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As sanctions lift, Western companies can meet a thriving Iranian e-commerce industry

TechCrunch TechCrunch 3/04/2016 Amir-Esmaeil Bozorgzadeh

Despite the perceptions from many outside of the country, Iranians haven’t been twiddling their thumbs, waiting idly all these years for sanctions relief.

The country has long since accustomed itself to be self-sufficient, and the e-commerce industry in Iran is no exception.

Over two-thirds — or 39 percent of Iranians — are shopping online at least once a month, according to our latest study. 1,132 respondents completed the survey between January 23 and 28. For foreigners looking to enter the country, it’s clear that e-commerce could be a huge target for investment dollars.

Twenty-three percent of Iranians are shopping online at least once a month, 16 at least once a week, and 5 percent are doing so on a daily basis. When we asked what products they have purchased in the past 3 months, apps and digital (34 percent) came at top followed by travel tickets (27 percent), games (23 percent), and electronics (22 percent).

“More than 1,300 apps are published on Cafe Bazaar each week,” says Hessam Armandehi, CEO of Cafe Bazaar, the largest app store in Iran with over 28 million active installations and 11 million weekly visits. “Iranians have a constant thirst for the latest and most popular games and applications.”

In fact, homegrown startups like Cafe Bazaar, which reportedly has 85 percent of the app store market in the country, are a key factor in what has flowered to be a thriving online shopping scene.

Sanctions may have stifled the presence of global players like Apple, Google, and Amazon, but this has at the same time created a vacuum in which young entrepreneurs have stepped in.

Another example is Digikala, the Amazon of Iran, which was reported last year by The Economist to be valued at $150 million with over 80 percent share of the online retail market. That’s quite the accomplishment for an online retail brand that was started by two twin brothers in 2007 and now has over 900 employees and the fourth most visited site in the country based on Alexa rankings.

Twelve percent of respondents said they bought daily deals like restaurant coupons in that same time frame, but when we asked which product categories they felt currently limited in accessing, this number jumped to 42 percent without a single other category contender.

“Bargaining is deeply ingrained in Iranian shopping culture. A seller that gives a good discount shows that they care for their customers and that they are willing to invest in a long-term relationship,” says Nazanin Daneshvar, Founder & CEO of Takhfifan.com, a leading daily deal site in Iran that is experiencing100 percent annual growth.

The cultural disposition towards deals is likely cranked up by the influence that sanctions have had in recent years. The sanctions drove up the prices of imported goods or reduced supplies to zero. In either case, it’s understandable that such conditions have increased the receptivity of Iranians towards the prospect of saving a buck, be it in the form of discounts, loyalty programs, or sweepstake draws.

After apps and software, the second most desired category is clothing (23 percent), followed by event tickets (19 percent), insurance (19 percent), and electronics (17 percent). Iranians expect that in the next 6 months foreign companies will usher in greater access to electronics (65 percent), apps and software (43 percent), travel tickets (27 percent), games (25 percent), and clothing (21 percent).

“More international brands are flocking to Iran, therefore the availability of various products is increasing and so is the demand,” says Ehsan Golabgir, CEO of Albasco.com, a popular e-commerce portal in the country. “In the past year or so, we have experienced a significant growth in non consumer electronics products, especially in fashion and beauty.”

So what keeps the other 40 percent from jumping on the bandwagon? The top concern continues to be fraud. That’s followed by a whole host of issues ranging from the quality of products to payment security online.

“Iran’s online banking system, contrary to outside view, is pretty solid when it come to fraud protection,” says Hossein Entekhabi, Operations Director at Bamilo, an 18-month startup that is now the second largest e-commerce company in Iran. “There are challenges with invalid payments or terminated transactions on payment gateway; nevertheless payment fraud is very low, especially compared to high rates of offline banking fraud.”

People are often surprised when they hear how comfortable Iranians are paying online. 87 percent shop using their debit card that can be used to purchase online when activated to the Shetab network, an interbank card switch introduced back in 2002.

“Iranians are generally well disposed to paying online because the central bank was the first to introduce and encourage it as a means to pay for their utilities,” says Dr. Aliakbar Jalali, a Professor at Iran University of Science and Technology, considered to be the father of IT in Iran. “So by the time e-commerce portals made their appearance, they were already adapted to punching in their debit card details to make an online transaction.”

This effectively turns their debit card into the single easiest mode of payment. Twenty percent are shopping daily using their debit card, 24 percent weekly, and 28 percent on a monthly basis.

“The growth of online purchasing is picking up at rates unseen in any other markets,” adds Entekhabi. “Most of goods and services are concentrated in Tehran and through ecommerce the rest of the country has instantaneous access to a range of products and services that was never possible.”

The percentage of Iranians with foreign credit cards is another high value target for potential investors. Roughly 11 percent of Iranians hold credit cards like Visa and Mastercard, which means they either have a passport in another country that provides them with access to credit cards, or else they have acquired prepaid credit cards in neighboring countries like Georgia or the United Arab Emirates.

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