SA e-commerce needs another push

It’s still three years to meaningful e-commerce take-off in South Africa, but the lights are finally going from amber to green, argues DAVE PARRATT of MTN Mobile Money.

There has been endless ink spilled about the success of e-commerce in South Africa ‚ or, more to the point, the lack of it. We are incredibly backward compared to most other ‚Internet savvy’ markets, even though in the early days of the Internet we were a top ten Internet country.

We can buy airline tickets online, books and computer products. But there are whole categories of products not available over the Internet. In the US or UK, you can buy any product online, from mainstream to niche enthusiast using comprehensive, attractive sites with proper details on merchandise and easy payment and delivery methods.

Not in South Africa. Our retail e-commerce hit R2-billion last year for the first time (World Wide Worx, Online Retail in SA 2011). That’s a big number, but only 0.36% of the country’s total retail sales.

Why is e-commerce here simmering, but never coming to the boil?

There are a few answers, some historical, some practical. Of two biggest obstacles, one lies on the supply side (merchant), one on the demand (consumer).

Let’s tackle the consumer first.

Of the whole of South Africa’s 45-odd million people, only 3% have credit cards, down from about 5% because of the credit crunch. Online retailers can only talk to one out of 30 South Africans, because without a credit card, you generally can’t transact online.

Of our entire population, however, 60% have debit cards. That’s 32-million people who travel every few weeks to Pick n Pay or Shoprite, and spend hundreds or thousands of Rands using debit card or cash every few weeks. These people, however, can’t get the groceries delivered through Pick n Pay Online Shopping. That’s millions of people that want to buy inter-city bus tickets, or tickets to a show, or pre-paid electricity from the comfort and safety of their homes.

Even if you look at the millions of South Africans who have credit cards, many don’t want to use them online. Possibly because they’re already fighting personal debt, or know that there is a 2 – 5% transaction charge hidden in the cost, or they simply don’t trust the Internet with their credit card number.

This problem of restriction on online payment is now largely solved with the launch of payD, a ‚made here in South Africa’ technology story where the mobile phone’s SIM card acts as the card’s chip, changing Chip & PIN to SIM & PIN. This finally unlocks e-commerce for millions of debit card holders to transact on the Internet.

Now to look at the merchants.

On their side, transaction costs for credit cards cut deep into margins. The 2 ‚ 5% fee (depending on acquiring bank) in the hugely competitive and often low-margin e-commerce space makes all the difference between a viable and a marginal business. Add to this the costs incurred from charge-backs because of fraud and the flaky local logistics infrastructure, and you begin to see why so few entrepreneurs (or established retailers) are that keen on e-commerce.

This instantly changes with the move to debit card SIM & PIN transactions ‚ fees drop to 1-2%, and charge-backs are no longer the merchant’s responsibility.

Obviously we’re not going to see a mature and varied e-commerce industry in SA overnight. Unlike the US (and to an extent the UK), which not only have a high credit card penetration rate, but also come from a mail-order culture. For decades farm boys in Wyoming would buy their dungarees and hay stalks from Seers catalogues, or teenagers in Kansas would order in Black Sabbath and Grateful Dead LP records under the noses of their parents. It’s a short path from an old school mail order business to online sales. It’s a giant leap for our high-street shop, mall and spaza culture.

Step by step we’ll get there. Low cost airlines ‚ that’s a huge opportunity. Click, clickety, click, and I’m on a 1time flight to Durban. Air time and electricity ‚ the perfect virtual purchase you can make online, and get a better deal. Today your R5 worth of airtime could bill you R7.30 including charges. Tomorrow, your R5 could cost as little as R5.05.

World Wide Worx’ Arthur Goldstuck talks about a five year gap between people going online and feeling confident enough to start spreading their wings and trying new things. Our Internet boom happened in the late nineties ‚ there’s a million or more consumers out there today that are ready to graduate to e-commerce.

Once people have dipped their toes in, and found the waters not only pleasant, but free from imaginary e-commerce crocodiles, we’ll be off.

The significant take-off point for e-commerce growth in South Africa is still three years away still. There are some practical issues to solve, like government focusing on clearing up and formalising street addresses ‚ pretty important if you want to deliver something!

E-commerce needs to happen in South Africa ‚ for both consumers and merchants. We have a small market, and the economies of scale and practical efficiencies of a single business operation that is able to sell to people across the whole country are massive.

Mainstream successful e-commerce is the shot in the arm our economy needs.

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