E-Commerce in Saudi Arabia is booming, with 77 percent of consumers now shopping online. In fact, fashion products are now the leading online sales category in the country. This article will give you a general idea of the e-commerce industry in Saudi Arabia, including the regulations of the Government, the impact of VAT, and the main products sold online.
77 Percent of Consumers in Saudi Arabia are Shopping Online More Frequently Than They Were Before the Pandemic
A new study by Mastercard shows that 77 percent of consumers in Saudi Arabia have increased their online shopping activity in the past year. This is well above the regional average of 73 percent. The growth in online shopping is being driven by the country’s growing consumer base that is largely young, digitally connected, and boasts high spending power.
The Saudi Arabian economy is a two-tier one, with the local population making up about 16 million people. The rest are mostly foreigners, with lower incomes working in construction and maintenance. The population is still growing, and the poverty rate remains high. Youth unemployment is at an all-time high.
Despite the scourge, the Kingdom’s electronic commerce sector has thrived, with major retailers setting up web-based home delivery services in key cities. These services provide consumers with essential items, as well as furniture and other household necessities. The community-wide quarantine has highlighted the importance of these digital services.
The Saudi authorities censor websites and block content. Government censorship also makes it difficult for opposition websites to remain financially viable. Whenever the government decides to block a website, the revenue generated by third-party advertisers will be affected. Furthermore, restrictions on foreign funding further impede the sustainability of critical websites in the country.
Fashion Products Lead Online Sales in Saudi Arabia
E-commerce in Saudi Arabia is growing rapidly, with fashion products leading the way. In 2017, online sales of fashion products reached US$ 1.91 billion, ahead of electronics & media. The industry is expected to grow 20 percent annually over the next five years to reach US$ 3.08 billion by 2021.
Consumers have increasingly become savvy and more discerning. They don’t just want to buy a certain brand, they want an experience that meets their needs. And e-commerce has facilitated that. With the MENA region’s e-commerce spending expected to reach US$6.2 billion by April 2022, fashion is poised to become the second most popular sector.
In a recent study, Mastercard showed that more than 90% of consumers in Saudi Arabia have made a purchase online in the past year. Among them, women’s fashion leads the way. It has also been shown that Saudi e-commerce consumers have a growing preference for digital payment experiences over cash. These insights will help businesses take advantage of this trend and offer consumers convenient, secure transactions.
The e-commerce market in Saudi Arabia is growing at a rapid rate. The country is one of the fastest-growing retail markets in the world. E-commerce companies are banking on the growth in online sales of fashion products. With the emergence of new entrants, the region is expected to see a boom in this market.
Government Regulations Governing E-commerce Transactions
The Kingdom of Saudi Arabia has adopted comprehensive regulations on E-commerce. These regulations are aimed at enhancing the robustness of the E-commerce sector and promoting the country’s economic development. They also serve to protect consumers by providing a secure online environment. These new regulations aim to improve consumer confidence and promote innovation and competition in the Kingdom’s economy.
According to these regulations, if a transaction goes wrong, the consumer is allowed to terminate the agreement and seek compensation. If the delivery is delayed for more than 15 days, a consumer may request a refund of the payment made under the contract. Non-compliant platforms can be sanctioned by up to SAR 1,000,000 and their e-commerce activities may be suspended.
The regulations also make it mandatory for e-commerce service providers to protect consumer data. This means that e-commerce providers must not use or disclose consumer data for unauthorized purposes or disclose it to third parties without the consent of the consumer. If the government finds that a service provider has violated this rule, it must remove the E-Advertisement immediately.
Although Saudi Arabia’s economic reform has made it more attractive for foreign investors, some barriers remain. There is a strict labor policy, a restrictive visa policy, and a gender segregation policy. However, as the economy continues to liberalize, the Kingdom is taking steps to ensure that foreign companies can fully benefit from the country’s vast market potential.
