Dubai: Within the Middle East e-commerce has been growing slowly. Sirish Kumar, CEO of online payment company Telr, says that for e-commerce to grow, local commerce should grow, as more companies join to build their platforms online.
Kumar said that the cost of having a high cash-driven economy is enormous and there are many calculations. “The larger the cash-driven economy the more it is to maintain that economy,” he said.
With only about 15 per cent of the world using cards instead of cash, some governments are pushing to move from cash to cashless initiatives.
Why is e-commerce not growing?
e-commerce will grow because the local commerce will grow. We expect now with smartphone and social media penetration and certain banks taking out-of-the way steps for us to see e-commerce growing in the next five years in the UAE and KSA and then followed by other countries. This is where you will see largely the share of e-commerce which is less than 4 to 5 per cent in the countries. It will go up beyond 20 per cent and we expect at the right time to be 40 per cent.
A website is not the only way of selling online, you have social media, meaning Facebook and Instagram, you will have mobile phone. We think e-commerce will have a major shift in terms of growth rate. A very positive shift. Everybody says the UAE is a $2 billion (Dh7.35 billion) market, some say $5 billion market. We think it will go up above $10 billion market.
What do players like Telr do?
Players like Telr enable the experience to be frictionless from the buyer’s side, so that the merchants don’t see people dropping off and they have maybe not more than 3 or 4 clicks to complete the transactions. So the experience should be simple. When a person puts in his or her credit card details... that is where the authentication starts by Telr. So what happens then the authentication of the card and the details happens in microseconds in the bank. You are checking with various partners whether the bank has issued the card, if its Visa you check with Visa, if Mastercard you check with Mastercard, depending on the card. And that authentication process is done in microseconds and what happens is that when the verification is completed in microseconds, it enables the merchant to get entitled to that payment.
What will happen to the market if players like yourself don’t exist?
The share of the non-banking industry in the US, UK and a lot of countries has grown. That is growth in innovation and growth in a lot of cashless [transactions]. We believe players like us should be encouraged not only to help start-ups but also to help medium enterprises to grow and at the same time the regulatory framework should help traditional players to partner with us where we take on more responsibilities. But it is important we are contributors to the common GDP for many countries.
What are the challenges to online payments in MENA?
The biggest challenge is that the local buyer and the local seller has to connect. Today, most of the e-commerce happens from a person sitting in Dubai going off to someone outside — the UK, US. The product is getting shipped to your destination and your house. And the reason is that the variety of the merchants available in the local country in which you are is less. And the reason for that again is if I want to start my online business, I have to put a lot of costs, it takes me a lot of time and more importantly I have to put costs before I start my transaction. So there is an inhibitor that exists today in the ecosystem. And that ecosystem is fragmented.
Is there proper infrastructure for online payments in the Middle East?
We are getting there. It is very important that there are strategic partnerships laid out between the ecosystem players. Know your customer documentation that is required. A bank, for example, says that we are only used to a particular way and that we want to get to e-commerce, its trendy, its cool but we don’t want to leave the old risk and compliance model that we used to for the last years. Hence, it is the non-banking players like us who could be enablers and be the front end for merchants but let the back end be complied to be run by banks. That framework has seen an evolution whether it is Singapore, or India or Germany has taken an evolution where banks has then outsourced a lot of this to new players.
What can we do to push online payments further in the region?
The US started e-payments in 1997. It was started by PayPal and couple of other players it was basically said that the traditional players should not enter this ecosystem. Fast forward that to 2015, those players has not yet entered this market. The innovation, I formally believe, should come from the country rather than an international player. The US never saw a huge social media and smartphone penetration that this region has seen or emerging markets have seen. That means the banks in the region have to wake up and basically allow players like this to contribute to the local e-commerce. Bring down the pricing, bring down the cost of starting the business and ensure that you are enabling buyers to buy in their currency and merchants to sell in their currency.
