Article by Kyle Rozendo, CTO at SID (www.sidpayment.com).
While online retail still only accounts for 1% of retail revenue in South Africa, the growth rates of more than 20% year-on-year since 2000 speak volumes about the need for every business to seriously plan for an online presence.
The 2016 numbers from World Wide Worx released in April this year, not only show good growth for the year, but forecasts for 2020 show the figures doubling from their current baseline.
While this is great news for the economy, there remain many obstacles for the general business community when it comes to taking the leap in creating a virtual channel to market.
First of all, setting up an e-commerce offering is more complex than one thinks. Most businesses focus on choosing the preferred platform, design and even delivery method. Payment options are often the last thing business owners consider and, unfortunately, this is where the real challenges can creep in.
Most website platforms have e-commerce plugins which will accommodate global payment options such as PayPal. Card payment facilities are also offered by many payments service providers and this increases the merchant’s ability to take payments.
However, South Africa’s broader payment landscape is not nearly as sophisticated as we assume.
As we know only 1% of retail spend is channeled online and while some seasoned online shoppers may be perfectly happy with online security, there is still many a wary first-time shopper who may feel daunted by having to set up a Paypal account or nervous about sharing credit card details.
To add to the card challenge, only one fifth of South Africa’s banked population has a credit card, which further narrows a merchant’s pool of potential customers.
Fees, fraud and fuss
There are two main questions facing merchants when it comes to payment options: what are the benefits to my business, and how easy will it be for my customers to use?
The costs to merchants when the customer uses a credit card for a transaction can be unattractive. Merchants have to pay transaction fees to their payment service provider, as well as additional fees to the (acquiring) bank which holds their internet merchant account.
Trust can also be an issue. While we may feel a level of comfort when transacting with an e-Bay or an Amazon, when using a small, local e-tailer for the first time, many shoppers will feel uneasy about parting with their personal and financial details.
Chargebacks add to the merchant risk. Should credit card fraud take place, the onus is on the merchant to prove that the purchase was in fact made by the cardholder. Should they fail to do so, they could bear the costs of the reimbursements.
Merchants accepting credit cards will also need to comply with The Payment Card Industry Data Security Standard (PCI DSS). This is a proprietary information security standard for anyone who handles branded credit cards from the major card schemes, including Visa and MasterCard.
Setting up an internet merchant account can also result in delays and administrative hassle for a business eager to get their offering online. Not only will the acquiring bank’s consultant do a full audit of the website’s compliance (terms and conditions, privacy, delivery and refund policies etc.), but the company will have to undergo additional compliance checks on their financial history. Working through a payment aggregator can cut out the frustrating process of applying for an internet merchant account. However, the trade off will be paying higher transaction fees in order to make use of their platform.
Offering choices which work for customers and your business
Merchants need to find the best method to reach their customers in a way which makes the best business sense. Adding an instant EFT solution to the e-commerce payment offering can make a significant difference to both the merchants’ business as well as the user experience.
Merchants stand to save significantly on transaction fees when receiving instant EFTs. Credit card payments can often be charged at a rate of 2 to 4% per transaction, whereas instant EFT fees are generally significantly lower. It should be noted however, that merchants must also take into account how long it will take to receive their funds from their payment service provider. This can vary from anything from one to two days (as in the case of SID) or up to five days in the case of some of the aggregators. While this is important for any business, it is critical to smaller businesses, which are reliant on cash flow.
Instant EFT payment facilities are easy to set up and website developers can quickly get the merchant trading online. From the buyer’s point of view, EFT is something they know and trust. Online customers will interface with their banks via a secure payment page which adds to their comfort and sense of security. Moreover, because there is instant feedback, should there be insufficient funds in the account, both the customer and the merchant will know immediately, cutting down on fees resulting from returned transactions. Most importantly, instant EFT allows far more people to actually trade and shop online. All a merchant needs is a valid bank account and the customer simply needs their regular online banking username and password.
EFT has reached its maturity in South Africa. Customers know and trust it as a means of transaction. Businesses who are looking to go digital should ensure that they have included instant EFT into their payment bouquet. To ignore instant EFT would not only cut them off from the lion’s share of local shoppers, but would cut themselves off from a payment method which offers the lowest cost to company available.