The coronavirus pandemic has fuelled the growth of e-commerce entities, which are expected to shape the future of economy around the globe. The enforcement of the Consumer Protection (E-commerce) Rules, 2020 (Rules) at a time this crucial can be a possible boon for the Indian consumers. The adequacy of these Rules is yet to be seen, so is its compatibility with the interests of sellers/service providers. The impact of e-commerce should not only be viewed from the perspective of consumer safety but also from the perspective of small business owners who have had to transition to online portals to sustain themselves. A report by the WTO focuses on the future of economy after the pandemic subsides. The report highlights the need for global cooperation on the topic of e-commerce that would enable cross-border trade, reduce the digital divide and increase the inclusion of small businesses. The article aims to understand the impact of e-commerce on Indian consumers and sellers and the future concerns that may arise due to the paradigm shift.
Consumer in the Digital Space
The new Consumer Protection (E-Commerce) Rules, 2020 and the Consumer Protection Act, 2019 have introduced various positive developments to make the process of buying and selling more consumer-centric. However, there remain some areas and issues which need to be focused upon, in order to make the process more holistic and inclusive.
Consumer Grievance Redressal
Under the E-Commerce Rules, 2020 every e-commerce entity is required to establish a grievance redressal mechanism and appoint a grievance redressal officer, for the purpose of better redressal of consumers’ issues and complaints. The mechanism has to be established considering the number of complaints that the business receives. Not only big e-commerce entities but also small businesses and single sellers offering their goods online are required to adhere by this rule.
This rule maybe a good endeavour of the government, however, it overlooks the interests of the small producers and sellers who are struggling to barely survive in the market. The World Trade Organisation (WTO) had released a report in May, 2020 which revealed that small businesses, especially in developing countries like India, are facing obstacles that are hindering their participation in e-commerce activities. It also highlights the issues that the pandemic has resulted in for these businesses, for instance product safety concerns. Further, the report stresses on the need to bridge this digital divide within and amongst countries. Due to the pandemic various Indian small businesses had to shut themselves down or had to change their operating techniques. XYXX, which was a first initiative for an online market for men’s inner wear, had to close its website due to the lack of consumer base. Another business, Fynd stopped all its online deliveries and is now in search of non-commerce capabilities for finances.
There are other small businesses that are trapped in the mergers of big companies, the most recent example being the Facebook-Jio merger. Non-digitized small stores and kiryana shops would lose market as Reliance may fulfil the needs of the consumers, who are likely to prefer Reliance over the small sellers, for the same goods. Even small shop-owners who become a part of the ambitious JioMart would depend majorly on Reliance’s marketing techniques and strategies.
The government has also increased the jurisdictions of the three levels of forums for consumer disputes. The District Forums will now receive disputes involving up to 1 crores rupees, as against the previous limit of 20 lakhs. The President of the Consumer Courts Advocates Association stated that there is a pendency of one lakh cases in Maharashtra, with fifty-five thousand cases being pending in the district forums. With such huge pendency, the new Act will only create more burden on the forums.
Fraud Over the Internet
The increasing dependency of consumers and sellers on online markets makes internet frauds a major concern. A 2018 report entitled “India digital ad market” stated that 51% of the internet frauds take place over e-commerce platforms. The other sectors prone to fraud included travel and leisure sites, gaming sites, banking and financial sites followed by healthcare and pharma sites.
Another report, brought forward by UK based market research firm YouGov and NASDAQ, revealed that almost half of the Indian population is apprehensive about digital payments even more now than they were on the onset of the pandemic. The report states that about 31% consumers have fallen prey to card or digital payment frauds. The Reserve Bank of India (RBI) has also warned consumers about the increasing cyber-attacks and phishing incidents over the digital marketplace. According to RBI the unconventional “work from home model”, that is being adopted by the financial and banking institutions, has made the situation more vulnerable and prone to scams.
Thus, despite the E-Commerce Rules and Consumer Protection Act coming in, there are potential threats to the consumers which need to be addressed.
