Many small to medium enterprises (SMEs) have expressed interest in launching an online e-commerce gateway, but the process is turning them off the idea.
SMEs are increasingly expressing an interest in posting a gateway and offering online credit transactions, but few actually do, says Gian Visser, MD of Web-hosting company Afrihost. "People can do it, but the time and amount of red tape involved from the banks is proving to be a significant barrier to entry.
"Sometimes it seems like it stops just short of you giving a DNA sample in order to get it right."
Approximately 95% of Afrihost consumers are SMEs, but only 2% accept credit cards, says Visser. The low level of uptake is noteworthy, as online gateways do offer a number of advantages, he adds.
"It is a definite competitive advantage. Every year, thousands more people are willing to give their credit card details over the Internet. Also, there is no risk of a sales breakdown, like the consumer backing out, as the transactions take place in real-time."
The high levels of red tape are put in place because SMEs pose a higher fraud risk and banks are forced to protect against this, says Arthur Goldstuck, MD of research firm World Wide Worx. "This is partly because these smaller businesses do not have a long credit track-record."
Goldstuck, who is completing a survey on the issue of online e-commerce gateways, says the merchant acquisition system needs to change before more merchants are able to come online. He adds that this will only happen once there is a greater guarantee against fraud and failure.
"Because there is no 'gee-whiz` factor behind it, it is not going to capture the imagination of the public unless we develop a local equivalent of Paypal, which is in effect a payment gateway between individuals.
"Mobile payment gateways, such as Fundamo, may also make a huge impact in the future, but the cost of transactions remains a stumbling block. When the mobile networks become banks, this could also change dramatically."
Simplifying the process
Banks are aware that decreasing the complexity of the credit offering process will open up online transactions to more of the market and are addressing the issue, says David Liu, MD of commerce service provider Setcom.
"The reason why the process is difficult for SMEs is because of the risk they face. From both our and the banks` perspective, we are putting technology in place that will reduce fraud and risk. This addresses the fundamental cause of this problem. Such technology should simplify the process for SMEs.
"It is obviously beneficial to companies like us and the banks to increase the number of companies using these e-gateways."
In terms of costs accrued by the merchant, Liu says online gateways are still affordable despite the inherent gateway and bank charges, even for SMEs. "If you are moving a marginal number of products, that will obviously impact on your margins. But most of the SMEs we work with are recording a profit."
Due to the comparatively low level of transactions they carry out, SMEs are required to pay a 5% transaction charge. This decreases as a company carries out more transactions, adds Liu.
Goldstuck agrees that, once the process of setting up a merchant account is complete, the process is somewhat simpler. "The banks receive the usual credit card fee. The additional costs accrue to the vendors of the payment gateways.
"The cost is, in many cases, fairly affordable. If you can afford to have a Web site hosted, you can usually afford a payment gateway."
Although uptake is low due to the high barriers to entry at present, the number of SMEs signing on is increasing, and the process will only get simpler as this number increases, says Visser.
"The more people getting involved, the more the process will be refined. More money is being spent on the Internet, and people will flow to where the money is. So supply will come."
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