So acquiring banks are those who are given the rights from a cards scheme perspective. They are empowering banks to acquire merchants and the banks say we don’t want to invest in technology. We are not good in bringing merchants online we will go to players like Telr and let them do that.
What is the difference between the GCC countries and the rest of the countries in the region when it comes to online payments?
So let’s take the UAE and KSA. KSA in 2001-2004 started SADAT, which is a regulator driven by the concept of using cash for anything to do with government payments. So I could pay my bill in 2004 through online banking. They created a culture among consumers, 25 million of them to use online banking to pay the bills. Fast forward that they processed almost 100 billion dollars through online payments last year. They have gone to the next step courtesy of the regulator and the government, they have gone on initiative where we have to bring in consumers to start using online banking as a source to buy from e-commerce merchants which means the small-medium enterprise can actually get one more funding source as opposed to credit cards.
There are only 2 million credit cards and 24-25 million customer online. So just imagine the impact it will have on e-commerce merchant. They will now be able to reach not one but tens of consumers.
UAE demographics are very unique in the world. The expat population is huge. There is a mobile phone penetration. Without any particular specific regulator drive, this is already going through a e-commerce surge where 41 per cent of the merchants came online last year. We expect it will go up further because of the inherent entrepreneurial focus now where incubators are being encouraged. The entrepreneurs from different parts of the world, whether Europe, South East Asia, India or GCC are coming here to set up shop and that we believe is also our focus — small-medium enterprises as incubators (start ups). That will drive e-commerce because that entrepreneurial spirit reflects risk appetite.
KSA have taken a lot of things online in the last 10 years and in Qatar and countries such as Egypt, there are various online solutions now being promoted. These are really powerful enablers for people to come online. So you are seeing pockets of excellence driven by an advanced understanding by some and driven by also seeing others. There are initiatives being driven and it is going to be coming back to that ecosystem discussion. It is going to be that political stability and empowerment given to the government sector or the regulator and to players saying we will give certain framework but you have to execute. But if you ask me across GCC in terms of large scale impact, it is going to be KSA, UAE, Qatar and Kuwait as well.
Online payments are not considered all that safe, so why should people trust it?
Let me answer you in two ways. Trust is essential, before trust you have convenience. You have to give the seamless experience to the customer and that replaces any amount of trust. The more you talk about convenience, the person will keep coming back.
Trust is driven by the fact there is a perception and reaction. You will be surprised by past analysis that frauds did not come from this part of the world. There are very high fraudulent rates from the US, from other parts of the world and it led to greater safeguarding of consumer rights in those countries. So that is the other facet of trust.
There is a need to spread awareness among merchants and buyers alike. Why is it safe to come online, what are the responsibilities etc. I can say that since 2007-2008, banks are spending a lot of time on security and that also enables them to focus on compliances.
Could terrorists get more money through more online banking?
Internet if used properly will have a good impact on society, otherwise it will have bad effect. Depending on the reach, internet is vulnerable.
What’s driving the success of e-wallets among the customers?
There have been very few e-wallet success stories, PayPal being one of them. And you are having many countries, very specifically local e-wallet stories. The reason e-wallets will become successful will be two reasons: one if I deposit the money in the bank, I get interest, but the beauty about e-wallet is that if I deposit the money in e-wallet, I can use it to buy and sell. I can withdraw or deposit money in e-wallet, I can actually use it to buy something and the money that I used to sell something I can use it to buy something. I believe the e-wallet story will be successful if you get the same incentive as you get in the bank such as interest rates.
I will put India way ahead in this area. There are many regulations coming ahead which are promoting e-wallets as a way for you to store money. I am very confident we will see more of this in South East Asia and the Middle East.
Do we see ordinary citizens use e-wallets more than businesses?
Businesses for us are small medium enterprises. They can be run by two people or one. E-wallets is more driven by demographics. Those below 35 use e-wallets, those above use bank deposits.