People have still yet to stop patronizing traditional stores; however, for economizing on time and money, many prefer to remain at home and to shop via the internet. In Kazakhstan, “many” is still an obvious exaggeration. Nonetheless, the future will bring e-commerce. This is the opinion of Alexander Lyakhov, deputy director of the PR department at KazKommertsBank (KKB), who is also a well-known Kazakhstani web publisher.
Of all the various forms of e-commerce, only online stores have become reasonably developed in Kazakhstan. Well, here we are not taking into account internet banking, as this is a very specific type of business, which pertains more to banking itself than to development of the internet. Are there any statistics relating to how many goods, and what types, are sold via local online stores? How many people are utilizing these services?
We do not even know exactly how many people in Kazakhstan are versed in the internet. Last year, the Agency for Information Technology and Communications (AITC) announced that in Kazakhstan the number of internet users exceeded the benchmark one million. However, all the methods of counting users, as applied by the AITC and Kazakhtelecom, as well as by independent research companies (as far as I know such analysis has been carried out by both Brif and Komkon 2), have been quite conventional. This is why their results vary by so much.
Let us assume that indeed no less than one million Kazakhstani resident do have access to the internet, which means every sixteenth citizen. This is a very low number. For comparative purposes, during the previous Russian Internet Forum, which recently took place in Moscow, an announcement was made that in Russia every seventh citizen has access to the internet, which is even less than in Chile, not to mention even more developed countries. As for CIS countries, with regards to this index Kazakhstan takes an honorary fourth place, following Russia, Ukraine and Belarus. At the same time, one should take into consideration that the major portion of users is distributed between Astana and Almaty.
Certainly, this all effects the development of e-commerce within Kazakhstan. I cannot say for sure, but as per my estimates about 20 online stores are operating in our country. Their composition is constantly changing, yet the total number remains at the same level. Also, it is difficult to judge their sales volume, but I believe that here one may speak about a level that does not exceed the tens of thousands of dollars per year. These stores mostly sell books, DVDs, CDs, computer software, and so on. As a rule, trade does not go beyond the borders of the northern and southern capitals. By the way, this is peculiar not only to our country. For instance, in Russia the whole e-commerce boom is concentrated within the Moscow ring road.
Nowadays, the main problem for Moscow’s online stores is that the delivery service is not keeping pace with the constantly increasing number of orders. Incidentally, buyers there first go to regular stores in order to choose a product, examine and touch it, and only afterwards do they order the desired item over the internet, as online stores offer lower prices. Those stores do not need to include into their prices the cost of leasing or buying, as well as maintenance of, trade locations. If we consider the value of property in Moscow, the difference is quite significant.
Interestingly, in other large cities of Russia, including St. Petersburg, e-trade is quite weak. To me it seems that the Moscow boom is mainly related to Luzhkov’s program of demolishing old property, along with the large-scale construction of new, economically priced, multi-storied residential buildings. The tenants of these new buildings are purchasing home appliances and other household goods.
Possibly, out of the total population the number of internet users remains small. Still, those one million people, most living in Almaty and Astana, comprise a market that is already not small. Why is electronic commerce not developing, at least within those cities?
The main problem is the lack of good managers. Internet stores are primarily opened by IT guys. They know how to set up a trade site on the web, but do not understand how to promote this business further, or simply do not have enough time to do so. As a result, the profit from this trade does not even cover expenses for maintaining the domain name, server usage, and so on. After operating for about six months, many of those stores close down.
In the best cases, if the portal is not operating at a loss, the owner continues to maintain it in order to uphold some sort of market share, hoping that if there is an e-commerce boom in the future, they will already be established. Quite often, online stores are opened by internet providers (IPs), which do not need to pay for technical services, since they already maintain these for their own use. But, having saved on the technical maintenance of the site, they try to save on marketing expenses. As a result, they have just the same situation as everyone else.
As I stated, a quality issue also exists. In our country, a mass internet culture has still not developed. Many users take only partial advantage of the possibilities offered by the internet – mostly as regards information. Besides, not everybody has payment cards in order to make purchases from an online store. Or, they might have a payment card, but still only use it very narrowly. For instance, [in the case of students and retirees] only for receipt of stipends or pensions.
One more important negative factor is that all transactions on Kaznet (editor’s note: those sites utilizing the “.kz” primary domain suffix) are carried out at the user’s own risk and responsibility. The user sends money to nowhere for goods offered within the online showcase. The sites of our local online stores do not even contain information on the owner and his or her actual address and telephone numbers. As regards Russian commercial sites, a tradition was formed a long time ago that the seller includes his or her legal address and contact information. Besides, in Russia those online stores created not as independent trade sites but as additions to already established stores and chains, are widely used. In this case, the buyer knows to whom claims may be sent should something bad happen.
