The Rise of Digital Bazaars in India

Marketplaces in India are ubiquitous across all major business categories, contributing more than US$ 100 billion in gross merchandise value (GMV), providing increased convenience and a plethora of options to 200 million to 230 million online shoppers, and providing logistical and financial support to more than 6 million micro, small, and medium enterprises (MSMEs), allowing them to buy and sell goods or services online. Marketplaces have redesigned current value chains by unifying fragmented demand and supply, eliminating intermediaries, and providing firms with pan-India reach. The wider economy has benefited greatly as well since marketplaces have increased financial inclusion by giving previously underbanked segments greater access to finance. Marketplace models such as e-commerce, food delivery, and ride-hailing platforms have also offered a huge boost to the gig economy by producing over 3 million employees. Marketplaces have also gained tremendous momentum with investors in recent years.

2021 was a milestone year for marketplaces, with funding surpassing US$ 16 billion (a fourfold increase over 2018 funding), more than 135 businesses raising funds, and more than 45 companies receiving Series C+ funding. In the first 10 months of 2022, marketplace funding totalled to approximately US$ 4.5 billion. With strong macroeconomic tailwinds and ongoing investor support, Indian marketplaces represent a major potential that will have a long-term impact on the India growth story over the next five years. By 2027, marketplaces are expected to generate more than US$ 350 billion in GMV, create US$ 400 billion to US$ 500 billion in enterprise value, reach 400 million to 450 million online buyers, empower more than 15 million MSMEs to grow their businesses online and generate 7 million employment.

Digital Bazaars in India

A marketplace is an online platform that connects buyers and sellers of goods or services and provides infrastructure that facilitates the transaction. Marketplaces have become ubiquitous in India across models, including horizontal B2C e-commerce, vertical B2C e-commerce, B2B e-commerce, edtech, online food delivery, automobile platforms, fintech, shipping and logistics, classifieds, healthcare services, and professional services.

With large offline markets and more than US$ 2 trillion in consumption expenditure, rising disposable incomes driven by middle-class expansion, and an increasingly digitised base of online shoppers and small businesses.

India has a big addressable market, a growing online buyer base, and increasingly digital MSMEs, which makes it an ideal for the most exciting places in the world for marketplaces to thrive.

Evolution of Indian Marketplaces

Consumer behaviour has changed dramatically in the last five years. Consumers are increasingly discovering products and services online, are not devoted to a single brand or platform, and are prepared to pay a premium for convenience. As a result, marketplaces have grown over time, establishing a one-stop-shop ecosystem, developing customised solutions, and strengthening in-house logistics.

Small enterprises are getting increasingly digital. Approximately 10% of the  present 65 million MSMEs are active buyers and sellers on online marketplaces. Marketplaces bring enormous value to organisations by integrating supplies, broadening client bases, and providing access to cash as well as dependable logistics assistance. Marketplaces have aided in the reimagining of supply chains by eliminating intermediaries, strengthening logistics infrastructure, and fuelling job creation for the gig workforce. Marketplaces have had a huge impact on the Indian economy by democratising online buying, increasing access to critical services, and facilitating greater financial inclusion for underserved individuals and small companies. To boost the marketplace ecosystem, policymakers have launched numerous measures.

In 2016, the Government e-Marketplace was launched to increase transparency in government procurement. The Open Network for Digital Commerce was recently introduced to enable platform-agnostic commerce. The Open Credit Enablement Network provides a framework for digitising the lending value chain, and a number of PLI initiatives and free trade agreements (FTAs) were implemented to stimulate manufacturing and exports. Despite Covid-19, investors have increased their bets on marketplaces with high financial traction.

Segments

• Upstream B2B

A US$ 1 trillion addressable market, an increasing number of digitised MSMEs, and potential for disintermediation all contributed to the rapid development of the industry. Marketplaces have aided small firms by bringing together dispersed buyers and suppliers, increasing capacity utilisation, streamlining logistics management, and giving financial assistance. These were fueled by a surge digitalisation in MSME, consolidation of a fragmented buyer/supplier base, and considerable improvements in supply chain efficiencies. Government programmes such as the Production Linked Incentive (PLI) and a huge cross-border opportunity are projected to boost future growth. For example, Fashinza is a marketplace that connects brands/manufacturers/service providers with vendors/suppliers for inputs.

• Fintech

The expansion of fintech marketplaces has been fuelled by a significant number of underbanked MSMEs, poor insurance coverage, and rising financial literacy. These marketplaces provide improved capital utilisation for lenders and a diverse range of financial solutions for borrowers, particularly first-time credit clients, resulting in increased financial inclusion. For example, Yubi gained popularity by accelerating financial inclusion and literacy for underbanked MSMEs and new-to-credit customers, providing retail investors with increased access to money and various investment products, and enabling improved capital utilisation for lenders.

• Shipping and logistics

A US$ 200 billion addressable market and inefficiencies in the supply chain have led to a boom in tech-based shipping and logistics platforms. These have helped to strengthen the logistics ecosystem by reaching previously unserved regions and improving the experience for shippers, fleet operators, and drivers. Such as BlackBuck, there has been a rise in tech-based firms improving the logistics ecosystem by developing novel business models which cater for long-haul and short-haul inefficiencies and address demand and supply side pain points.

