Many businesses owners moving into e-commerce focus on choosing the best platform, design and even delivery method, but leave payment options to the last, which is where the real challenges can creep in, says KYLE ROZENDO, CTO at SID.
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.
VoD cuts the cord in SA
Some 20% of South Africans who sign up for a subscription video on demand (SVOD) service such as Netflix or Showmax do so with the intention of cancelling their pay television subscription.
That’s according to GfK’s international ViewScape survey*, which this year covers Africa (South Africa, Kenya and Nigeria) for the first time.
The study—which surveyed 1,250 people representative of urban South African adults with Internet access—shows that 90% of the country’s online adults today use at least one online video service and that just over half are paying to view digital online content. The average user spends around 7 hours and two minutes a day consuming video content, with broadcast television accounting for just 42% of the time South Africans spend in front of a screen.
Consumers in South Africa spend nearly as much of their daily viewing time – 39% of the total – watching free digital video sources such as YouTube and Facebook as they do on linear television. People aged 18 to 24 years spend more than eight hours a day watching video content as they tend to spend more time with free digital video than people above their age.
Says Benjamin Ballensiefen, managing director for Sub Sahara Africa at GfK: “The media industry is experiencing a revolution as digital platforms transform viewers’ video consumption behaviour. The GfK ViewScape study is one of the first to not only examine broadcast television consumption in Kenya, Nigeria and South Africa, but also to quantify how linear and online forms of content distribution fit together in the dynamic world of video consumption.”
The study finds that just over a third of South African adults are using streaming video on demand (SVOD) services, with only 16% of SVOD users subscribing to multiple services. Around 23% use per-pay-view platforms such as DSTV Box Office, while about 10% download pirated content from the Internet. Around 82% still sometimes watch content on disc-based media.
“Linear and non-linear television both play significant roles in South Africa’s video landscape, though disruption from digital players poses a growing threat to the incumbents,” says Molemo Moahloli, general manager for media research & regional business development at GfK Sub Sahara Africa. “Among most demographics, usage of paid online content is incremental to consumption of linear television, but there are signs that younger consumers are beginning to substitute SVOD for pay-television subscriptions.”
New data rules raise business trust challenges
When the General Data Protection Regulation comes into effect on May 25th, financial services firms will face a new potential threat to their on-going challenges with building strong customer relationships, writes DARREL ORSMOND, Financial Services Industry Head at SAP Africa.
The regulation – dubbed GDPR for short – is aimed at giving European citizens control back over their personal data. Any firm that creates, stores, manages or transfers personal information of an EU citizen can be held liable under the new regulation. Non-compliance is not an option: the fines are steep, with a maximum penalty of €20-million – or nearly R300-million – for transgressors.
GDPR marks a step toward improved individual rights over large corporates and states that prevents the latter from using and abusing personal information at their discretion. Considering the prevailing trust deficit – one global EY survey found that 60% of global consumers worry about hacking of bank accounts or bank cards, and 58% worry about the amount of personal and private data organisations have about them – the new regulation comes at an opportune time. But it is almost certain to cause disruption to normal business practices when implemented, and therein lies both a threat and an opportunity.
The fundamentals of trust
GDPR is set to tamper with two fundamental factors that can have a detrimental effect on the implicit trust between financial services providers and their customers: firstly, customers will suddenly be challenged to validate that what they thought companies were already doing – storing and managing their personal data in a manner that is respectful of their privacy – is actually happening. Secondly, the outbreak of stories relating to companies mistreating customer data or exposing customers due to security breaches will increase the chances that customers now seek tangible reassurance from their providers that their data is stored correctly.
The recent news of Facebook’s indiscriminate sharing of 50 million of its members’ personal data to an outside firm has not only led to public outcry but could cost the company $2-trillion in fines should the Federal Trade Commission choose to pursue the matter to its fullest extent. The matter of trust also extends beyond personal data: in EY’s 2016 Global Consumer Banking Survey, less than a third of respondents had complete trust that their banks were being transparent about fees and charges.
This is forcing companies to reconsider their role in building and maintaining trust with its customers. In any customer relationship, much is done based on implicit trust. A personal banking customer will enjoy a measure of familiarity that often provides them with some latitude – for example when applying for access to a new service or an overdraft facility – that can save them a lot of time and energy. Under GDPR and South Africa’s POPI act, this process is drastically complicated: banks may now be obliged to obtain permission to share customer data between different business units (for example because they are part of different legal entities and have not expressly received permission). A customer may now allow banks to use their personal data in risk scoring models, but prevent them from determining whether they qualify for private banking services.
What used to happen naturally within standard banking processes may be suddenly constrained by regulation, directly affecting the bank’s relationship with its customers, as well as its ability to upsell to existing customers.
The risk of compliance
Are we moving to an overly bureaucratic world where even the simplest action is subject to a string of onerous processes? Compliance officers are already embedded within every function in a typical financial services institution, as well as at management level. Often the reporting of risk processes sits outside formal line functions and end up going straight to the board. This can have a stifling effect on innovation, with potentially negative consequences for customer service.
A typical banking environment is already creaking under the weight of close to 100 acts, which makes it difficult to take the calculated risks needed to develop and launch innovative new banking products. Entire new industries could now emerge, focusing purely on the matter of compliance and associated litigation. GDPR already requires the services of Data Protection Officers, but the growing complexity of regulatory compliance could add a swathe of new job functions and disciplines. None of this points to the type of innovation that the modern titans of business are renowned for.
A three-step plan of action
So how must banks and other financial services firms respond? I would argue there are three main elements to successfully navigating the immediate impact of the new regulations:
Firstly, ensuring that the technologies you use to secure, manage and store personal data is sufficiently robust. Modern financial services providers have a wealth of customer data at their disposal, including unstructured data from non-traditional sources such as social media. The tools they use to process and safeguard this data needs to be able to withstand the threats posed by potential data breaches and malicious attacks.
Secondly, rethinking the core organisational processes governing their interactions with customers. This includes the internal measures for setting terms and conditions, how customers are informed of their intention to use their data, and how risk is assessed. A customer applying for medical insurance will disclose deeply personal information about themselves to the insurance provider: it is imperative the insurer provides reassurance that the customer’s data will be treated respectfully and with discretion and with their express permission.
Thirdly, financial services firms need to define a core set of principles for how they treat customers and what constitutes fair treatment. This should be an extension of a broader organisational focus on treating customers fairly, and can go some way to repairing the trust deficit between the financial services industry and the customers they serve.