The second wave of the coronavirus pandemic devastated the global economy in 2021. Industries across the entire sector were realigning their strategies and making efforts to recover. Amidst all the gloom, the e-commerce industry saw a significant uptick in demand during the first and second waves of the pandemic.

With the world becoming accustomed to virtual meetings, social distancing and face masks, and the vaccination drive against Covid-19 spreading extensively, the year 2021 will be considered as a redefining year for the online marketplace and consumers.

The number of Nepali e-commerce users started picking up after the first lockdown that was imposed on March 24, 2020. As people were grounded at home, a rising number of consumers started shopping online during the second lockdown which started on April 29, 2021 and lasted for four months. Though the markets opened after the stay-home orders were withdrawn in September, e-retailers were successful in retaining their customers and their business did not decline.

E-commerce entrepreneurs said that demand for online service was high during the second lockdown compared to last year because people had become more confident about the service provided by e-retailers.

“Demand for online service reached a record high during the lockdown because more and more people started to trust e-commerce platforms,” Lino Ahlering, managing director of Daraz Nepal said in a recent interview.

The growth is supported by multiple factors like the rising adoption of social commerce, faster and timely deliveries and rising adoption of digital payment coupled with greater internet penetration.

Digital payments doubled this year in mid-October and mid-November compared to the same time last year mainly due to an increase in the number of people adapting to online payment.

According to Nepal Rastra Bank, online transactions in mid-October and mid-November 2021 reached to Rs4.93 trillion compared to Rs2 trillion in the same time period last year. The number of transactions also swelled reaching 48.66 million during the review period, up from 34 million transactions previously.

Digital payment entrepreneurs say that digital literacy, digital divide and trust are the major challenges for the industry. “When it comes to trust, it is about behavioural change, as people still believe in cash transactions. But it is a gradual process, and online payments will be growing in the upcoming days,” said Amit Agrawal, director and co-founder of the digital wallet service Khalti in an interview this year.

Electronic payments gained traction since the first lockdown in March 2020 with internet banking, mobile banking, e-wallet and QR-based payments gaining popularity among customers.

Banks are seen promoting digital payment as it increases efficiency, reduces the transaction cost, and promotes transparency. The inter-bank fund transfer cost decreases. It also saves the expense of printing paper money. It will also help bring transactions under the tax system due to transparency, said the central bank.

Internet penetration had reached 116.91 percent as of mid-November this year, up from 80 percent during the same time in 2020.

Fast moving consumer goods, personal care and grocery items are the key segments driving e-commerce growth, followed by consumer electronic goods, fashion and accessories and wellness.

E-commerce companies like Daraz and Sastodeal grew by 100 percent in terms of volume and value respectively in the year 2021.

This year, the Daraz 11.11 sales campaign generated financial transactions worth Rs360 million in the 24 hours it was open through 12,000 sellers. “This shows that e-commerce is really big now,” Ahlering said.

The popularity of online shopping is not limited to Kathmandu Valley as Nepal’s biggest e-commerce companies like Daraz and Sastodeal observed increasing demand coming from different parts of the country.

“New customers from new cities like Pokhara, Biratnagar, Butwal, Itahari, Janakpur and Chitwan, among others, increased demand by 40 percent from 30 percent before the pandemic,” said Amun Thapa, chief executive officer and founder of sastodeal.com. "The number of ordering quantity has also increased by around 5 percent from around 3 percent, which shows the rise in confidence of people towards online shopping," he said.

Daraz says 50 percent of its orders are coming from outside the valley.

With e-commerce emerging in the market, the pandemic and lockdowns gave rise to the trend of direct to consumer with different brands launching their own websites.

E-commerce companies like Doormeet came into operation amid the second wave of the pandemic.

Nischal Niroula, co-founder of Doormeet.com, said that they came into operation amid the pandemic this year after observing that customers wanted faster delivery and at lower costs.

“We were inspired to enter the market after observing low star reviews from displeased customers on well-known e-commerce platforms,” Niroula said. “We came into operation to provide cheaper and faster deliveries which other e-commerce companies were not able to do,” he said.

According to Niroula, the company delivers goods within 48 hours from the time the order is placed and charges Rs30 for the service. Within three months of operation, the company is getting around 70 orders and recording a daily gross sales of around Rs250,000 daily.

The small margins in e-commerce and rising customer expectations for faster delivery times make it imperative for brands to set up a robust supply chain.

Though the year 2021 was a growth year from a business perspective, it was quite a tough time with challenges that the sector faced in many areas.

Despite starting efforts early this year, the government has not been able to enact an e-commerce law. The Ministry of Industry, Commerce and Supply prepared an e-commerce bill in January which has been sent to the Ministry of Law, Justice and Parliamentary Affairs for inputs and approval for implementation.

In the absence of a law governing e-commerce, customers have been complaining of being cheated in terms of getting damaged products, getting a product other than the one they had ordered, price differentials, and lack of a return and refund policy of sellers, consumer rights activists said.

“We hope that the law will commence in 2022,” Thapa said. “But at the same time, there is uncertainty as well due to the political situation that the country is going through,” he added.

"E-commerce companies were immobilised during the second lockdown with the new government not understanding the importance of online delivery and not prioritising it," Thapa said.

"For instance, when the government issued the first prohibitory order that went into effect on April 29, it did not say anything about the kind of goods online stores would be allowed to deliver, the delivery times, or the type of vehicle or commuter permit for their staff," industry sources said.

Online stores were confused about providing service due to lack of clear guidelines from the government regarding e-commerce. They were allowed to make deliveries to a very limited number of places, and also only at certain times. This made life difficult for both sellers and buyers.

Even the police administration stopped vehicles making their delivery rounds.

Thapa said that the government prioritised e-commerce during the first lockdown of 2020, but with a change in government during the second lockdown in 2021, e-commerce entrepreneurs felt they were not prioritised.

"The recently issued restrictions on the import of different goods to save foreign exchange reserves will have a negative impact on supply and what to sell when there is no supply of goods," Thapa asked. “We are import based with little domestic production, and a halt in imports is the biggest threat for platforms like us.”

As the number of infections was high during the second wave of the pandemic this year, there was a strict lockdown, and customers were looking for online stores so that they could buy daily essentials on time and in safely.

Maintaining the supply chain and logistics remained major challenges for e-commerce companies. Supply chains were disrupted globally, creating shortages of goods and a hike in prices which affected the market.

As Omicron has started spreading in the neighbouring countries India and China, there are high chances that the new variant will enter Nepal too. Learning from past experience, e-commerce entrepreneurs say that they are prepared if a third wave hits the country.

“Managing the supply chain and logistics are two key factors which we are prepared for. It will be easy for companies like us compared to past years,” Thapa said.

E-commerce entrepreneurs say that logistics is one of the biggest challenges for e-commerce, and a huge budget is required to manage the logistical infrastructure.