ECOMMERCE: E-Commerce in Africa: Not Quite Ready for Take-Off
Recent Gauteng Business News
A lack of bandwidth, support from banks is not the only factor preventing the development of e-commerce and online business in Africa, says Peter Harvey, founder and MD of PayGate: The continent also needs a great deal more sophisticated financial infrastructure.
To make e-commerce occur you need a complex ecosystem for making and processing online payments, says Harvey. Africas bandwidth problem is well on the way to being solved, but the online payments system still needs work.
High Credit Risk for Banks
Banks are one critical part of the ecosystem, says Harvey. The first step in an online transaction is a person with a valid credit or debit card so we need our issuing banks to increase the rate at which they are issuing out cards to their customers. Debit cards are likely to lead, because most Africans have little or no experience of handling credit and this carries high credit risks for banks.
Next, says Harvey, the continent needs acquiring banks that are prepared to accept online payments on behalf of their merchant customers. At the moment, the business case for making the necessary investments is still difficult. An acquiring bank who wants to get into e-commerce will need to buy the appropriate licences from the card associations like Visa and MasterCard, install card processing systems, and hire skilled staff to manage those systems, so to understand and manage its risk of being exposed to fraud.
Its a big ask, notes Harvey. Whoever takes the lead is going to gain a cost, and its not yet clear whether the returns will be worth it. But there is hope: The retail sector is expanding as Shoprite and others begin their operations in the rest of Africa. As these stores start to offer point-of-sale card transactions, more cards will come into circulation and there will be more consumer demand for online shopping. Sooner or later, the balance will tip.
PSPs to Help Merchants Find Acquiring Banks
Visa and MasterCard are both interested in the African market, adds Harvey, but are also struggling to find a business case. Its easier to find a bank that will issue cards than one that will acquire transactions, which leads to a big imbalance between supply and demand. Tourists arrive expecting to be able to use their cards, and so much more locals want the same but its still hard to find merchants who will accept the system.
Harvey says payment service providers (PSPs), who offer the payment gateways that link customers, merchants, banks and the card associations, are vital connectors in the ecosystem. As PSPs we obviously have an interest in growing the whole network, he says. If we do our job properly, we can play an important facilitating role that includes educating merchants, helping them to find acquiring banks and helping to manage their relationships with those banks. We have already established good relationships with banks in East and West Africa, including I and M Bank in Kenya and Zenith Bank in Nigeria.
One of the big obstacles is the aspiration of many African banks to make exclusive agreements, Harvey adds. If you take Kenya as an example, even though its one of the most advanced countries in Africa for e-commerce, MPESA is only available for one bank, over one network. If there were four or five acquiring banks and a similar number of PSPs, thered be a lot more activity. Trying to restrict people to exclusivity arrangements robs the whole market.
Rwanda Government Supported by Banks and Major Businesses
Until Africas e-commerce ecosystem reaches the point of sustainability, says Harvey, the continent is losing out. The merchants, who can afford to put in the time and resources, register a business offshore and use banks outside Africa. That means money leaves local economies, which nobody wants. The other alternative is for smaller businesses to use payment aggregators or super merchants, but they pay a premium for the service.
In the long run, concludes Harvey, the best hope for success is for governments to take the lead. Rwanda is an excellent example of a country where there is high-level government commitment to promoting e-commerce, with strong support from the Bank of Kigali and major businesses like RwandAir. They are adding pressure on the banks where required, and creating the legal frameworks that are needed to provide security. Those who follow that example will be the first to reap the rewards. Africa is a billion-person market with massive growth potential.
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