E-Commerce Enablers: What’s Next for Emerging Markets?

With Gojek and Tokopedia’s merger fresh on everyone’s mind, the attention has once again turned to the meteoric growth that emerging markets’ online marketplaces and e-commerce platforms have witnessed in recent years. Consumer behavior shifts, accelerated by the pandemic, mean that direct-to-consumer brands are on the rise, too: Latin America, for example, could very well be the star of the direct-to-consumer growth story this year with a 60% jump from 2019 to 2020 in goods sold online.

There is great momentum behind e-commerce in Alter’s geographies of focus (which we refer to as “emerging tech cities”), and there’s no better time to dig a little deeper into what’s happening behind the scenes. Many investors (including Alter and Lightspeed) like to call these technologies e-commerce enablers: products that help optimize the e-commerce journey, from backend infrastructure, marketing, and lending, to payments and shipping. Simply put, e-commerce enablers are the essential cogs in the wheel to each e-commerce journey.

These products are quickly unbundling to support the demand for greater flexibility and the evolving complexity in requirements, meaning the landscape is a broad one to tackle. We’ve developed some digestible graphics to highlight a few subcategories we find particularly interesting. Within each subcategory, we examine those key, winning business models, and map out how they have taken shape in emerging market regions. The white spaces speak volumes — these are the untapped opportunities to look out for in the near future.

Lending

Lending products represent an increasingly important component of the e-commerce journey. There are two distinct opportunities:

• Revenue-based financing (RBF) allows sellers to scale with non-dilutive capital while weathering business fluctuations
• Buy-now-pay-later (BNPL) gives customers much-needed flexibility with payments

Both business models have disrupted outcomes in e-commerce: sellers now have more alternatives to fund their growth, while buyers have more options for purchasing.

BNPL solutions have been on the market for a few years in India and SEA, and are taking off in LatAm and MENA. RBF platforms are quickly taking shape across all regions: the Klub model, connecting a marketplace of investors to e-commerce businesses, will be one to watch.

Payments & Checkout

New online shopping habits during the pandemic mean more traffic for e-commerce businesses, but cart abandonment remains a huge pain point; one estimate puts online retail cart abandonment rates at 84.5% for March 2020. One thing is clear: there is no longer room for outdated or complicated checkouts.

The business models below help streamline the e-commerce payments and checkout process. From anti-fraud to universal checkout, these solutions add value for merchants as they create a fuss-free checkout — improving checkout success and driving long-term customer loyalty.

Payment gateways were the first to disrupt emerging markets. As customers continue to demand higher-quality shopping experiences, we’ll see more businesses launch in the other three models. Crypto payments enablers is a promising category: crypto ownership and use is very high in certain emerging economies. Compare high rates in Vietnam (21%), Philippines (20%), and Peru (16%) to US’s 6%.

Insurance & Post-Purchase

Insurance and post-purchase products are another fascinating category. Adding an extra layer of security and convenience to the purchase experience will further drive customer loyalty.

There’s a great deal of white space here, which is exciting for Alter and other venture capital firms. With a burgeoning logi-tech sector (see next graphic), we expect developments there to power the growth of tracking and returns management across the three regions. The returns management space itself is incredibly diverse, with solutions spanning management software, reverse logistics, and alternative returns products. Affirm’s acquisition of Returnly in April and PayPal’s acquisition of Happy Returns this month are strong indicators of demand in the post-purchase space.

There is also a market opportunity for warranty and embedded insurance products. With digital insurers rapidly scaling, the next wave of insure-tech will likely focus on product innovation and — importantly for e-commerce — new forms of channel distribution. These auxiliary products not only enhance customers’ purchase process, but provide another revenue stream for merchants.

Shipping

The final step of the e-commerce journey — delivering the item to the customer — is no small feat. The shipping landscape is quickly expanding in emerging markets to disrupt the fragmented and inefficient logistics industry. Alter has invested in Shipper and most recently in Flextock (Egypt), 3PLs powering asset-light end-to-end logistics and fulfillment for e-commerce businesses.

We’re also looking out for new developments in last-mile logistics. Micro-fulfillment solutions are an example, championing hyper-convenience in e-commerce.

We can’t emphasize enough the transformative capacity of shipping and logistics startups in emerging markets. This final building block is crucial to building an inclusive e-commerce experience, expanding the access to convenient online shopping beyond large urban areas.