Chicken-and-egg solutions

The South African internet payment gateway company, Setcom, has developed an alternative to online credit card payments that could make starting up easier for small online retailers.

Setcom’s Secure Instant Deposit allows an online shopper to pay by transferring money from his bank account to that of the online retailer rather than using a credit card.

It’s an ordinary online banking payment, but the effects of Setcom’s Secure Instant Deposit are immediate.

Setcom’s David Lui says the system instantly confirms payment to the retailer and guarantees the transfer, so the retailer can start shipping the goods as soon as the online shopper makes the payment.  Standard Bank has offered a similar payment option called Autopay for a few years now, but only for online shoppers who have Standard Bank accounts.

But Lui says Setcom is, so far, the only company in South Africa that provides the payment option to all four banks’ clients.

The payment method could help to solve a chicken-and-egg problem for many small online retail start-ups.  In order to qualify as an online credit card merchant (a business equipped to process credit cards), you have to have a viable online turnover, which is difficult to achieve if you don’t qualify as an online credit card merchant.

A small online retailer could start up by accepting electronic bank payments from its customers – now made much easier with Secure Instant Deposits – and apply to become a credit card merchant once it has a reasonable turnover.

Leslie Maliepaard, owner and founder on online wine shop www.wineweb.co.za, has long been a credit card merchant, but she signed up with Setcom to cater for customers who  don’t have credit cards.  A customer who proceeds to wineweb.co.za’s virtual till can now choose whether to pay with a credit card or with a bank transfer.

If the latter is chosen, the shopper is taken to his internet banking site where the banking details of wineweb.co.za are automatically filled in.  Maliepaard says the process is seamless, although it requires more clicks and procedures from the shopper than a credit card payment.

It is this added effort for the shopper that makes internet researcher Arthur Goldstuck skeptical about whether instant bank transfers will change the face of online retail in South Africa.  As long as credit cards remain a quicker and easier way of paying, that method is unlikely to be overtaken.

The idea that online credit card payments are risky is a media myth propagated by technophobic journalists, he says.  Online credit card fraud mostly happens when cards are stolen or skimmed in the physical world.

Goldstuck says it takes about five years for the average South African internet user to become comfortable enough with the internet to start online shopping.  Part of that learning curve is the realization that credit cards are safe to use online.

If it were up to online retailers, however, instant bank transfers would replace credit cards entirely.  There is almost no risk of fraud and there are no “charge backs”, which force the retailer to give the money back when a credit card holder queries a transaction.

Not least, instant bank transfers are much less expensive for the retailer.  Credit card commissions for small businesses in South Africa are generally close to 5% of the transaction value, over and above a monthly fee of about R400.

Setcom charges R220 a month plus 1% of each transaction paid through its Secure Instant Deposit.  Lui says the company is working on a prepaid option with no monthly fees.

Setcom’s Secure Instant Deposit discussion

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Chicken-and-egg solutions