E-Commerce Opportunity in Saudi Arabia

23 Nov 2021   |  Saudi

Saudi Arabia's E-Commerce Council is currently working on the infrastructure and legislation framework to cover consumer products import as a part of the e-commerce journey. The measures would include enabling payment systems and logistics services to ease the transactions happening between small and medium enterprises. Today, the council has already regulated several baselines for shoppers and online stores' relationships, providing access to commercial licenses to ensure security for e-commerce activities.

COVID-19 resulting in e-commerce growth in Saudi

E-Commerce Opportunity in Saudi Arabia

The rise in Saudi Arabia's e-commerce culture was emphasized by the occurrence of the COVID-19 pandemic, forcing people to alternate to online shopping as the virus containment measure. However, recent studies have shown that over 48 percent of Saudi Arabian consumers will continue to use online shopping and banking more than they did in the pre-pandemic era regardless of the COVID-19 presence. Within the 48 percent of Saudi Arabian consumers who opted for continuance in online shopping, 75 percent of them have permanently opted for the new trend in their shopping habits. In comparison, only 15 percent of the consumers plan to return to conventional shopping.

Before the pandemic, Saudi Arabia was on the verge of introducing its first e-commerce law, emphasizing non-cash payments and fostering tech innovation to diversify the kingdom's economy from being oil-dependent. E-commerce has become one of Saudi's quick win strategies supported by the kingdom's high internet penetration rate, scoring higher than developed and tech-savvy countries such as the United States and China.

Additionally, the Middle East and North Africa (MENA) region has forecasted Saudi Arabian digital consumers to grow up to 27 percent since the pandemic, with more than half of omnichannel shopping preference. Therefore, the robust e-commerce market growth in Saudi opens opportunities for new players to tap into the industry and cater to the diverse demands of the kingdom. Last year ended with a total of USD 5.7 billion volume transactions through the existing e-commerce platform, contributing to Saudi's position as the second leading country in the Arab region according to the global e-commerce index.

Challenges in the e-commerce landscape

However, the e-commerce challenge in Saudi Arabia stems from the hesitancy in the payment getaways landscape. The kingdom possesses relatively limited domestic payment getaway providers, resulting in lagging fintech adoption and innovation and limiting the services to larger online stores with more capacity and traffic in the e-commerce industry. From the seller's side, the Saudi Ministry of Commerce has recorded a significant increase of licensed online stores during the pandemic, including 28.676 online stores in the country's operating electronic commerce platforms. The growth mainly relies on Saudi's Micro, Small, Medium Enterprises (MSMEs).

Another challenge standing in the e-commerce landscape is the low adoption of consumers' credit cards. The kingdom is primarily reliant on a cash-on-delivery method as the citizens lack familiarity with a non-cash payment basis. As a result, companies are offering a buy-now-pay-later service throughout the major e-commerce platform to introduce a non-cash payment alternative for Saudi consumers to credits. Today, the buy-now-pay-later industry has birthed several worth-noting domestic players to cater to the growing needs of e-commerce transactions.

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