Consumer behaviour

• The consumer is always online

More customers are online now than ever before, 450 million+ users on social media apps, 400 million+ people consuming video content, online shopper penetration (as a percentage of internet users) at 30% in 2021, up from 23% in 2018. With over a billion internet users, India is expected to surpass China as the country with the most internet users by 2030.

Source: News Articles 

• The purchase journey begins online and is digitally influenced

Customers are beginning to discover items/services online as they spend more time online. 62% of urban customers explore products online before making any purchase (online or offline). Increasing online financial product discovery (e.g., 13-14 million average monthly visitors to Policybazaar to compare insurance policies).

• Consumers are not loyal to one brand or platform

Consumers frequently utilise many brands or platforms simultaneously. Consumers seek options and assess multiple possibilities before making a purchase. 50% of social commerce buyers are unconcerned with brand.

• Convenience becoming important beyond only “value”

Shoppers are increasingly demanding convenience (rather than just value/discounts) as they mature, particularly in metro and Tier-1 areas. Increasing readiness to pay a premium for convenience (e.g., increased commission and delivery charges on food delivery platforms such as Swiggy, Zomato).

Investment Landscape

Despite Covid-19, there has been a huge increase in funding activity in 2021 as investors have doubled down on the marketplace approach.

Opportunities

• Bharat Opportunity

Due to poor shopping experiences and unfavourable unit economics, there has historically been minimal activity in Bharat catering to Tier-3+ (T3+) consumers and small companies. Because of the increased T3+ participation, marketplaces have begun to invest in voice/vernacular technology and have increased their focus on agritech solutions that benefit millions of farmers in India. Increased engagement in Tier-3+ (T3+) customers has resulted in the gradual adoption of innovative e-commerce models.

• Global Opportunity

Manufacturers have a huge potential because India's exports are estimated to surpass US$ 1 trillion by 2027. Recently, there has been a surge in cross-border marketplaces, fuelled by government incentives to stimulate domestic industry and a global push towards supply chain diversification. A vast addressable market and supportive government measures can create a huge opportunity for cross-border marketplace operators.

• Potential White Spaces

Gaming, caregiver services, real estate reservations, creative content, and Web 3.0 areas are still fledgling in India, but are potential white spaces for marketplaces to emerge in.

Government Initiatives

• Open Network for Digital Commerce (ONDC)

The Open Network for Digital Commerce (ONDC) initiative aims to promote open networks for every aspect of goods and services exchanged over digital or electronic networks. ONDC will be based on open-sourced techniques, using open specifications and open network protocols that are platform-independent. ONDC is projected to broaden and improve customer access to e-commerce. Consumers can theoretically find any vendor, product, or service by using any compatible application or platform, expanding their freedom of choice. It will allow consumers to match demand with the most nearby accessible supply. This would also allow customers to select their favoured local companies. Thus, ONDC would standardise operations, encourage the inclusion of local suppliers, improve logistics efficiencies, and result in increased value for consumers.

• Government e-Marketplace (GEM)

The GeM online platform was launched in 2016 by the Ministry of Commerce and Industry, Government of India to make it easier for various government departments and organisations to acquire products and services. It is open to all organisations, including autonomous groups, public sector firms, and government departments. GeM encourages the use of technology in government procurement, hence helping to the expansion of India's digital economy. Over the past 6.5 years, it has transformed public procurement in the country through technology, process digitization, digital integration of stakeholders, and the use of analytics. In just FY23, the GeM achieved a phenomenal Gross Merchandise Value (GMV) of US$ 18.18 billion (Rs. 1.5 lakh crore). Based on current performance, GeM is well positioned to meet its yearly target of US$ 21.21 billion (Rs. 1.75 lakh crore).

• Open Credit Enablement Network (OCEN)

The Open Credit Enablement Network (OCEN) is a public network that codifies credit flows between borrowers, lenders, and credit distributors using a common set of regulations. It was developed by iSPIRT, a non-profit think tank that was vital in the implementation of public digital infrastructure such as Aadhar and UPI, which have reached over one billion Indians. By connecting platforms and marketplaces with banks and non-banking lenders to digitise the process of loan origination, underwriting, and servicing, OCEN hopes to democratise credit access for small businesses and vendors. OCEN has the potential to disrupt the Indian credit sector by providing financing to enable MSMEs to expand into SMEs or large corporates. The expansion of these micro-enterprises will, in turn, lead to long-term job creation and improve growth in the Indian economy.

Road Ahead

India is one of the world's most dynamic and fastest-developing emerging markets. Upstream B2B represents a US$ 1 trillion opportunity with significant margin potential, due to fragmented supply, the demand for disintermediation, and government actions. Fintech marketplaces have also expanded as a result of low penetration of financial/insurance goods, consumer digitalisation, and the availability of simple-to-use digital platforms. A US$ 200 billion addressable market and inefficiencies in the supply chain have led to a boom in tech-based shipping and logistics platforms. Moreover, the next wave of scale marketplaces could emerge in two broad categories: 'Bharat-first' models driven by participation from tier-3+ cities, and global cross-border models addressing India's export potential.