Impact of VAT on E-commerce Transactions
VAT has been implemented in Saudi Arabia, and it’s going to have an impact on e-commerce transactions. The country’s economy has been hit hard by the recent COVID-19 and low oil prices. As a result, the government is implementing this new tax to help stimulate the economy.
While there are a number of exemptions, e-commerce businesses in Saudi Arabia need to be aware of how VAT will impact their business. If their annual turnover is over SAR 375,000, they must register for VAT. However, if their sales are between SAR 187,500 and SAR 375,000, registration is not mandatory. To register, an e-commerce business must register with the Ministry of Investment and Commerce. Once approved, the registration will take two business days.
The implementation of VAT has posed multiple challenges for businesses and legal practitioners. It is important for these businesses to understand how VAT will affect their business, determine where they supply their products and services and minimize VAT on intercompany charges. E-commerce businesses that do not have a physical presence in Saudi Arabia may still be required to register and account for VAT in their GCC country of residence.
Increased Competition Online Results in Lower Prices
Increased competition online in the Saudi Arabian e-commerce market has many benefits for consumers. It creates greater transparency of prices, gives consumers a wider range of choices, and leads to lower prices overall. In fact, 80% of Saudis said they plan to keep shopping online even after the pandemic ends. Innovation and improvements in the Saudi e-commerce market are vital for long-term growth. Governments should support these efforts.
E-commerce in Saudi Arabia has experienced growth over the last few years, especially in the online sector. However, the cost of transactions remains a challenge. Consumers in Saudi Arabia are unwilling to use credit cards for a number of reasons, including high fees and interest, which is prohibited by Islam. Nonetheless, a recent report revealed that e-commerce is becoming more popular in the country, as consumers have more confidence in using the internet for their retail purchases.
Consumers in Saudi Arabia have a high purchasing power and a rising per capita income. In addition, their internet penetration has increased significantly, which requires effective e-commerce services. Consumers in Saudi Arabia are increasingly tech-savvy and expect a fast processing interface and quick delivery. Additionally, the Kingdom is working on a new e-commerce law, which should be passed in 2019.
Increased Price Transparency
Increased price transparency in e-commerce in the Kingdom can help consumers make more informed decisions about the costs of products and services. Consumers can also use price transparency to find a more affordable alternative. While the e-Commerce market in Saudi Arabia is small compared to other e-commerce markets, the potential is huge. Once a robust e-commerce ecosystem is established, a wide range of social and economic benefits will be realized. For example, consumers can view an entire product range online and compare prices in real-time, which increases their buying power.
As the number of consumers using e-commerce sites grows, retailers in the Kingdom should try to reduce their prices. The recent increase in VAT has led to higher prices in stores. In addition, increased price transparency in e-commerce will allow consumers to research products even while shopping in a physical store. Consumers can also compare prices and purchase products from various stores, which should lead to more competitive prices.
Price transparency will also allow companies to establish trust with their customers. In addition to providing price transparency, companies should also try to de-mystify pricing. For example, software developer Buffer allocates the price of their subscription to different cost items. Similarly, Tesla explained to Chinese consumers why its Model S was cheaper than its competitors.
Impact of Fintech on E-commerce Transactions
The fintech market in Saudi Arabia has enormous potential. The kingdom’s Vision 2030, the country’s long-term vision for digital transformation, supports the development of this industry. The strategy also includes the implementation of fintech in the financial services sector. This report provides insights into the Saudi Arabian fintech market and identifies the key players.
There are numerous FinTech startups aiming to tap into the Saudi Arabian market. Two of them, Tabby and Spotti, have launched BNPL services for Saudi consumers. Both companies have established partnerships with hundreds of merchants, including online and offline stores. Both companies plan to expand their services throughout the GCC.
The growth of online lending is causing fintech companies to tighten underwriting standards to avoid potential increases in defaults. In addition, historical data used in underwriting may be less reliable in today’s environment, and online lenders will need to adjust their models accordingly.
Although there is a lack of empirical evidence, FinTech is playing a pivotal role in the banking sector in the Middle East. The growth of the middle class in the region is creating opportunities for FinTech companies.