Digital Economy

How Technology changed the World of Commerce

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For as long as our ancestors have known to communicate with each other, mankind has been involved in the trade of goods and services. The origins of modern day commerce lie in the elementary barter system, wherein goods or services were directly exchanged for other goods or services. No medium of exchange, such as money, was involved; and both the parties had to interact physically.

That is, until computers first began to make their contributions to the world of finance towards the end of the 20th century. And since then, the contributions have revolutionised the field. Take banking for instance: people can now access their money from anywhere, any time, and complete transactions in an instant. Queues, bank holidays, unavoidable time gaps, etc. are a thing of the past and no longer affect day to day transactions. As made abundantly clear by the previous example, not only did the new computer-empowered procedures have none of the disadvantages of the former ways, they also had added advantages of their own. So it isn’t surprising that computer technology then ushered in a new era in the field of Commerce and Finance, and is steadily revolutionising every traditional aspect and procedure of the same.

Fast forward a few hundred years, and the advent of currency changed the way people took part in commerce. Individuals could now ‘store’ the ability to buy goods and services in the form of currency, and purchase items without having to barter something in exchange. It was, without doubt, the most critical feature of commerce.

In simple terms, digital economy is defined as an economy based on computing and other digital technologies. The ambit, however, extends to many sectors of the traditional economy which further blurs the lines of distinction.

It largely consists of three main components:

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e-Commerce

Short for electronic commerce, it is basically about transactions involving selling or buying goods/services online. Popular examples of the same are online shopping sites for retail (Amazon, Big Basket, Myntra, etc.); online booking (travel, events, cinema, etc.); and digital wallets, among other things.

It is perhaps the most visible component of the digital economy as far as the average person is concerned – companies such as Flipkart, Amazon, PayTM, etc. have become household names throughout the country. India has also witnessed skyrocketing growth over the past decade for the purchase of e-commerce related goods/services by our citizens, and it is definitely amongst the driving forces of our economy. Even at a global level, e-commerce is a major contributor to the economic growth of the developed, and many of the developing countries.

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e-Business

Electronic business is a broad category which includes organisations that conduct their business over the Internet. The business can be anything, as long as it’s conducted online. Since many such organisations are involved in e-commerce, the two terms are loosely interchangeable.

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e-Business Infrastructure

It includes all the infrastructure essential for e-business, which means everything from hardware and software to telecom and internet networks, and capital. These entities are essential for e-business to be conducted, much like how roads, irrigation facilities, storage warehouses, etc. are essential for the agricultural industry.



Prominent Examples

Billionaire, inventor, innovator, entrepreneur – these are some of the words that describe Elon Musk, co-founder of PayPal – the first online banking company to reach a billion-dollar valuation. As early as 2001, Musk, along with some select others, had the foresight to predict the coming technology boom. This foresight would propel him, and others like Jeff Bezos, the man behind the world’s biggest online retailer Amazon; to near-overnight fame and riches.

When the internet bubble reached India nearly a decade later, it saw the rise of multi-billion dollar startups reaching a growth rate never mirrored before. In a time when the Indian retail business was known to be notoriously difficult to break into for a newcomer, the adoption of Flipkart and Snapdeal in Indian markets was near instantaneous. These were among the first successful attempts at taming the digital markets of India, and came at a time when even established giants like Amazon were wary of venturing into the Asian subcontinent.

The last few years have seen multiple Indian startups turn into unanticipated stories of success – Ola Cabs sharing the on-demand taxi market with Uber; Oyo Rooms operating similar to Airbnb in the US, and turning into an almost household name; Zomato becoming a ‘must-have app’ to counter Yelp in other countries; companies like MakeMyTrip and Yatra pushing Expedia and TripAdvisor out of the market; and PayTM turning into a cash alternative for vendors nationwide.


