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Tweets trump FNB

Johannesburg, 08 Feb 2010

News broke on Twitter last night that PayPal is entering SA, in April, by partnering with big four bank First National Bank (FNB). However, the move has not been officially confirmed.

Such a deal would allow the US-based online payment portal to sidestep the onerous foreign exchange requirements that limit the amount of money that can move into, and out of, SA.

At the moment, banking law makes it illegal for a company such as PayPal to operate in SA, unless it successfully applies for a banking licence in the country. However, another option is to join forces with a local bank that already has a licence.

During the weekend, tweets started flying that FNB was bringing PayPal into the country, and would unveil the service in April. However, this morning the big four bank would neither confirm nor deny the news. The bank states: “FNB has no official comment at this stage.”

But an FNB executive tweeted: “Can anyone say 'cat out of bag'?”, and “It's true - but I wasn't going to put a public launch date on it.”

Huge market?

PayPal's South African opposition, PayFast, says the local market is limited to the number of online users, which is currently five million, according to recent research by World Wide Worx.

PayFast, which was not contactable telephonically as it does not have a listed phone number, says on its Web site that SA's legal and regulatory environment is much stricter than in many countries around the world.

“The PayPal system would actually be illegal in SA, unless PayPal were to become a registered bank within the republic,” it says. In addition, the cost of setting up a bank and jumping through hoops would be too onerous to serve a market that is limited to five million users, it adds.

Arthur Goldstuck, MD of World Wide Worx, says: “The good news is that we will continue to see strong growth in 2010, and we should reach the six million [user] mark by the end of the year.”

However, Steven Ambrose, MD of World Wide Worx Strategy, says the move could be irrelevant in SA until Internet penetration reached 20% or 30% of the population.

Global trade

Ambrose adds that PayPal would enable person-to-person payments, which would benefit smaller businesses.

PayPal's entry into SA would allow people to not only buy from, but also receive money as sellers, using a simple mechanism that is familiar and trusted in 190 countries worldwide.

The ability to sell goods overseas, or easily work as freelancers for foreign companies, without requiring a credit card merchant account, has long been a desire of individuals and small start-ups in SA.

Chris Gilmour, Absa Investment analyst, says it would make sense for PayPal to join forces with a local bank, as this will remove the foreign exchange “stumbling block”. He adds that finance minister Pravin Gordhan has already loosened foreign exchange controls, and could do so further during his budget speech next week.

FNB and PayPal may be taking advantage of moving before the controls are relaxed, putting them in an enviable position, Gilmour says. “PayPal makes it easy for everybody; this would be good.”

Brilliant marketing?

Justin Harrison, founder of Internet marketing company Justin Harrison Marketing, says the online rumour “might be a very clever viral marketing campaign via the social spaces to promote FNB”.

Harrison adds that if it turns out to be true, “there will be a major shift in following to FNB, because so many people are desperate for full unrestricted PayPal access that will allow them to receive funds for goods and services sold or traded online”.

He says, however, that PayPal's model is not to work with a bank, but to rather act as a digital wallet for all banks. “I find it very strange that PayPal would consider working exclusively with FNB, which would cut them off from a direct relationship with all of the other local banks.”

Having access to PayPal in SA would boost the online market, as well as bring foreign money into SA as people would be able to sell their goods and services internationally via the Web, Harrison adds.

PayPal could not be reach telephonically and FNB has indicated it will release a statement on the issue “at some stage”.

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