.4. KalyaniPawan(2016), in her article “An Empirical Study Of The Effects Of Demonetization In India InThe Year 2016 and Analyzing Shifting Trends in Marketing / Purchasing to TheAlternative Options”5. BanerjeePorinita,Sayyed Vasimraja (2017) in their article “A Study on Impact of Demonetization onE-Commerce Industry” has analysed the effect of demonetization onconsumer’s frequency of buying productand consumer’s mode of payment mode through online shopping postdemonetization.
6. GuptaPrairna,(2017) in her article “Impact of Demonetization on E-Commerce Industry” has analysedunderstand and analyze the effect of demonetization on consumer’s frequencyof buying product and consumer’s mode ofpayment for online shopping post demonetization.7. DhamijaDeepika ,Dhamija Ankit(2017),in their article “Impact of Demonetization on E-CommerceWebsites& Payment Systems”,have analysed analyze the effect ofdemonetization on consumer’s frequency of buying product and consumer’s mode ofpayment mode through online shopping after demonetization.8. FirdousKhatoon (2017) “Demonetization: A Boon To E-Commerce” , hasanalysed the importance of demonetization in India, opportunities, andchallenges in front of the e-commerce.9. Prajapati Naincy ,Singh SanjeevKumar (2017)”A Study On Impact Of Demonetization On Online Transactions” haveexplained effects on online transactions during this huge transformation periodand what are the changes in trend of online transactions (encouraged ordiscouraged) from a cash dominant economy to a cashless economy.
1.5 IMPACT OF DEMONETISATION ON E COMMERCE1.5.1 EFFECT ON E-COMMERCE WEBSITES BEFORE AND AFTERDEMONETIZATION:Figure 1: EFFECT ON COMMERCESource: From the above figure 1 we can see thatdemonetisation has negatively affected the E-commerce Industry and resulted inslow growth for some period of time.
It has led to the following consequences:· UndeliveredOrdersAsmentioned before – For people like myself, we settle for the cash on deliveryoption.A COD order is the one where in your place an order online and agree topay on the spot when delivered at your doorstep. But, due to the halt on theusage of notes, this task could not be completed. Thus, there had been a suddendecrease in the amount of purchases done online, proving to be a negativeimpact and a significant loss for E-commerce businesses like Amazon, Flipkart,Snapdeal and so on. Most of the orders that were placed with the cash ondelivery option could not be delivered because the online retailers could notaccept old notes.
All the overheads and the costs incurred in shipping theorders go a waste in case of undelivered orders. This is indeed a significantloss for the E-commerce players.· Suspensionon COD ordersBanof notes in return created a break for Cash on delivery and thus, severalretailers had to temporarily stop their service of cash on delivery purchaseoption. This turned out to be a blow for the revenue generation of a fewretailers.· Reductionin the number of ordersFroma popular survey conducted by business insider, 83 % of consumers in Indiasettle for COD option. As a result of demonetization, it had a detrimentaleffect on the number of orders placed online as most consumers did not wish tosettle for online transaction. As a major chunk of orders placed on the onlinesites is paid with cash on delivery, demonetization had a detrimental effect onthe number of orders placed.
People only had to wait to get their oldcurrencies to be exchanged and few of the customers are sceptical about onlinepayments. This lead to a notable surge in the number of orders placed on theonline shopping sites.1.5.2 Impact on Online PaymentsOnegood impact of demonetization was the increase in the usage of cashlesstransactions via credit and debit cards rather than being tied up in unendingqueues at the ATM. Even something as simple as purchase of vegetables from avendor began to be done via mobile wallets such as PayTm- with cashless moneytransfer. Vendors as well as public transport workers settled for onlinepayments due to the ban on notes.
Ifthere is one thing that has been growing at a good pace after demonetization,it is online payments. Rather than being tied up in the cash crunch andstanding in the never ending ATM queues, more people switched to onlinepayments. There has been a rise in the number of debit and credit cardtransactions. Even smaller vendors have introduced cashless payment methods.
Therehas been a significant growth in the mobile wallet sector. Transferring moneyas well as making payments for online orders is easy with mobile wallets. Morepeople have begun to fill up their mobile wallets resulting in the growth ofthe mobile wallet providers like Paytm, Mobikwik and more.· Expansionof Payment optionsCreditand debit cards are the existing options for online payments; but theadditional option to patch this void would be the online wallet service: forexample: the Amazon pay balance usage for purchase.
This option made theconsumers feel much more comfortable during online transactions. Onlinepayments are quick, hassle free and time saving. And EMIs are the best partabout online payments. This avoids causing a financial strain when you make alarge value purchase. Know how easy it is to get instant loans for all yourappliance, furniture and gadget purchases. So do not let the ban on currencynotes of higher denominations stop you from buying all that you wanted. UnifiedPayments Interface (UPI) will see a steady growth.
The support of thegovernment has also been in favour of promoting UPI for online payments. Banks like ICICI have introduced debit cardEMI option for mobile and other purchases. This can also benefit customersmaking online purchases without a credit card. Imagine being to purchase allhigh-end smart phones and laptop on EMI even without owning a credit card!Youcould choose to purchase all the gadgets, furniture and appliances you havealways hesitated to purchase due to your financial constraint through onlineloans and pay easily with your debit card. These micro-loans are paid throughyour debit cards and thus make it easy for you to purchase any gadget say likeiPhone 5S on EMI without a credit card from any of your favorite onlineretailer. Besides payment through internet banking and debit or credit cards,mobile wallet payments are great too.