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Changes Brought About

The impact that these internet-based companies would have on the Indian market was constantly underestimated in the last decade. 10 years ago, it was not absurd to think that online shopping would not play a large role in the average middle- class Indian’s life. However, the liberalisation of the markets, starting in 1991 and boosted by the current regime with schemes like ‘Make in India’ and ‘Digital India’, along with the availability of cheaper internet services to nearly half a billion Indians has led to massive unprecedented growth in the sector.

News-show pundits argue that this migration of services to the online realm hurts small-time brick-and-mortar vendors. While e-commerce accounts for less than 1% of the total retail market in India, it is undoubtedly the fastest growing sector, expecting to grow to over $22 billion in gross annual sales in five years from the current $3 billion. Economists, however, argue that this stiff competition will lead to higher quality products at lower prices in the long run. Either way, the digital world is here to stay.


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Impact On The Economies

Demonetisation was a mighty challenge. In a nation where as of Nov 2016, 68% of transactions were carried out by cash, there was a sudden deficit of money. 86% of the cash had been extruded (and recycled), and with new notes moving in at a snail’s-pace, the saviours of the day were mobile payment wallets; the likes of PayTM, PayPal, MobiKwik, etc. Even though India is still relatively new to the idea of an entirely digital economy; the world over, the idea has been implemented with great success. While sceptics argue that this could be a reality only for developed countries, given that more than 70% of Kenya’s population is actively using mobile payments, this statement cannot be validated. Of course, there were multiple factors to its success, such as a high mobile phone penetration and accessible credit systems; but that doesn’t overrule the fact that an entirely digital economy can very much be a reality.

Also, with the advent of cryptocurrency, we can have entirely decentralised systems allowing for easy money transfers. While most people frown upon the name of Bitcoin, now synonymous with illegal trades, the truth is quite the contrary. In several African nations, where people cannot afford credit card services from banks, owing to the high costs, Bitcoin has provided them both security under anonymity, and a service for transactions; much unlike other payment gateways. For example, if one were to send money via a bank for an international transaction, the cost margins could be as high as 9%, with a 5% margin for currency conversion. For Bitcoin, it’s absolutely free. Besides, several companies of repute have already taken to Bitcoin. Microsoft accepts it for XBox payments; and so does Subway for its sandwiches. Similarly, there are several others out there who have accepted Bitcoin as a currency. But the most important part about all this is that it will allow us to eliminate payment gateways. Cryptocurrency uses volunteers to verify transactions, and hence is free of cost. Payment gateways, such as Visa, Maestro, etc. levy a certain charge on every transaction you carry out, to provide the exact same service as a cryptocurrency would: secure online payments. This would help reduce overall costs for everyone- businessmen, shopkeepers, and even you and me.

Of course, all these systems need a long time to mature to the extent where they are a non-esoteric and friendly service that can be availed by all. Added to this is the issue of it being an online service - we actually need people to be online . In India, as of , smartphone penetration for urban areas was projected to be 60%, and approaching saturation, while for rural areas, it stood at 48%, with potential for growth.

For an entirely cashless economy, we need to have as many people as possible with access to the internet. Even if we were to disregard mobile payments, most people in India do not have a bank account for card payments; despite the several schemes that have been put forth. Another issue is related to cyber-security: India is rather outdated in security infrastructure, making our systems susceptible to attacks. 70% percent of the ATMs in India run on Windows XP, which is so old that Microsoft stopped supporting it a few years ago, and with the recent WannaCry ransomware attacks, ironically, the only argument that banks had was that the systems were so slow and outdated, WannaCry couldn’t affect them. Moreover, as far as mobile payments are concerned,we do not have any big players in India. For all of you shouting PayTM mentally right now, please note that with reference to companies like Alipay (with an annual transaction volume of around $2.9 Trillion), PayTM has now reached a modest annual volume of only $10 Billion, that too after the digital economy drive following the demonetisation. (That’s around 290 times lesser than AliPay). We do not have any mobile payment companies of that size, severely constricting the ability to rely on them.

Nevertheless, considering the ease with which digitisation is driving economic growth, one can rest assured that all these concerns will be alleviated in the days to come ensuring that a ‘Digital Economy’ is the economy of the future.