Introduction
“Trust is the key that unlocks the door of every successful partnership, whether in business or personal life,” said Mark Zuckerberg at one of Meta’s developer conferences. Indeed, trust is the single most important element in building or breaking any business or relationship. Once broken, rebuilding trust requires time, effort, and most importantly, intent.
The story of Bangladesh’s e-commerce industry is deeply intertwined with trust, or rather, mistrust. The still-evolving regulations and isolated incidents have severely impacted the trust between Bangladesh’s e-commerce platforms and its consumers over the years. In recent times, significant efforts have been made not only by e-commerce companies but also by banking institutions and the Bangladesh government to rebuild trust in the country’s e-commerce industry.
To fully understand the present and future, we must revisit the past first. In this blog, we will explore the history of Bangladesh’s e-commerce industry, the major incidents that impacted it – both positively and negatively, and the ongoing efforts to regain the lost trust.
The Rise
In 2009, Bangladesh Bank -the country’s central bank, approved online payments, marking the beginning of e-commerce in Bangladesh. Although initial growth was slow, with the e-commerce market share being only 5.60 billion TK in 2016, the industry began to pick up pace by 2017. The pandemic and a simultaneous increase in internet users propelled the industry to new heights. During the pandemic years, the size of the e-commerce industry in Bangladesh grew roughly 29.67 times compared to 2016, while the country recorded a staggering 84.4% growth in internet transactions, from 11.7 million in FY19 to 54 million in FY21.
As the industry was riding this wave of growth, many e-commerce companies started emerging. However, the rapid expansion also brought about certain challenges and concerns within the industry.
And the Challenges
Bangladesh’s e-commerce industry’s rapid growth faced significant hurdles, with several companies’ questionable practices coming to light, notably E-valy. Started in 2018, E-valy gained rapid popularity by offering seemingly unbelievable deals. They promised 150% to 200% cashback on purchases, a model that defied all principles of sustainability. Additionally, they enticed customers with huge discounts on vehicles and electronics and free gifts upon signing up.
Despite the unrealistic nature of these offers, many people were captivated. The prospect of getting more value than they paid for was too tempting to resist.
The first signs of trouble emerged when the promised 45-day delivery waiting period elapsed, and customers found themselves empty-handed. Complaints began to surface, and the reality of the situation started to unravel. As more and more customers failed to receive their orders and vendors their payment, it became clear that E-valy faced significant financial issues. According to news outlets, E-valy owed more than Tk 500 Cr to its customers and merchants in 2021.
The E-valy situation underscored the importance of transparency and trust in the e-commerce industry. It highlighted the need for stringent regulations and oversight to protect consumers and restore faith in digital commerce.
Rebuilding Trust
With scams becoming increasingly common and public trust in an essential digital service eroding, it became necessary to establish a system that protects both the consumers and the vendors. Along with that, stronger rules and regulations became crucial. Escrow and stringent regulations were deemed the best method to rebuild trust in the e-commerce sector. To improve order and security within the e-commerce sector, the Bangladesh Bank established an Escrow implementation committee. The committee was tasked with overseeing the newly introduced Escrow Service. The Bangladesh Bank also announced enacting the ‘Merchant Acquiring and Escrow Service Policy 2023,’ aimed at encouraging consumer confidence in e-commerce platforms and combating fraud.
Traditional Payouts to Modern Escrow Solutions
Before the introduction of escrow, there was no effective way to protect buyers’ interests. The payout system was straightforward: as soon as the buyer completed the transaction, the money went directly to the merchant’s account. In such cases, merchants often neglected whether the customer received their products, as they had already received their payment. This lack of accountability was one of the primary reasons for ongoing fraud within the industry.
After the introduction of escrow, a clear system was established to protect customers’ interests. The money now goes into an escrow account, and payouts occur only after the buyer confirms receipt of their products. This system safeguards buyers’ interests and ensures that merchants are paid only after delivery is complete.
Payment Processes: A Global Perspective
Much like the evolution of escrow in Bangladesh’s e-commerce sector to protect transactions and rebuild trust, a leading global bank faced similar challenges in managing complex payment processes while adhering to new regulations. The bank needed a sophisticated solution to handle multi-party payment contracts, automate collections, and streamline payouts on a global scale.
DataNimbus’ FinHub provided a cutting-edge payments orchestration platform, transforming digital commercial banking around e-commerce and escrow payouts. By leveraging an API-first architecture and automating payment processes, we enabled the bank to achieve operational efficiency, revenue growth, and adaptability. This mirrors the impact escrow arrangements have had in Bangladesh, ensuring secure, transparent, and efficient financial operations. Learn more about our escrow solutions, how we assisted this bank, and how we can support your business.
Conclusion
Escrow, dating back to the 1930s, remains crucial in building trust in today’s ever-evolving digital era. The journey of Bangladesh’s e-commerce industry illustrates that behind every digital interaction is a human, and trust remains paramount. As the e-commerce industry in Bangladesh expands, prioritizing transparency, innovation, and collaboration is crucial. This approach will not only rebuild consumer trust but also foster a robust and secure e-commerce environment.
Looking ahead, the synergy between financial institutions and fintech companies will drive further advancements, offering consumers better products and services. These combined efforts will pave the way for sustainable growth and renewed trust in Bangladesh’s e-commerce sector.
