E-commerce in Qatar: An untapped potential

Qataris live in a highly tech-savvy society where almost everybody has smartphones and web connectivity. With current Internet penetration of as high as 85 percent, Qatar is expected to become one of the most digitally connected countries in the world.

For a nation where two-thirds of the population fall within the 15 to 44 age group – the one with highest appetite for online browsing and shopping – it is hard to believe that e-commerce is still in its infancy here. With only 14 percent of its population currently buying online, Qatar’s story tells us that there must be some fundamental issues behind its slow e-commerce growth but most importantly, it tells us that it is a huge untapped market.  

So, what has held Qatar back for so long? Why do people have such a reluctance for online shopping compared with the rest of the world?

Firstly, it is not just Qatar; the whole Middle East and North Africa (MENA) region seems to have a trust issue when it comes to buying online as 80 percent of online transactions are still done through cash-on-delivery (COD) – a trend that is the very opposite to developed markets. For example, in the United Kingdom and Italy, the COD model contributes only four percent and 10 percent respectively to total online sales – as consumers increasingly prefer to purchase through electronic modes of payment such as credit cards, debit cards and PayPal.

It is not just Qatar; the whole MENA region seems to have a trust issue when it come to buying online as 80 percent of these transactions are done through cash-on-delivery.

So why does this region prefer COD over other modes of payment? Howaida Nadim, advisor to the Ministry of Information and Communications Technology (ictQATAR), says when you compare Qatar with the US or UK, you first have to look at the size and population of those countries. “It’s a question of ecosystem working properly – you have the Royal Mail and other companies offering logistics in the UK. In Qatar, logistics is also an issue. It’s not just the question of paying for products online, but how they are going to be delivered,” she says, adding that one cannot compare without looking at the whole ecosystem.

Nadim says another major issue, other than the fact that Qatar has a very low percentage of credit card holders, is trust. “It is [credit card users] almost 14 percent.  Most of the people have debit cards in this country but unfortunately, the current financial system does not allow those to be used for online shopping. Since there is no mechanism in place for consumers to use debit cards, they have very few options to buy online,” she says.

Qatar’s financial regulators and banks have adopted a very conscious approach towards allowing online transactions. Besides, many banks in this region have started to curtail the amount of credit issued post the global financial meltdown. Due to the Qatar Central Bank’s directive, customers are only allowed one credit limit (per salary account) with exposure limited to twice the net salary. Although the number is very high when it comes to debit cardholders, the majority of banks choose not to allow debit cards for e-commerce transactions due to a history of fraud.

However, that trend is changing with more Qatari banks such as QNB, Commercial Bank and Doha Bank gradually allowing their debit cards to be used for online transactions, with extra levels of security. 

 

Trust factor

The lack of trust could also be due to the number of incidents of online and card-related frauds that the Gulf Cooperation Council (GCC) has faced in the past. Most recent among them being with Rakbank and BankMuscat, who lost a total of USD45 million (QAR164 million) to hackers in two separate incidents in December 2012 and February 2013, respectively.

Francis Barel, business development manager, Middle East and North Africa, PayPal, says, “It appears that for many Middle Eastern consumers, they do not feel secure sharing their credit card details online with individual retailers.”

However, online data security is not a challenge that is unique to this region only. Banks and financial institutions across the world are equally vulnerable to online fraud and data theft. That is why the market has seen the emergence of third party payment service providers (PSP) – who act as a middleman between the merchant and consumer. PSPs play a very critical role in the e-commerce value chain as they offer alternative and safer modes of payment for online consumers. However, their presence has been very limited in Qatar thus far. It was only in 2013 that PayPal entered into the Qatari market through a partnership with QNB.

“Customers set-up their account in minutes and simply log in to make a payment, meaning their credit card details are never shared with the merchant,” says Barel. As online security changes, he adds, the market will see a decline in COD purchases in the region, with consumers feeling more comfortable using their credit cards online.

“In Qatar, logistics is also an issue. It’s not just the question of paying for products online, but how they are going to be delivered.” – Howaida Nadim, advisor to the Ministry of Information and Communications Technology, ictQATAR.

Qatar’s e-commerce industry is quickly evolving as the market begins to understand that it is all about providing more options to consumers. The industry realises it needs to develop local solutions for issues affecting its growth.

Although PayPal offers a global solution, it has its own limitations for Qatari online merchants, as they cannot withdraw funds in the local currency and there is also a restriction on the amount that can be withdrawn – all of these factors lead to cash flow issues.

