By Alex Menghi
In a two-part article, Alex Menghi, an engagement manager at the UAE office of Value Partners, a Milan-headquartered management consulting firm, explains why SMEs in the UAE should set up e-commerce platforms and how to choose among many online payment processing options available.
High penetration rates for smartphones and tablets in Dubai as well as greater use of credit and debit cards, have laid the foundation for rapid expansion of online retail, according to a report issued by the Dubai Chamber of Commerce and Industry.
Digital retail is expected to account for 21.5 per cent of global sales by 2018, with Dubai set to post some of the strongest e-commerce growth in the region, according to data from the Centre of Retail Research.
Furthermore, a research by Frost & Sullivan states that the country’s e-commerce market is worth nearly $2.5 billion a year and is expected to grow to $10 billion by 2018.
In order to remain competitive, SMEs are advised to set up e-commerce platforms to capitalise on various trends affecting online shopping.
Firstly, instant access and fast turnaround will be the key drivers that will determine the operations of e-commerce companies, based on the fact that consumers born in the ‘80s and onwards are digital natives who are always online and connected, expecting events to happen in a short period of time.
Amazon has already transformed their supply chain to achieve instant delivery in the US. For SMEs, solutions in line with Uber-style delivery can provide a means to remain competitive.
Secondly, the shopping experience will be focused on connected devices – consumers want the opportunity to start and end their shopping experiences on different platforms. This fact is a major opportunity for those SMEs capable of managing key data about their customers. Successful SMEs will be able to develop an end-to-end experience for the customer, be consistent across the channels, especially regarding marketing messages, offer ad hoc customer service through different platforms, and understand customers’ preferences in terms of the combination of channels which prove to be the most effective route for driving sales. In our opinion, e-commerce SMEs will be better equipped to develop and execute an omni-channel strategy with customised service as these usually come from a tech-savvy, Internet-first standpoint.
In line with enhancing the shopping experience, the trend of online retailers opening up pop-up stores and showrooms is expected to continue. Therefore, e-commerce SMEs able to develop strategic partnerships with companies with physical spaces can offer a better customer experience. One example is the partnership between Argos and eBay that allows all eBay buyers to pick up their items at one of Argos’ 750 UK-based stores. In the case of SMEs owning physical stores, it also becomes a unique opportunity to capitalise the assets with other online e-commerce companies.
Another technology for enhancing the customer experience will be the development of contextual location, which is the ability to identify a customer’s location and send targeted marketing messages. This technology, which is already being applied in large retailers, is an opportunity for SMEs to gain market share in certain areas leveraging both the geographic position and the e-commerce services.
In addition, M-commerce (mobile commerce) is becoming cruical and SMEs who are early to optimise their sites for mobile shopping can gain a competitive advantage within the e-commerce space.
How to set up an e-commerce platform in the UAE
Currently, there are no specific licensing requirements for e-commerce activities.
Setting up e-commerce platforms is covered by general trading licenses issued either by a mainland or a free-zone entity. For an LLC company, the process to follow is defined by the Department of Economic Development (DED) and varies based on the industry of the business. The implicit cost is high as the business also has to rent an office of specific characteristics.
Since each of the free zones in the UAE has its own authority, all free zone-based companies would need to work with local distributors and warehouses as it is not allowed to ship goods directly to customers in the UAE.
However, the Government of Dubai is working on creating the world’s first e-commerce hub, called Matajircom.
It will provide SMEs and e-commerce focused organisations with fast track company registration services, tailored regulations and one-stop-shops, bespoke offices and warehousing spaces, world class financial infrastructure and links to logistics agents, among others. The terms of the new regulations and processes have not been disclosed yet.
Payment bureau as an alternative to internet merchant accounts
As an alternative to Internet merchant accounts, payment bureaus offer a package of a payment gateway solution and access to the bureau’s Internet merchant account, meaning that the application process is generally shorter and less complex.
As payment bureaus are less stringent in what businesses accept, they are exposed to a greater risk, such as chargebacks. That is offset by withholding collected transaction funds for up to two months, as opposed to the typical settlement timeframe of three to five days for Internet merchant accounts.
However, SMEs are sometimes unable to obtain an Internet merchant account and a payment bureau is the only option. Some of the most common reasons for not obtaining it are due to having limited or no trading history, having unfavourable personal credit history or active collection accounts, and operating in a high-risk sector.
From our point of view, although costs are higher, a payment bureau is a suitable starting point for SMEs since it accelerates the setting-up of the SME, eases the non-core activities of the company, such as invoicing, multi-currency processing or fraud and risk management, and may offer additional services, such us finding local partners, workspaces, and similar.
In the second article of our two-part series, Alex Menghi will advise SME owners on how to select payment gateways for their e-commerce store.