Primacy of the Consumer
The Consumer Protection Act, 2019, provides various provisions that empower the new age consumers and gives them wider protection and rights. To start with, the Act has brought under its ambit all consumers, i.e. digital consumers have also been included under the definition of ‘consumer’. The widening of the definition was essential keeping in mind the growing digital consumer base in India. The Act provides for flexibility in filing of complaints as consumers can now file complaints from their place of residence and also their workplace. Not only this, the consumers can also file complaints online and even by way of video-conferencing. This will remove the reluctance that consumers generally have while filing complaints.
The Act is not limited to providing rights but it also sets liabilities on the sellers. It has introduced the concept of “Product Liability” which brings under its purview all people associated with a product i.e. product manufacturer, product service provider and product seller, and the liability would be fixed upon whosoever would be at mistake.It also proposes for the establishment of a Central Consumer Protection Authority (CCPA), a regulatory body having wide powers and enforcement. The Act also provides for mediation as an alternate dispute redressal system. It wouldn’t be wrong to say that the Act has made notable developments to make marketing consumer centric and consumer friendly.
The E-Commerce Rules have given paramountcy to the ‘consent’ of the consumers. The new rules state that the consent of a consumer, for purchasing a good or service, can be recorded only if it has been explicitly expressed by the consumers. No consent can be recorded automatically by the e-commerce platforms.
The General Data Protection Regulation (GDPR), which is the main regulation for privacy in the EU, has defined consent as being “free, informed, specific and unambiguous.” It further requires the provision of an ‘opt out option’ to allow the consumers to withdraw previously given consent, either partially or wholly. This is a particularly important provision as a consumer may give consent for something earlier, but may not wish to continue it in future. Such a provision can be essential in many cases, for example, in case of not wanting to continue subscriptions, once consented to.
The World Bank Report on new forms of data processing pointed out the various setbacks of the practices related to obtaining consent of the consumers such as – lengthy and complex forms, incomplete information and rigid ‘take it or leave it’ terms. Such tactics are used by many providers through adhesion contracts to manipulate consumers and to receive their consent.
Thus, in order to give truly free and informed ‘consent’, it is essential that provisions like ‘opt out’ are introduced and a check is maintained over the service providers.
Small Business Owners Adapting to E-Commerce Platforms
The lockdown imposed to stop the spread of coronavirus lead to a halt in the everyday businesses of small business owners. Adapting to the changing market dynamics to sustain themselves was the only possible alternatives. Recent market study by the CCI suggest that that small retailers opt to join a third party market place rather than establish a separate website of their own, as the former option is much more cost efficient. The concern that arises is whether e-commerce marketplaces indulge in any unfair trade practices and manipulate their algorithms to promote the sale, use or supply of a service or product, which can cause a disadvantage to these new sellers.
Big Data & Antitrust
Anti-trust issues are closely linked to consumer benefit. The existence of healthy competition in the market ensures that consumers have access to a variety of goods and services to select from. This also ensures that there is constant innovation in the market, which ultimately adds to the benefit of the consumer. The recent shift from traditional market to e-commerce entities for sellers is drastic as the former depends on inter-personal relations while the latter depends on data-based algorithms. Data is a commodity with commercial value and has the ability to impact competition. Anti-trust authorities have been vigilant in terms of mergers of companies with valuable data sets and their impact on the market.
The recent Facebook-Jio deal was under scrutiny for similar reasons. The data-set acquired by Facebook-owned Whatsapp and Instagram along with the local retailers working within the umbrella of Jio and being dependent on it, raised concerns pertaining to deep-discounting and targeted advertising. Similarly, The Amazon Smbhav initiative, launched in early 2020, aims to bring more than 10 lakh Indian MSMEs to the online market. This comes from the backlash that was faced by the tech giant for alluring consumers with abnormally heavy discounts. The true benefit of such initiatives by big data fiduciaries such as Amazon has to be scrutinized before passing it off merely as a move to increase the inclusion of small business owners.
