[kictanet] Payment Portal Promises Major E-Commerce Shift in Kenya

[alice]

        (Balancing Act)



        Payment Portal Promises Major E-Commerce Shift in Kenya

When Quentin Faulkner launched an online store for parents looking for 
good quality clothing for their children two years ago, his peers told 
him he would close shop in weeks.

But the business - a baby clothing store that has no physical location 
and is solely marketed using social networking website Facebook - now 
handles up to 90 transactions a month.

That growth has inspired him to launch a second e-commerce website – 
www.Bagalicious.co.ke 
<http://lists.balancingact-africa.com/t/6647/235533/964/0/>, which sells 
handbags. We handle up to 155 orders a month on this website. January is 
shaping up to be our second best month in terms of orders and revenue," 
said Mr Faulkner.

More recently, web commerce has become a key driver of the many online 
commercial portals that Kenya's restless technology entrepreneurs (also 
known as techpreneurs) have been trying to establish with the growth of 
internet use in the country.

In this club of online commerce start-ups is Totallytoto.com 
<http://lists.balancingact-africa.com/t/6647/235533/965/0/> launched at 
the beginning of the year to solely sell goods online. The firm joins a 
growing list of websites that are selling mostly foreign made goods to 
Kenyan consumers at competitive prices. Mystrawberrystore.com 
<http://lists.balancingact-africa.com/t/6647/235533/966/0/>, pesapal.com 
<http://lists.balancingact-africa.com/t/6647/235533/967/0/>, 
enrakenya.com 
<http://lists.balancingact-africa.com/t/6647/235533/968/0/>, 
kalahari.co.ke 
<http://lists.balancingact-africa.com/t/6647/235533/969/0/> and 
nsoko.co.ke <http://lists.balancingact-africa.com/t/6647/235533/970/0/>, 
styleconnection.co.ke 
<http://lists.balancingact-africa.com/t/6647/235533/971/0/> and 
intokenya.com 
<http://lists.balancingact-africa.com/t/6647/235533/972/0/> are the 
vanguards of this budding internet economy. Growth of the internet 
sector is expected to create new opportunities for the development of 
e-commerce and m-commerce linking Kenya more closely to the global economy.

This new push for e-commerce got an impetus mid last year with the 
landing at the Kenyan coast of two undersea fibre optic cables that 
linked the country to high-speed internet connectivity, laying the 
groundwork for a digital economy.

E-commerce is expected to give rise to a digitally-enabled economy that 
runs on platforms such as e-government, e-health, e-education, social 
media and e-science. Because of its association with lower overhead 
costs, e-commerce has enabled retailers to charge lower prices besides 
offering consumers a more convenient shopping window.

Globally, the e-commerce industry is now worth $500 billion, but 
Africa's many technological challenges, including the absence of local 
electronic payment portals, have ensured that the continent accounts for 
only a tiny fraction of it.

With the arrival of broadband internet, Kenyan companies are now 
refocusing their strategies to tap on online commerce that is expected 
to grow at an annual average of 10 per cent in the next decade.

Helped by the changing landscape in the travel industry, national flag 
carrier Kenya Airways is for example offering online ticketing and tens 
of small and medium-sized firms such as e-manamba.com 
<http://lists.balancingact-africa.com/t/6647/235533/973/0/> are offering 
commuters the opportunity to purchase tickets online. Media companies 
such as the Nation Media Group have also gone online to sell digital 
editions of their publications.

Nakumatt, the country's largest retail chain is planning to launch an 
online hyper-mart that offers for sale on-line all products available in 
its stores.

It will work as a complementary sales tool that will serve customers in 
remote areas. And to ensure its success, we have enlisted the support of 
a leading logistics solutions provider to handle the delivery and 
logistics support elements," said Atul Shah, the Nakumatt managing director.

Currently, MamaMikes.com 
<http://lists.balancingact-africa.com/t/6647/235533/974/0/> - the oldest 
locally developed e-commerce portal - draws its customer base from 
Kenyans living in the diaspora but now hopes the availability of a local 
payment portal launched by I & M Bank last week will open the online 
shop to the domestic consumers.

The website has been offering its customers a platform to buy gifts for 
relatives and friends in Kenya from abroad. The menu of items on sale 
includes mobile phone airtime, Nakumatt or Uchumi vouchers, or cakes and 
flowers during special occasions.

The company now handles around 500 orders a month, a figure that had 
grown steadily until last year when a number of small enterprises 
offering the same service entered the market.

We never realised growth last year, partly because of intense 
competition from new players offering the same services," said Segeni 
Ngethe, the company's founder.

Analysts say last week's launch of the country's first electronic 
payments system may not have an immediate effect on the budding 
e-commerce industry citing the pricing structure that I&M Bank and Visa 
will offer the retailers. That pricing will determine profit margins for 
online sales - a key ingredient for e-commerce.

For many Kenyan e-commerce retailers, card use translates to higher 
transaction charges and reduced profit margins. The larger the profit 
margins, the easier it is to accommodate Visa transaction fees. When an 
online company sells products with margins of 70 per cent, it is easy to 
justify paying a fee of 5 per cent of the sale price to visa to make the 
sale possible," said Mr Ngethe.

But for smaller firms that generate lower sales margins, hefty payments 
to Visa may force them to hike prices in order to make profits.

"This is an unnecessary expense for us. Our margins are small enough 
that this has a significant effect on our bottom line. It will also 
involves a much higher level of security and protection to safely use 
credit cards for online transactions and that administrative cost is too 
high for us," said Mr Faulkner.

In Kenya, alternative payment systems have been gaining popularity as 
consumer demand for different payment avenues, other than credit cards, 
intensifies.

Online retailers say Kenyan consumers have been shying away from credit 
cards in favour of cash on delivery or mobile money transfers.And as 
security concerns surrounding e-payments increase, some online retailers 
are turning to outsourced payment processing companies such as Pesapal 
to manage their e-payments.

A poll of e-commerce outfits reveals that the most used payment system 
in Kenya is cash on delivery, which accounts for 70 per cent of on-line 
purchases. A growing number of payments (around 20 per cent are made 
using M-Pesa or Zap, a segment that many industry insiders believe will 
grow as more consumers get online using their mobile phones or computers.

With eight million users already on the system, M-Pesa is gaining ground 
as the cashless currency of choice because they offer instant payments 
at rates lower than those charged by banks or credit card vendors.

Only five per cent of online purchases are paid for using credit or 
debit cards which two million Kenyans have access to. The remaining five 
per cent of the payments made through intermediary payment sites such as 
Pesapal or Paypal.
(Source: Business Daily)