By Alex Menghi
In the second article of our two-part series, Alex Menghi, an engagement manager at the UAE office of Value Partners, a Milan-headquartered management consulting firm, advises SME owners on how to select payment gateways for their e-commerce store
When it comes to selecting e-commerce hosting providers, start-ups and SMEs will have different considerations since they bear different characteristics.
When selecting a provider, start-ups and small companies mainly focus on the ease of installation and assistance. On the other hand, medium companies should consider the following aspects:
• Processing costs - Fees can be fixed, variable as a percentage of the value of the transaction, or a mix of both. Achieving a certain volume of sales gives bargaining power to the company to negotiate lower fees with the potential payment processors.
• Geographic coverage and payment currencies – Some gateways are more national and offer different conditions in international transactions, such as payment security, exchange rate, management of information, and similar.
• Recurring billing – Companies with recurring billing, such as monthly subscriptions, should have the service covered by the payment gateway once they have achieved a considerable volume of sales and clients.
• Finally, there are some aspects that are relevant regardless the size of the company. Those include:
• Customer experience – Some gateways fully integrate the payment process on the website while other companies redirect their consumers. The latter is less pleasant for customers, especially in the GCC area, where the security of payment systems is a concern for customers.
• Settlement period – It is important to acknowledge how much time gateways need to settle the transactions in the bank account, allowing SMEs to design a proper financial planning.
• Chargebacks and disputed transactions costs and procedures.
Benefits for small businesses
Until 2014 PayPal was accessible to UAE-based merchants only under the requirements of having a foreign bank account to which funds had to be transferred, exposing these to currency fluctuations and additional fees. After 2014, these can be sent to and withdrawn from a local bank, after activating the PayPal withdrawal service.
However, in 2014 PayPal and Network International, 51 percent of which is owned by Emirates NBD, signed a partnership that permitted offering to UAE merchants a speedier and more direct access to their online payments from customers. The partnership also allows solving the existing problems related to fluctuating exchange rates, which limits cash flow in the UAE, and provides merchants with greater control over their cash flows as well as flexibility to manage their online businesses efficiently.
Under the new service, PayPal offers a reimbursement to the buyer in case of non-delivery or if the product fails to comply with the seller’s description. Transactions are secured using latest encryption technology while financial information is not shared with the selling party but stored on servers not directly connected to the internet.
Potential drawbacks and pitfalls to setting up a payment gateway
Prior to the setting up a payment gateway, start-ups and SMEs will need (i) a bank account to receive payments and (ii) a merchant account, which is different from the bank account since its main duty is to process credit card transactions made online.
In the UAE there are only three authorised banks for such transactions, namely Network International, Mashreq Bank and National Bank of Abu Dhabi. It often makes the process more complicated. In this case, a payment bureau may be a good option to speed-up the process.
Regarding other drawbacks when setting up a payment gateway, SMEs mainly encounter the following four:
1. A non-core and time consuming process that can be complex if managed internally, such as invoicing, fraud and risk management, and similar.
2. The costs incurred in the process, which is especially relevant for young SMEs, include setup costs, security deposit, annual subscription fees, transaction fees, currency fees, in the case of managing payments with different currencies, and IT support needed to plug the payment process to the website.
3. Geographic limitations since some e-payment solutions are available in certain countries and not in others. This is a drawback for an SME expanding into countries where its payment gateway is not working properly.
4. The list of products legally allowed to be merchandised online varies among countries. For example, the purchase of tobacco through the same e-payment gateway might be permitted in one country and prohibited in another.
What I have seen that in UAE you can get any type of e-commerce can be done in an agile manner. You just need to know what are you going to require for any particular work. Most of the big IT companies have opened their offices in UAE. They have their whole team sits there and working round the clock to deliver the best product. Even for SMEs and ISVs there is a lot of companies who are available to work with them in an economical way.
For eCommerce businesses (SMEs and ISVs) I strongly suggest to go for subscription based models which will save money. For ex. in eCommerce industry there might be requirements of recurring billing and for that there are so many recurring billing providers like Cerillion Skyline available to help ease their business process. Nowadays to setup payment gateway is too easy for a company. Most of the providers have evolved their software from more than 2 years of experience. Now they are strong enough to cater any type of requirement in cost effective