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Thirsty for e-commerce

Online shopping is becoming more common amongst the various classes of Iranian society. With a tech-savvy young population—70% of Iranians are under 35—the country’s internet and mobile phone penetration rates are among the highest in the Middle East. This was quickly accelerated by the government’s decision to grant 3G/4G licenses to mobile broadband companies and resulted in a countrywide reduction in the digital gap between urban and rural areas. Furthermore, the wide ownership of debit cards is another factor favoring B2C e-commerce growth.

According to the Central Bank of Iran, only 3% of the total amount of transactions is online, but the numbers are growing at an unprecedented rate. Accordingly, more online shops are popping up every week trying to fill in the gap in a specific segment of the market. After apps and software, the second most desired category for Iranians in online shopping is clothing, followed by event tickets, insurance, and electronics. Despite the difficulties, there are an estimated 15,000 online shopping sites in Iran, although only about one-third has received an operating license. Tehran is the main tech hub of the country, and home to 46.7% of the total number of online businesses.

After starting in a small apartment in 2005, Digikala is now the undisputed leader of the e-commerce industry. The company controls about 85% of the online retail market and it is estimated to be worth about USD150 million. It is also considered the biggest online shop in the Middle East. It was initially focused on electronics, but it recently diversified its categories to books, music instruments, footwear, home equipment, and cosmetics, to name a few. Despite all the political and economic upheavals, Digikala has grown on average of 200% every year, paving the way for newcomers.

One of them is the Iran Internet Group (IIG), which counts on the financial support of South Africa’s MTN Telecom. Operating under the name Romak, IIG has set up Bamilo, an online shopping site that has become the second-largest marketplace website in Iran and it’s predestined to compete with Digikala.

In fact, Iranian online outlets resemble the tech giants from Silicon Valley. Esam is the local version of eBay for Iranians, providing C2C services via its web platform; Takhfifan applied the model used by Groupon, asking corporate clients to offer discounts to customers; and there is an Iranian version of ride-sharing service Uber, named Snapp, which has been a revolution to move around congested Tehran.

Although the obstacles faced by the e-commerce market over sanctions were significant, they did not prevent the sector from growing. Online entrepreneurs have had no access to legal licenses for software, whereas PayPal and other international online money transfer systems are non-existent. The sector still lacks venture capital and the innovation accelerators and incubators to support tech start-ups. But the JCPOA agreement has had an important impact on the visibility of existing e-commerce firms for interested foreign financiers. Rather than fearing tougher competition as multinational companies with deeper pockets and more sophisticated technology enter the market, Iranian ventures expect to obtain foreign partners and funding.

In this situation, Iran’s market is so thirsty for e-commerce that it seems destined to grow strongly. Although shopping online has not yet become a lifestyle, one important improvement that has been behind much of the e-commerce growth in Iran has been the perceived safety and efficiency of its own domestic online payment system.

Although most Iranians do not have access to intentional payment cards, e-commerce leading platforms Amazon and Alibaba are among the most visited websites in Iran. The arrival of international banks could increase credit-card use and therefore revolutionize online shopping in the Islamic Republic. A recent poll showed that 40% of Iranians have never shopped online, but the current economic aperture could make lead them to jump on the bandwagon.

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