By Eman Alghamdi, Marketing & Customer Experience Advisor, AJEX Logistics Services.

Traditionally, Saudi Arabia's economy has been predominantly cash-based, stemming from a culture rich in local markets, souqs, and bargaining. This preference, which was further cemented by a deep-rooted distrust in banking systems and a lack of regulatory frameworks for online transactions, is rapidly changing. Today, with two-thirds of the Kingdom’s population under 35 and the nation ranking third globally in smartphone usage, Saudi Arabia is witnessing a rapid shift in payment preferences. This change is not just reshaping consumer behavior but is also a pivotal element in the broader narrative of digital transformation, paving the way for a more efficient e-commerce and logistics ecosystem.

In a society where cultural traditions once dictated a preference for cash transactions, the Kingdom is now embracing the digital revolution. This transformation is evident in the way consumers and merchants are rapidly adapting to online financial activities. Prior to the pandemic, cash-on-delivery (COD) was a preferred method for e-commerce transactions. However, today, with its huge digitally savvy youth population, combined with the impact of the COVID-19 pandemic, digital payment adoption drastically accelerated.

In 2020, for instance, digital payment transactions in the Kingdom surged by 75%, while cash withdrawals from ATMs saw a significant decline. This shift towards digital payments is not just a matter of convenience or a response to global trends. It is a strategic move aligned with Saudi Arabia's Vision 2030, which aims to accelerate the digital economy and increase cashless transactions. Government initiatives, such as the introduction of the SADAD system, and the efforts of the Central Bank of Saudi Arabia (SAMA) to regulate and standardize the digital payment sector, have simplified electronic payments and built trust among users. This regulatory framework has been crucial in encouraging the adoption of online payment services, fostering a more secure and reliable digital transaction environment.

The e-commerce sector in Saudi Arabia, expected to exceed US$13.2 billion by 2025, is a direct beneficiary of this digital payment trend. As consumers have become more comfortable with online payments, demand for e-commerce has grown, as seen during 2019-2020 when there was a 60% surge in online shopping. The rise of mobile payment apps from the likes of Apple Pay, Google Pay, and various local apps, has further facilitated this shift, making it more convenient than ever to make payments through smartphones. This growing comfort with digital transactions is not just enhancing consumer convenience; it's driving the expansion of the e-commerce sector, necessitating innovative approaches in logistics to keep pace with this growth.

The rapid evolution in payment methods within Saudi Arabia is not just a trend; it's a transformation that is reshaping e-commerce and the logistics sector, especially in the realm of last-mile delivery. On the one hand, the reduction in cash handling simplifies the delivery process, minimizing errors and enhancing efficiency while supporting environmental sustainability goals by reducing paper usage and optimizing delivery routes, leading to lower fuel consumption and a reduced carbon footprint.

On the other hand, the growth in digital payments is driving demand for deliveries, making managing multiple drop-off points and route optimization a critical focus area. Leading logistics players, in response, are leveraging advanced technology to enhance route planning and delivery efficiency, ensuring that the growing demand for e-commerce is met with equally sophisticated logistics solutions.

Looking ahead, the synergy between online payments, e-commerce, and logistics in Saudi Arabia is poised to become more integrated and sophisticated. The prevalence of digital payment methods is expected to drive a surge in e-commerce activities, necessitating innovative logistics solutions. This evolution is not just about enhancing current systems; it's about creating new opportunities and challenges in the logistics landscape.

One of the key challenges facing Saudi Arabia in the realm of last-mile delivery is the lack of a clear and standardized delivery address system. While Saudi Post has embarked on an ambitious program to provide every business and residence with an address, the process is still unfolding. The absence of precise postal codes and addresses often leads to reliance on phone calls and detailed descriptions from customers, adding complexity and potential delays to deliveries. This situation is further compounded by the use of legacy-driven, semi-digitized track and trace systems by some logistics providers, impacting the efficiency and reliability of last-mile deliveries.

To overcome these challenges, there's a growing need to embrace innovative technologies such as GPS, IoT, and advanced Transportation Management Systems (TMS) for real-time visibility and smarter last-mile solutions. The potential use of drones and autonomous vehicles also presents an exciting avenue for enhancing delivery practices. Moreover, bridging the gap between commercial and academic research is vital for making strategic decisions within the global supply chain markets. Despite these challenges, companies in Saudi Arabia are actively expanding their domestic networks and exploring on-demand delivery tools, allowing customers to specify delivery times and locations. However, maintaining the balance between service quality and cost management remains a critical ongoing challenge for the industry.

In conclusion, the shift towards digital payments is more than just a change in consumer preference; it's a catalyst for a broader transformation in the e-commerce and logistics sectors. The future will see seamless digital transactions and efficient logistics solutions going hand in hand, driving the growth of the e-commerce sector and contributing to the Kingdom's broader economic goals. As Saudi Arabia continues to embrace digitalization, the future of e-commerce and logistics looks not only promising but also integral to the nation's economic growth and diversification.