The relevance of data in this context has to be understood. Data in e-commerce entities is an important component. For instance, in some cases it customizes shopping recommendations according to the customers browsing history. Concerns arise when they use this to ‘tweak’ the recommendations to maximize profit and possibly deteriorating services. This would also cause a significant disadvantage to the small business owners listed on such e-commerce sites. Even though there is a chance that disruptive technologies can enter a highly concentrated e-commerce market, this vague possibility can’t be used to give a blanket protection to current anti-competitive practices. Even though certain exemptions have been provided by the CCI in terms of practices taken up to ensure the supply of essential goods to the consumers, the commission has the authority to conduct ex post facto inquiries into possible contraventions of provisions of the Act.
E-Commerce Marketplace & Possible Challenges
The CCI conducted a Market Study on E-commerce in India and the same was released in 2020. It highlights the reservations and problems that sellers have while transitioning to an online platform. These have been assessed below.
Online shopping portals provide heavy discounts which attract buyers and increase consumer traffic. However, such tactics impact the quality of goods/services being provided to the consumer. Providing such discounts may often not be viable for a small business owner due to financial restrictions.
The study further suggests that there is an increased dependency of sellers on third party/intermediary online platforms that connect them to consumers. The sellers highlighted that they were not in a position to switch platforms as setting of internal systems to deal with requirements of each platform was taxing. Regulations should be introduced so that it is easier for such sellers to switch between platforms and cater to a larger audience.
Search results on platforms can either be algorithmically created or can be influenced by paid listing. The two phenomena are not easily distinguished and this is a cause for concern for fair competition as it significantly impacts consumer behaviour. Search ranking can be influenced by special arrangements, participation in discount schemes or by payment of a commission. There is an urgent requirement of transparency in this system of ranking and rating the sellers so as ensure that consumers get the possible products/services. Rule 5(4) of the Rules state that the marketplace has to highlight the terms and condition under which such differentiated treatment is being given but does not bar such practices in particular.
Unilateral revision in contract terms and unfair contractual obligations are also detrimental to the small business owner. Sellers put forth that these are not Standard Form Contracts and are altered for specific exploitation of the sellers.
Violation of platform neutrality through promotion of the concerned platform’s own label over other products or provision of preferential treatment to preferred sellers through vertical arrangements is detrimental to the small business owner. Amazon has been recently accused of using seller party data to endorse its own products. Since consumer consent cannot be recorded automatically, these portals can’t use such data to promote their products over others. However, this does not resolve the issue of preferential treatment which needs to be immediately addressed.
It is to be noted that in the absence of a robust framework to deal with Data Privacy and the liability of data fiduciaries, with the PDP Bill at a halt, it would be difficult to address these issues and ensure the smooth transition of small business owners to the online world, while safeguarding consumer privacy.
Possible Alternatives for Sellers
The E-Lala portal is an initiative of the Confederation of All India Traders (CAIT). This is an association of traders in the country and they seek to provide online delivery of products from the neighbourhood stores to the consumers’ doorstep. The regulation of this initiative in an efficient manner so as to ensure there is no abuse of power by a few can turn out to extremely beneficial for both consumers and sellers involved. It would eliminate the dependency on a third-party portal and would ensure more transparency which would add to the benefit of our local kirana stores and small business owners.
Social Commerce is a relatively old concept but it has been in vogue in recent years. Social media platforms such as Instagram can be used by small business owners to promote their products and services, instead of continuing with marketplace model. This would eliminate the unnecessary obligations or the possibility of unfair treatment by third party platforms. Influencers can be approached to promote these services.
The economy is now rapidly shifting towards digitalization. Protection of the common man as the buyer and seller from unjustified exploitation during and after the pandemic is essential. The mechanism has to be structured in a way to provide better grievance redressal mechanisms, protection from fraud, the ability to give informed consent and secure payment facilities to the buyer in a digitally advanced world. The small seller has to be protected from the possible abuse of bargaining power and control yielded by tech giants owning e-commerce marketplace portals. Proper regulation mechanisms have to be put in place to ensure the progress of the society as a whole and not only a select few.
Authored by Palak Kapoor, Junior Editor and Ridhi Gupta, Associate Editor at RSRR.