By the way, e-commerce, as it exists in our country, presents a risk not only to buyers, but also to banks that are servicing the transactions. If a consumer declares that he never authorized a payment to the online store, and that somebody used his card without permission by violating the bank’s payment system, the bank would be obliged to return the funds.
How are the problems of internet trading handled in other countries?
With regards to large transactions, such are dealt with utilizing electronic signatures and authorization centers, which confirm that the signature belongs to the actual user. In the USA, even the president signs decrees online using his own electronic signature. In our country, the law on electronic transactions and electronic signatures was passed only a few years ago. However, the state centers for verifying signatures have yet to be created. Supposedly, one such center is soon to appear, but it will serve only in e-government. In principle, any bank or large company may create its own verification center. But, do they need one?
As for small payments, in many countries they are executed with the help of non-bank payment systems using web-money. This is a Russian idea that spread all over the world. Let us assume that one needs a one-time access to the electronic archive of a newspaper or encyclopedia. Such access is given only at a price. However, there is no sense in arranging for a monthly subscription. The portal would also be glad to provide a single “ticket”, but how can it receive only several cents from a user? If one were to do this using a card, then the banking fees for servicing this transaction would be higher than the cost of the transaction itself. Web-money permits the carrying out of such transactions at cheap prices, picking up the crumbs from banks, and making good money on it. Many people criticized the system at first, but gradually everyone has understood that there is no trickery involved. Nowadays, many Russian banks work with this system, providing contact between web-money and the regular banking systems.
And finally, KazKommertsBank has created an original way of increasing trust for online trading. However, to be honest, both participants to a trade, the buyer and seller, must be clients of the bank. KKB provides sites for various online stores on its financial portal, Homebank.kz. Currently, there are about ten stores, which sell and deliver flowers, airline tickets, books, journals, disks, and so forth. Those clients who have access to Homebank.kz visit the pages of those online stores, and are able to make payments utilizing their KKB cards. This guarantees complete transparency and protection of payments.
For the bank to maintain this system is quite problematic. Moreover, the bank has no profit, excepting a surcharge on card transactions. However, we are doing this in order to stimulate sales utilizing card payments, and as an additional benefit to our Homebank system.
How does the state regulate this market?
Not at all. The state handed this market to the private sector. However, laws on electronic commerce and electronic signatures were passed a long time ago. Probably, the creation of e-government, as well as the development of associated data transfer services, will affect the market in some way.
How do you see the further development of e-commerce in Kazakhstan?
Perhaps, I am the most optimistic person in Kazakhstan. Because, if I did not believe that everything would be all right here, I would not have put myself on the line like this, even ten years ago when I created my first website. Everybody who starts a small business on the internet hopes that if not today, then tomorrow, and if not then, possibly the day after. In one or two years, the process will start going. Everybody thinks that if he comes onto this market in two years, there would be more difficulty associated with entering the market. Today, everyone wants to be one of the few who will be one of the leaders of tomorrow.
So, this is how things have been going on for ten years already… Are any changes happening in this sphere?
I think that they are. The number of online stores has increased, while their websites look nicer. Software for online stores, which can be downloaded from the internet for free, has appeared. Before, one had to produce such software on one’s own, or purchase it at a price of around US$40,000. Registration and maintenance of domains have become easier. Hosts (companies providing places for online stores) have acquired better means of administration. The number of channels has increased. This all means that technical progress touches everything, from software and hardware to maintenance. Therefore, nowadays one can completely concentrate on sales.
Electronic commerce is conventionally divided into several categories:
1. B2B (Business to Business) – Electronic trade among business entities, as in wholesale operations, bulk supply, and online tenders, among others.
2. B2C (Business to Customer) – Electronic trade between business entities and consumers, as in online stores (being much like their bricks-and-mortar counterparts), consumer-targeted marketing campaigns, and so forth. Most transactions require the use of a credit or debit card for making payment.
3. C2C (Customer to Customer) – Electronic trade between non-business entities, as in online auctions, which function like their real-life namesake, classified advertising, etc.
4. Internet Banking – The ability to handle standard banking transactions online, including balance checks and payment transfers, among others. At present, this is the highest form of e-commerce available, both worldwide and in Kazakhstan.
5. G2C (Government to Customer) – Electronic government, or “e-government”, which actually does not involve commerce, though a government may sell certain forms and pay services via its network, or, as some governments are doing, hold online tenders – all technically corruption free (theoretically).
Two types of online stores are the most popular in both the domestic and Russian markets:
1. Portals created to support pre-existing sales systems, typically standard stores and chains, including those transactions that had been typically handled via telephone.
2. Online stores in the purest sense, which usually, in local terms, are offerings by enthusiastic IT specialists. As experience has shown, the hope for easy profits from such operations has not been justified. Trading in this manner, even transactions that are entirely handled electronically, is still subject to certain time, human and financial costs.