E-commerce sites can start adding moreoptions of payments and payment through popular mobile wallets too.· LucrativeDiscount optionsSeeingthe decrease in the number of orders placed online, retailers began to provideseveral discount offers to attract customers for purchase of their items.Several retailers also ran attractive promotions and discounts so as toencourage people to place orders.· Gocashless to make paymentsToencourage customers on the usage of online payment facility, retailers alsobegan to provide offers and discounts specifically to those consumers whodecided to go for cashless payment.
Thus, it helped in attracting customersback to E-commerce websites. Online retailers also have introduced impressivediscounts for all the cashless payments. This encourages more customers tochoose a payment method other than COD and claim their discounts and in turnhelping the E-commerce businesses retain a reasonable cash flow.· Increasein POS terminal and Online ShoppingOnlineshopping sees surge; Paytm wallet & CoD payments via bank cards mostpreferred amongst shoppers. Currently, the number of POS devices are pretty lowin relation to the number of online orders made. By increasing the number ofPOS devices, E-commerce players can make it convenient for the customers byallowing them the security and convenience of COD orders. This, in turn, wouldreduce the number or undelivered orders for the online retailers thus making ita win-win situation.
Though the situation cannot be fully rectified in one go,E-commerce retailers could take certain steps to make it easy for the customersto make their payments and thus, in turn, help their own businesses as well. 1.5.3 Reasons how CurrencyDemonetization will impact E-commerce Growth in India.Thereare various changes occurring in E-commerce business and these are classifiedas long term and short term effects. Just after currency banned in IndiaE-commerce business were facing with a sudden falls but it brings some vigorouspositive changes as well which can be last for long time, these are:Itcauses break on cash on delivery payment.
Many E-commerce marketers stop cashon delivery payment this brings a sudden falls in marketing because most of thepeople still have trust issues for online payment.Marketersstop accepting old currency of INR500 and INR1000 just after demonetisationwhich results in vast number of delivery returns for Cash on delivery order.Thistrend emphasise on payment through digital mode. Scarcity of cash forced peopleto use online payment mode or E-wallet. Special offers are being given ononline payments.Itleads to increment in delivery returns because of lack of cash.
Most of theuser after COD delivery said to take old currency otherwise asked to return thedelivery. This led to many orders getting cancelled and consequently results inheavy loss to marketers.E-commercegoing towards offering heavy discounts and drive sale offers to increase saleby online payment.Theyalso put discounts via online or card payment to increase engagement of usersin selling and purchasing.
Suddenincrement in use of online wallet likes Mobikwik, pay money, Paytm,etc.Increase user traffic on even small website, like: big basket, grofers,etc., because these are accepting cards and online payment and scarcity of cashforced people towards these online stores.Increasein app download and their use because it gives a platform for better experienceof marketing with special discounts and offers. It provides an easiest way totrack order with keep payment details safe for further use as well.
Everybusiness man is looking towards E-commerce instead of commerce business becauseof demonetization. Since people are moving towards digital payment and digitalmarketing so businessman is also moving ahead accordingly. 1.6 CONCLUSIONTo tackle the after-effects ofdemonetization, E-commerce platforms have added credit card on delivery as oneof the payment options to put customers running out of cash at some ease.Websites like Snapdeal and Flipkart have also been offering more discounts ononline payments and zero cost EMI schemes. Amazon spokesperson said that thecompany witnessed ten times growth in credit card on delivery mode.
However,this hasn’t been helping the sellers much which have complained that suchefforts do not compensate for the loss incurred over COD mode. It is prettyclear that demonetization has impacted the ecommerce industry. Due todemonetization consumers are buying more products through online mode insteadof retail shops due to cash crunch. The consumers have adopted new method ofmaking payment where prior to demonetization, consumers were making payment bychoosing the cash on delivery option but now majority of them are shifted todebit card and Paytm wallet to make payments. Hence, it can be concluded thatdemonetization has opened up more opportunities for the ecommerce industry andit will prove huge boon for digital payment market. Demonetization will lead tothe economic development of India and prosperity for its people. It will resultin higher GDP, transparency and integrity in the system, provide security tolabour, jobs for the youth, cheaper loans to promote entrepreneurship andinnovation, support farmers to double their income, provide affordable housingfor all and higher revenues to the Government which can spend it on the poorand marginalized sections of society. Most importantly, it has brought a smileon the face of every honest Indian.
1.7 FUTURESCOPE OF STUDY:Thefuture research must consider the consequences of cost changes for the behaviourof agents and effects of internet market on vertical integration in “Bricks andmortar” companies. REFERENCES1. GaricanoLuis, Kaplan N Steven (2000) “The Effect OfBusiness 2business E-Commerce On Transaction Cost” , NBER Working paperno.8017,November 2000,JEL NO.D2,D4,L1.2. EleonoraLorenzini (2012), “Innovation and e-commerce in clustersof small firms: The case of a regional e-marketplace”, October 2012, DEM WorkingPaper Series, ISSN: 2281-13463.
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