The emergence of e-commerce traces back to the early days of the internet. The novel concept has now evolved into an essential aspect of modern life. Initially seen as a distant dream, e-commerce has now become integral to our daily routines, offering a solution to the time and physical constraints of traditional retail shopping. E-commerce has flourished globally driven by advancements in consumer protection, data privacy, e-transactions, cybersecurity, market access and investment policies. This growth was particularly evident during the COVID-19 pandemic, as digitally advanced economies relied on e-commerce to sustain business operations and adapt to new challenges.
In contract, South Asia’s e-commerce sector initially struggled to reach its potential. For instance, online sales represented only 1.6% of total retail sales in India and a mere 0.7% in Bangladesh in 2015 compared to 15% each in China and the United Kingdom, and 11% in South Korea, according to a World Bank report. India was the leader in the region's e-commerce market but was trailing global leaders. While countries like the Maldives and Bhutan had high internet penetration, the rest of South Asia struggled with weak regional value chains, underdeveloped IT infrastructure and low internet access. However, the rise of smartphones drove the popularity of mobile commerce, offering unparalleled convenience and a broader range of products at competitive prices, transforming the shopping experience in the region.
Presently, the South Asian economy is marked by a dynamic fusion of contemporary advancements and traditional industries. It is fueled by a young, tech-savvy population, growing consumer expenditure, and an expanding middle class. E-commerce has become a crucial driver of economic activity, offering new opportunities for businesses and consumers. Platforms like Daraz, Pathao and Flipkart have revolutionised retail in South Asia. They have also spurred growth in sectors such as logistics, digital payments and technology services. As the region continues to embrace the digital age, e-commerce is set to play a central role in shaping the region’s economic future.
Unpacking Nepal's E-commerce Landscape
Nepal's e-commerce industry is also expanding steadily, thanks to growing youth population, higher internet penetration and improved digital payment infrastructures. The digital consumer base is expanding with the rise in smartphone users in the country. The convenience and security of online transactions offered by digital wallets like eSewa, Khalti, IME Pay and mobile banking have enhanced customers' faith in e-commerce. In 2021, the online shopping market in Nepal was worth about $100 million. It has experienced more than 100% CAGR (compound annual growth rate) since 2017, which means, it has been growing more than double in size each year. Nepal’s growth in the e-commerce sector demonstrates the potential of its digital economy. Despite the challenges posed by a rigid legal framework that often impedes technological advancement and innovation, businesses are finding innovative ways to thrive.
After a decade since muncha.com pioneered e-commerce in Nepal, the country has finally enacted its e-commerce bill. This legislation aims to establish a regulatory framework governing business activities by addressing crucial topics such as consumer protection, cyber security, data protection, registration and licensing of e-commerce platforms. However, the bill only touches the surface level of the vast complexity of e-commerce. The stringent regulations imposed might not be sustainable for long-term growth particularly for small and emerging businesses. Nepal's bureaucratic processes could further complicate the registration of e-commerce platforms.
The new bill also appears to lack flexibility to adapt to rapid technological advancements and thus, limiting the effectiveness to address emerging complexities in the digital landscape. While consumer protection remains a priority, some feel the emphasis on penalising businesses—such as hefty fines ranging from Rs 300,000-500,000 for delays in processing returns or exchanges within the stipulated time, can discourage businesses.
Despite the possibility of the bill stifling innovation and diminishing market attractiveness, Nepal boasts around 40,000 operational commercial websites, a number that continues to grow fueled by increased youth engagement in online shopping, expanding mobile and internet penetration, and a surge during the COVID-19 lockdowns. By 2023, 94% of Nepal's population had access to mobile broadband, compared to 47% in 2018. The total broadband penetration rate in Nepal, as of mid-January 2023, was 130.64% (mobile broadband at 93.18% and fixed broadband at 37.46%). This growth in connectivity is a clear indication of the growing importance of the digital economy in the country and the potential for increased digital productivity.
Platforms like Daraz, Pathao and Flipkart have revolutionised retail in South Asia. They have also spurred growth in sectors such as logistics, digital payments and technology services.
Platforms like Hamrobazaar and Daraz are also well-positioned for success, offering local businesses opportunities to reach broader audiences through established third-party websites rather than investing in standalone online presences. Hamrobazaar, for instance, is seeing 2,500 to 3,000 new listings every day. The platform has also enhanced security measures, such as protecting user data and privacy—a move possibly influenced by stricter data privacy laws. With the growing prevalence of mobile broadband, more users are shifting towards app-based shopping experiences, prompting companies like Hamrobazaar to invest in its mobile app with updates focused on its User Interface and User Experience.
Learning from Best Practices of the World
To address the potential negative impacts of the e-commerce bill and support Nepal’s growing online shopping sector, the government can implement several measures inspired by successful programmes in other countries. Supporting smaller players in the e-commerce scene can be achieved through tax benefits, grants, low-interest loans, and technical assistance. For instance, India’s Startup India Programme offers tax breaks and incubator networks, while the Digital India Scheme provides digital tools for the Ministry of Micro, Small and Medium Enterprises. Skill India focuses on training entrepreneurs, and the National Innovation Foundation supports innovative ideas. Adopting these strategies can ease burdens on Nepal’s small businesses and enhance the e-commerce sector.
Improving broadband connectivity, as seen in India’s BharatNet initiative, can enhance mobile internet access for small businesses in rural areas. Additionally, adopting strategies from the APNIC Foundation’s Digital Leap South Asia initiative can help by providing technical training, improving internet governance, and fostering regional collaboration. These efforts, combined with tools for online store management like those offered by Instamojo, can help small businesses thrive in Nepal’s digital market.
Finally, continuing to invest in digital infrastructure and consumer protection measures, such as data privacy and secure transactions, can help build trust and ensure a safe and vibrant online marketplace for both consumers and businesses in Nepal.
Conclusion
To harness the full potential of Nepal’s e-commerce sector, the country must adopt a forward-thinking approach that balances regulation with innovation. While the new e-commerce bill marks a significant step toward establishing a formal regulatory framework, it must be carefully crafted to avoid stifling growth and burdening smaller businesses.
By drawing inspiration from the success of other countries, Nepal can implement effective measures to support small businesses through financial aid, technical assistance and enhanced digital infrastructure. Additionally, investing in robust broadband connectivity can address existing challenges and expand opportunities for both consumers and businesses. As the digital landscape continues to evolve, focusing on creating a flexible, supportive environment will enable Nepal’s e-commerce sector to thrive, driving sustainable economic growth and cementing its role in the future of South Asia’s digital economy.
(Pradhan and Malla are Research Analysts at Business Brainz, a global business research and insight firm operating from Nepal.)
