While the number of e-tailers is growing in South Africa, there are still a number of hurdles that need to be overcome before these companies can start enjoying sustainable returns, writes KEVIN TUCKER, CEO of PriceCheck.
This year, online retail in South Africa will reach 1% of overall retail for the first time. While the number appears small, it marks a significant milestone for a sector that is attracting robust investment from both established and new players in the retail game. It underscores that online retail is now gathering momentum in South Africa, having maintained a growth rate of above 20% for several years, according to the World Wide Worx Online Retail in South Africa 2016 report. The report revealed that in 2015, the rate of growth was 26%, taking online retail to the R7.5 billion mark. This year, growth in Rand terms is expected to remain the same as in 2015, taking the total to above R9 billion.
However, while these figures are encouraging for the country’s growing number of e-tailers, payment gateways and online merchants, there are undoubtedly still many hurdles to overcome before they can enjoy sustainable returns. Compared to traditional retail, the profits are still paltry and the number of online shoppers spending regularly remains low. The majority of South Africans spend between R250 and R1000 when making a purchase online, and 33% of those surveyed made 10 or more purchases online per year.*
Limited Range, Limited Appeal
The most commonly cited challenge for local online retail is that South Africans remain hesitant to transact online, and are afraid to hand their banking details to payment gateways plagued by fraud.
Although online security is indeed a factor, it is less of an issue than the quality of what South Africans are presented with online. Indeed, the primary challenge is in fact the dearth of innovative business models and – as a direct result – the availability of products online (or the lack thereof).
As several reports have illustrated, most local e-tailers – both established names and newcomers – have a very limited range of products listed online, which deters potential customers and drives them into physical stores in order to enjoy the wide range of choices they have naturally become accustomed to. Lacking confidence in what they can find online, local shoppers will be less inclined to spend time looking, leading to less time spent overall on various e-commerce sites. This is a psychological barrier that e-tailers will need to work at overcoming. But as it stands, for various reasons, local merchants and brands have sparse product ranges listed online – which is often coupled with poor or unreliable delivery. As such, many local shoppers only hop online to research price points and find favourable deals, at which point they then travel to physical stores to complete the purchasing process.
For South Africans to move online and actually spend significant amounts (on a regular basis), they need to be presented with better quality products, and more of them. As it stands, local e-tailers are expecting to simply win on price, but it is arguably diversity and quality that will both differentiate them and drive the growth of South African e-commerce.
Showcasing the Standouts
The good news is that there are an increasing number of new players entering into this space that are experimenting with and pioneering different models. As mentioned above, infrastructure and delivery remain difficult, and there are psychological barriers to overcome before local online retail can reach its critical tipping point. The upcoming PriceCheck Tech & E-Commerce Awards will draw attention to some of the strides being made by individuals and companies, and will also highlight where some of the weaknesses lie.
Looking ahead, there are infinite opportunities for South Africa’s emerging e-commerce players – both established and entrepreneurial – but the key to long term success will surely lie in providing consumers with far more than what the local mall can offer.
* 2015 South African eCommerce Awards survey
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.