How is demonetization affecting the eCommerce and other business sectors?

How is demonetization affecting the eCommerce and other business sectors?

With the big announcement that came on 8th November, 2016 regarding the ban on Rs 500 and Rs 1000 currency notes, there were widespread tremors experienced by the people in India. While most of the people were hailing it as a “masterstroke� move against black money, currency counterfeiting, and terrorism. There were certain sections of people in society, which were making hue and cry about the move that has brought unnecessary problems for them.

Here is our detailed study about the impact of demonetization on various types of businesses in India. The ban on Rs 500 and Rs 1000 currency notes have restricted the shopping ability of people through cash. Along with this, the ATM withdrawal limit of Rs 2,500 has complicated the entire matter further. Let us take a quick look at the various business sectors that are affected by this demonetization move. The decision has definitely hurt the conversion rate optimization practices in a big way.

E-Commerce-

With the ban on Rs 500 and Rs 1000 currency notes, eCommerce players were forced to stop “cash-on-delivery” payment modes on their site. Certain eCommerce players like Flipkart and Snapdeal made restrictions on the order purchase value to below Rs 1000. While Amazon India stopped COD orders from Wednesday, a day after the big announcement.

These eCommerce companies also stopped receiving old denomination notes of Rs 500 and Rs 1000 notes and paid more emphasis on other means of digital payments. The demonetization move has hurt the eCommerce conversions of various companies from Flipkart to Zomato, which is a food discovery and delivery portal with other companies that mainly generate revenues through hard cash that accounts for around 60-70% of total orders.

With fall in CoD orders, demonetization has led to jump in digital payment options for making online transactions.

As per a research done by the Forrester Research, "The cash on delivery share will come down and it will force customers to make payments online.

Initially, in the next 1-2 months it may hurt ecommerce companies."

This drop was further attributed to the curb on black money due to this demonetization move which was used to make the purchase through various eCommerce stores. According to the statement of Amrish Rau, CEO of PayU India, “About 40% of CoD was driven by black money according to a study done two years ago.” He further stated that “This will have a serious impact on GMV as not all CoD will move digital payments. In the rural economy where consumers are still not that comfortable with digital money yet and who are still adapting to the internet will stay away.”

With the scarcity of cash, it is definitely taking a toll on the conversion rate optimization practices and eCommerce sales are eventually dropping.

Real estate-

It is one of the business segment that is hard hit with this current financial crunch. The hard cash offers an effective working capital for builders and thus this financial constraint can be a severe blow to this aspiring business sector. The demonetization move could hurt the customer demands for home and could force builders to decrease the price of their real estate properties.

This real estate fall is mainly attributed to the cash paying tendency of the customers. Vinay Khattar, who is the head of research at Edelweiss Securities stated that “But, in the long run, due to affordable prices and low supply, this sector will experience positive demand scenario.� Apart from this, housing finance companies are also witnessing pressure on their credit quality as well as growth. All this has been happening due to the fall in real estate prices that will affect the loan against property (LAP) business.

Steel, fertilizers and agrochemicals-

The impact of currency ban on Rs 500 and Rs 1000 notes is having an adverse effect on a number of business areas. The demonetization is causing problems for the sectors like steel, fertilizers and agrochemicals. This is because the transactions in these areas are mainly done on the cash basis and not through online payment methods. In addition to this, metal companies related to steel will also be affected severely as they handle transactions through cash basis currently.

Final words of wisdom With this current currency ban on Rs 500 and Rs 1000 notes, the businesses that are solely dependent on cash payments are bound to suffer. Whereas, the businesses like eCommerce that offer other online payment options will have a limited impact. So, it is entirely your business decision to choose which side of the fence after this demonetization step.

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