That is why Qatar has developed its own PSP, QPay, which offers cheaper solutions as transactions can be conducted in local currency. Established in January 2012 by the Qatar Central Bank, QPay allows individuals, companies and public institutions to make payments online using credit cards, debit cards and bank accounts.

QPay was the only PSP in Qatar, but that is changing with Qatar Central Bank expected to allow other leading local PSP players such as Dubai-based PayFort to enter the Qatar market this year.

Considering the fact that the majority of online transactions in this region are done through COD, PayFort has started to offer new options such as PAYatHOME and PAYatSTORE that allow merchants to increase their consumer-base by selling online through vouchers (that are sent via e-mail or SMS) and without a credit card.

Lalith Kumara Badhuge, project manager, Digital Industry Development Department, ictQATAR, says, “The PSPs are now coming up with value additions, which were not available to businesses before. For example, they are offering new options where cash can be collected on behalf of the merchant and it will be transferred to the merchant.”  

He says that the more PSPs you have in Qatar, the cost of transactions will come down significantly.

 

Building an ecosystem

While Qatar may have been a slow mover, it has started to understand and recognise what e-commerce can bring to the country. It is only in the last five years that Qatar started looking at e-commerce more seriously, but it is moving very quickly now. The country enacted its first e-commerce law in April 2010, followed by the establishment of the separate Ministry of Information and Communications Technology (ictQATAR) in June 2013; and subsequently,  the formation of an independent Communications Regulatory Authority (CRA) in 2014. And it has not finished yet. Qatar is in the final stages of modifying the law that still treats an online start-up as a brick-and-mortar business because the process is considered cumbersome and lengthy for e-commerce purposes.

Nadim says the government definitely wants to encourage small and medium businesses but, “we need to make sure the supply chain is ready for that. We need to ensure that they have the right ecosystem, they are protected by the law, the consumers are protected and they have the right mechanism for payment for goods”.

But Qatar still has logistical constraints when it comes to delivery. Its national postal system, QPost, is ostensibly not capable of handling the huge demand of Qatar’s e-commerce business. Moreover, the country’s inadequate transport infrastructure, lack of multi-modal transportation options, and limited warehousing capacity could hamper the growth of the logistics market.

However, the government is building a number of infrastructure projects such as rail and metro networks, the expansion of Qatar Airways cargo fleet, Hamad International Cargo terminal, a new deep-water sea port boosting sea fright capacity, and road network upgrades.

Barel adds, “One of the key challenges an e-commerce start-up faces in Qatar – and across many countries in the MENA region as a whole – is logistics.” He points out that there is no standardised address or ZIP code system in Qatar. “While companies such as Aramex compensate for this with commercial deliveries, the MENA region has a long way to go in developing infrastructure, which enables e-commerce,” says Barel.

However, Qatar’s address system is being upgraded with the re-numbering of streets and houses – a process which is expected to be completed by the end of 2015.

The lack of infrastructure is also creating new opportunities for local companies which have started to offer logistical solutions within Qatar.

“Today, you have special companies being created just to do delivery for home businesses promoted through Instagram,” says Badhuge.

For example, Pick & Drop Delivery Service is a local company started by some young Qatari citizens to meet the logistical needs of home businesses. It is considered to be the first licensed Qatari company in this field that provides an internal delivery service. It delivers different kinds of materials such as food, clothes, accessories and various other items.

Hamad Jaber Al Shahwani, owner and general manager, Pick & Drop Delivery Service, says, “The idea came up after we found that the electronic [e-commerce] market is growing and consequent need of a delivery service. Many people are doing home business these days and this business cannot be run without someone offering them a delivery service. In addition, we noticed that the home business traders rely on unorganised delivery services to deliver their goods to the customers.”

Since the company is run by a group of Qatari nationals, Al Shahwani says, they are fully aware of how the Qatari community needs this service. “That’s why we can provide such a service according to Qatar’s rules and laws. Also, we are aware of the best possible way to provide delivery service, which complies with Qatar’s tradition and culture,” he says.

Currently, the Pick & Drop Delivery Service is dealing with COD, but in future, it plans to go online and provide different modes of payment.

“Regarding e-commerce, we believe that we connect the traders with their customers. We are looking forward to contribute to developing the electronic market and the logistics services,” Al Shahwani concludes.