Payment portal promises major e-commerce shift

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.

Heftier purchases

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.

Industry insiders say it is likely that the I&M-Visa partnership will target heftier purchases such as those seen in the travel, tourism or automotive industry. The bank is planning a series of sensitisation events for online retailers.