Founder & Managing Director of iMENA Group
Cracking the online payments puzzle in MENA
Online payments have been at the center of electronic commerce challenges in the Middle East and North Africa since the first regional e-commerce sites came online. In many cases, they’ve kept both investors and founders worried about venturing into e-commerce businesses, and prevented many consumers from enjoying the benefits.
Research shows that 47% of people in the MENA have some sort of a payment card. The number increases significantly if you apply it to the core online markets of the Gulf Cooperation Council, and even more if you only consider the segment of Internet users. Credit card holders in MENA are happy to use cards as a payment method since yearly payment cards transaction per capita stands at $54 in Saudi Arabia, making it higher than many emerging markets such as Brazil, Turkey, and Russia, and even Germany. Furthermore, MENA’s cumulative annual growth rate in card transactions is forecasted to stand at 15% between 2011 and 2016, which makes it the highest worldwide and on par with Asia Pacific.
With such optimistic and encouraging indicators, one can wonder why it is that only 20% of e-commerce transactions in MENA are done with cards while the rest is happening through ‘cash on delivery’. The answer is related to the challenges and difficulties of receiving as well as paying via cards online in MENA.
On the receiving side, website owners (i.e. online merchants) face difficulties while engaging with payment service providers. In developed and emerging markets a merchant can set-up an account with a service provider in a matter of hours, and the entire process is completed online. Conversely, the process can take months on average in MENA, since payment gateways are usually obligated to collect online merchants’ documents in-person, clear them with the “acquiring bank”, before the merchant can start receiving payments. Payment service providers and merchants need to have local set-up and local acquiring banks in every country, which is not only complex and time consuming, but also very expensive. The alternative is to use internationally available payment service providers who have found ways around this but in return for high fees that make the merchant business unsustainable, not to mention foreign exchange fees and remittance fees.
The good news is that this is changing. Bold entrepreneurs are moving in to build a new generation of payment service providers from scratch, with the MENA region in mind. An example is the newly launched Telr, founded by ex-PayPal executives who saw a great opportunity in providing local payment services in local currencies, local languages, and with a wide network of acquiring banks. Most importantly, Telr uses an in-house payment gateway technology through their merger with Dubai-grown company, Innovate Payments. The latter was founded a few years ago by a group of former World Pay developers who recognized the opportunity in emerging markets. Telr is refreshing in an otherwise frustrating market.
As for the user side, we must rethink the excuse that trust in online payments is the key reason behind the lag in online payment adoption, since 100% of payments on international websites like Amazon are done using credit cards, and these websites still make up more than 80% of e-commerce transactions in MENA. The challenges here aren’t centered on the user, but the issuing banks of credit cards. Most banks are discouraging clients from using their cards online by excluding online payments by default, and requiring additional procedures and barriers to enable them, such as setting up an “activation code”, not to mention offering standalone “online payment” credit card with its own charges and the hassle of carrying one more card.
Credit cards aren’t the only payment method for online purchases, as innovation in the payment industry never ceases to rest. Mobile wallets, telecom operators billing, online banking-based payments, and new hybrids such as pay before delivery are only a few of the popular payment methods in emerging markets. While some of those may come to the region at some point, many start-ups in these sectors are being restricted by financial regulations that have failed to keep up with the pace of technology development. Nevertheless, companies such as HyperPay have shown great innovation by being able to aggregate multiple alternative payment methods under one platform, enabling payment methods as well as merchants to scale quickly and reduce the cost and hassle of building individual relationships.
Building a MENA e-commerce industry does not only involve finding new business models, but also building the infrastructure the online economy needs, including payments, as well as other areas like logistics, presenting huge opportunities for founders as well as investors who are moving ahead to create solutions.