Saudi Arabia Unrealized E-Commerce Key Drivers

18 Aug 2021   |  Saudi Arabia

Saudi Arabia has recently undergone a significant shift to online shopping. Despite its previous hesitation towards digital transformation, the country now stands as the 25th largest e-commerce market, bringing over USD 7 billion in revenue.

The kingdom possesses vital attributes necessary for the e-commerce industry to flourish: a high per capita income, ambitious and steadily growing logistics infrastructure, and a high penetration level.

Last year, Saudi Arabia recorded over 90 percent of its population having an internet connection, and 80 percent of them are active internet users engaging in e-commerce activities. The number owes to Saudi tech-savvy and majority of young population, bringing forth the potentials for e-commerce to thrive.

Unprecedented Awakening

The COVID-19 pandemic has jumpstarted the realization of the e-commerce era. With mobility restrictions and shifting consumers preferences, countries worldwide are experiencing an unprecedented e-commerce boom throughout all sectors.

Studies have shown that 48 percent of Saudi Arabian citizens will opt for online shopping and transactions even after the pandemic abates. The shift to online shopping is permanent and requires all players in the affected industries to adapt to the growing needs of digital services.

The transformation in Saudi happened within a short period. In 2017, for example, Saudi Arabian retail stores' online penetration was a mere 1.4 percent, equivalent to the U.S.' condition back in 2005.

The comparatively slow progress before the pandemic was due to several factors: unfavorable regulatory frameworks for online businesses, consumer skepticism to online shopping, and the preference to pay cash (The kingdom had recorded 67 percent of the payments happening were done through cash in 2019).

Exceeding Expectations

Saudi e-commerce

However, within the first six months of the pandemic, Saudi Arabia's e-commerce grew at a rate equivalent to the CAGR recorded in the last three years. The phenomena had accelerated the kingdom's earlier schedule in Vision 2030 to increase online penetration, specifically online payments to cover 70 percent of the transactions.

Moreover, the rapid growth of e-commerce had pushed the government to issue e-commerce regulations to add oversight to areas deemed vulnerable in the online platform, such as personal data protection, consumer rights, and disclosure obligations.

In 2020 alone, the transaction volume done by Saudi Arabian debit cards increased by over 347 percent, while the value of transactions increased similarly at 279 percent year-on-year.

The growth shows the peak interest from Saudi Arabian towards seamless transactions that were previously disregarded compared to the cash-on-delivery method. If the numbers of online payment adoption continue to increase, Saudi Arabia will reach its Vision 2030 goal ahead of its schedule.

The vast adoption of technology brought by e-commerce in Saudi Arabia opens many opportunities for industry players to realize the long-awaited potentials of the kingdom. The supportive climate from the government and the disruption from the COVID-19 bring the required force for consumers to recognize the mega-pattern of global e-commerce and implement it.

Saudi possesses a high purchasing power, robust innovation and technology, and an abundance of capital investment that would support the kingdom to dominate and put Saudi Arabia in the central of the world's e-commerce market.

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