Tackling the problems of online payments

Managing director of PayPal MENA, Elias Ghanem tells StartUp how the payment culture in the region is changing and why m-commerce is the future.
By Neil King
Tue 01 Oct 2013 04:28 PM

It’s a common complaint among e-commerce businesses across the Middle East and North Africa: The payment gateways just aren’t good enough.

Expensive, unreliable, insecure, unfamiliar to banks, merchants and customers - there simply hasn’t been a solid relationship between the service providers, users, and consumers.

The knock-on effects for start-ups, SMEs and entrepreneurs are manifold, with many losing potential sales or having to instal a costlier and riskier cash-on-delivery system.

Logistics, business plans, staffing, and other aspects of a business can be severely affected by the lack of a coherent, reliable and trusted payment gateway, with buyers being forced to look to other options.

But all of that could be about to change.

In September, PayPal published a report which could revolutionise the way businesses view online payments , driving an improvement in service across the region.

PayPal Insights: E-commerce in the Middle East was compiled in conjunction with Ipsos, which carried out an extensive research project to help identify problems in the payment market, and build a plan to not only solve them, but to unlock the e-commerce potential in MENA.

With 110 million internet users and 290 million mobile users in a population of 350 million, the number of e-shoppers should well exceed the existing 30 million.

Indeed, the report predicts that the e-commerce market in MENA will be worth $15bn by 2015 - a staggering figure which is almost double the $9bn it was worth in 2012.

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But the report also admits there are many obstacles to overcome, something managing director of PayPal MENA, Elisa Ghanem, is well aware of.

“The main problem I’ve heard  from people is the problem with payments: they are difficult, they cost a lot, you can’t rely on them. It’s difficult to crack, and as a consequence people are giving cash-on-delivery and merchants are promoting it even though it’s bad for them.

“We have been looking at how to solve this, and so have others – Google, Aramex, and many more. We want to contribute to the solution. Start-up e-commerce companies often have a lot of creativity but not a lot of structure. All of us have to contribute in the best way that we can to provide that structure and support.”

The report may draw a line in the sand in the fight to improve online payments, but a lot of work has already been undertaken to combat the issues merchants and users face.

One example is that PayPal offers its services free to start-up businesses, something Ghanem believes will not only benefit the merchant by giving them a trusted gateway which customers will be more willing to use, but also the market in general, as it forces local services to up their game.

“In this region payment gateways charge you before you do business,” he says. “You’re paying start-up costs, development costs, and then paying for a gateway on top of it. We believe start-ups should be able to build their business without having to pay for extras.

“That’s why we’re making PayPal available to every start-up merchant in the region for free. We’re not a charity, but you only pay as you do business.

“We’re building awareness. By doing this we’re forcing local options to improve their service. We want businesses here to succeed, and we want to succeed with them.

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“There are more than 30 million active customers in the Middle East and they are looking for confidence. The gateways here aren’t known by the buyers. By having the  PayPal brand on their website, a merchant will be more trusted. Stats show that when a customer sees the PayPal brand on a website, the level of trust goes up a lot.”

According to Ghanem it’s this lack of trust which often leads customers to use the cash-on-delivery method - something the report highlights as harmful to e-commerce.

Expensive for merchants as well as the courier and logistic services, it pushes costs up for consumers and limits the growth of the ecosystem. Not to mention it wastes a lot of time, energy and resources, with 40 percent of cash-on-delivery goods returned in the Middle East.

Yet it still accounts for 80 percent of all online purchases.

“Cash-on-delivery comes with a lot of serious questions for the merchant and the buyer,” says Ghanem. “The simplest of these including ‘will it arrive at my house?’, ‘will the buyer go through with the purchase?’, and ‘is the product the one that I ordered?’

“We’re trying to gain people’s trust and make online payments more common for people. To do that we have to change people’s mindset. We have to educate people as much as we can because cash-on-delivery is bad for e-commerce.

“We can do this by talking about security, because when you set up an account with PayPal, that’s it. You don’t share your card details with the merchants. We can talk about our buyer protection programme, where if goods aren’t delivered to your house, we stand by you. If the merchant can’t prove they have delivered them, then we pay you back.

“We also need to reach the entrepreneurs and business-owners. They have so much going on that payments is only one thing they have to consider and may not be foremost in their mind. We have to make our voice heard by them.

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“Finally we have to make our product as good as it can be so that people want to use it. We are addressing issues with logistics and with banks, and making an effort to make things as easy as possible for everybody involved.”

Currently many banks in the Middle East do not allow buyers to use debit cards online, and many buyers don’t have the requisite credit card to make an online purchase.

In a bid to enact change, PayPal led a trial with Qatar National Bank whereby the bank allowed its customers to set up a PayPal count from the QNB website, enabled debit cards for online purchases, provided an account top-up service through the QNB website, and allowed all of its customers to send money to any PayPal account in the world from the QNB website.

Ghanem says: “The trial with QNB went really well. It’s really helping to make things more accessible and increasing PayPal’s reach. More people are banking online and buying online, so we need to allow credit and debit cards to be allowed by all banks.

“At the moment, the majority of e-commerce businesses that people in the region are buying from are overseas. We have to change that.

“If we can improve local transactions and improve trust and confidence in local e-commerce businesses, then we’re going to help in other ways too.

“There’s a major problem at the moment called unemployment in MENA. It’s huge. We lose the talented people to other countries and regions because they can’t develop here.

“We have to help give these people opportunities in MENA. Communities have to work together towards growth rather than fighting. All of us together are making history and we have to decide what we want to future to look like.

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The future is something PayPal is very excited about.Certainly in terms of mobile commerce.

The rapid rise of smartphones means that m-commerce is easily outpacing e-commerce, with an estimated 50 percent of all PayPal sales expected to come from mobile devices by 2015.

Even the current figures are impressive, with mobile accounting for 10 percent of total global sales in 2012. That equates to $14bn - an enormous jump from $4bn in 2011, and $700m in 2010.

For Ghanem, the message is simple: “If you’re an entrepreneur and you’re not thinking, living and dreaming mobile, then change job. You might as well give up now - you’ve already missed the boat. You have to be thinking mobile first and foremost. Make your offering there primarily, and make it available online too.

“Mobile development is essential part of an entrepreneur’s life and business, and it’s important merchants can make it as easy for buyers as possible.

“If I’m on my mobile, anywhere and anytime, I don’t want it to take long to do what I want to do. I just want to tick, tick and move on. Those ticks are email and password. It has to be that simple.

“The likelihood of a purchase being completed goes down as the number of stages involved in the purchase goes up. For example, if you go into a physical store, take half an hour choosing the right shirt, shoes, etc, and arrive at the cashier and you see four or five other people ahead of you, you think should I go through with purchase? Can I be bothered? Do I really need these things that badly? Having fewer steps ahead of you is better - you’re more likely to go through with it.

“If you have to put more and more information into a form, then the likelihood of conversion goes down. If you can move quickly and safely the likelihood of conversion goes up exponentially.

“This is where m-commerce is so exciting. Two clicks and you’re done. It’s the future, no doubt.”

So the long-unanswered question may have finally been answered. E-commerce and m-commerce is getting the support it needs thanks to companies such as PayPal, Amarex, and others. All of which gives extra incentives for entrepreneurs to make their move now, and not - as Ghanem says - miss the boat.

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