Startup Scratch (Startup Solution Hub) > Startups Story > Before Starting an E-Commerce Business….Have a look towards the pain facing by E-commerce Industry.

Before Starting an E-Commerce Business….Have a look towards the pain facing by E-commerce Industry.

Before Starting an E-Commerce Business….Have a look towards the pain facing by E-commerce Industry.Now, India has been a profitable E-Commerce region in the Last 7 years.  Thus many venture capitalists, angel investors, private companies and high net-worth individuals are pouring money in E-Commerce, no matter how small or big the company. Everyone is running to either open an e-commerce company or work with one! But little is known of the pain a large e-commerce company faces. While most of us see bright images and the big discounts of e-commerce, there are only a few who know the challenges these companies regularly run into behind the scenes. Some of the challenges faced by e-commerce in India are:

  1. Compliance Framework
  2. Data management and accounting issues
  3. Managing logistics partner and settling them
  4. Managing seller registration and settlement
  5. Inventory Accounting
  6. Cash on delivery is the preferred payment mode
  7. Payment gateways have a failure rate
  8. Internet penetration is low
  9. Indian customers return much of the merchandise they purchase online
  10. Privacy and security concern
  11. Virus problem
  12. Digital Illiteracy and Consumer Psyche
  13. English Specific

Compliance Framework

Compliance framework and adherence of local laws is the most basic need of any business. Many e-commerce companies are funded and governed by global laws of tracking compliance. Some of the key areas to look for are:

  • Whether the company has defined processes with identified risks and controls and how these controls are tested.
  • Is the company complying with all direct and indirect taxation accurately and in a timely manner


Data management and accounting issues

E-commerce companies have a huge transaction base based on order book, but what we don’t anticipate are the multiple layers of each transaction. Every customer order generates seller order, logistics order and many more internal reconciliation transactions. Each of these transactions have financial impact and any lapse even in a single layer could result in huge financial loss, which may go unnoticed until the same is reconciled on regular frequency.

Managing logistics partner and settling them

Now, every-time an order is received, the same gets allocated to a logistics partner based on pin code coverage, and once the logistics partner delivers the same and collects cash, it is deposited to the e-commerce company. There are a number of areas which needs to be looked into:

  • Managing logistics partner pin code based on serviceable or non-serviceable
  • Reconciliation of cash collected by logistics partner and deposited to company account
  • Logistics partner commission settlement
  • Reconciliation of weight of article which is charged by logistics partner and weight which is measured by the company.

Managing seller registration and settlement

The most important aspect of e-commerce business, especially in the marketplace, is managing seller/vendors who are selling their products on the platform. Some of the key areas of concern are:

  • Seller and vendor registration, catalogue update and blocking
  • Reconciliation of seller settlement
  • Seller return and refund reconciliation

Inventory accounting

One of the key challenges for operational success is the company’s inventory management process and ability to effectively manage a lean working capital. Additionally, in order to ensure that inventory is available at the right time and at the traceable location, these companies need to manage inventory records in a comprehensive manner. Error in maintaining these records gets converted into financial loss due to inventory loss and non-fulfilment to customer.

Cash on delivery is the preferred payment mode.

Low credit card penetration and low trust in online transactions has led to cash on delivery being the preferred payment option in India. Unlike electronic payments, manual cash collection is laborious, risky, and expensive.

Payment gateways have a high failure rate.

As if the preference for cash on delivery was not bad enough, Indian payment gateways have an unusually high failure rate by global standards. Ecommerce companies using Indian payment gateways are losing out on business, as several customers do not reattempt payment after a transaction fails.

Internet penetration is low

Internet penetration in India is still a small fraction of what you would find in several western countries. On top of that, the quality of connectivity is poor in several regions. But both these problems are fast disappearing. The day is not far when connectivity issues would not feature in a list of challenges to ecommerce in India.

Indian customers return much of the merchandise they purchase online

Ecommerce in India has many first time buyers. This means that they have not yet made up their mind about what to expect from ecommerce websites. As a result, buyers sometimes fall prey to hard sell. But by the time the product is delivered, they demonstrate remorse and return the goods. Though consumer remorse is a global problem, it is all the more prevalent in a country like India, where much of the growth comes from new buyers.

Returns are expensive for ecommerce players, as reverse logistics presents unique challenges. This becomes all the more complex in cross-border ecommerce.

Privacy and Security Concern

As of to-day, quite vulnerable issues related to e-commerce are privacy and security. So far, there is no protection offered either by Website or outside watchdogs against hazard created by exploiting one’s privacy.

Virus Problem

That computer virus is also a formidable problem in the execution of e-transactions is confirmed by the computer virus originated in Manila. A computer virus lagged’ I Love You’ originated in Manila, Philippines on May 5. 2000 rippling across world, inflected millions of computer files causing colossal loss of US $7 billion to the governments and the businesses. The offenders causing ‘virus’ must be awarded deterrent punishment, otherwise similar assaults in future can cause lasting blows to the quite young e-commerce in India as well.

 Digital Illiteracy and Consumer Psyche

At present, digital illiteracy is one of the formidable problems e-commerce is facing in India. On the other hand, the continuous exodus of skilled computer engineers to other countries has denuded India of software engineers. This has posed a real threat to the Indian IT industry. Obviously, solution to this problem lies in curbing the computer brain – drain and uses the same in the country.

The Indian consumer is also characterised by his unique psyche. Usually, the Indian consumer does not go long distances for having any good of his choice when a neighbourhood store provides him whatever he wants.

That is why the consumer does not browse the Net knowing the consequent hassles of connectivity and other botherations. Added to this is that building trust on the electronic media also takes long time more especially when the vendor is situated at a very far off place.

English Specific

Last but not the least, the software so far in the country is English specific. But, in order to make e-commerce reach to the small enterprises, it needs to be available in the languages (regional) of the owners of the small enterprises to enable them to adapt e-commerce processes in their operations. Sooner it is done, better will be it for small enterprises to adapt e-commerce.



Startup Scratch team