Cart in the Web
Could online retail alter the way we buy things in the region?
April 28, 2011 3:41 by Sidra Tariq
A true e-commerce model calls for payments made online – through credit or debit cards, and often through online wallet systems such as PayPal and other electronic means of payments such as CashU (which is owned by Jabbar Internet Group, the firm behind Souq.com). But the region has seen a tendency among shoppers to opt for cash on delivery.
Jashanmal says the biggest hurdle to online retail is a “robust, embeddable, easy-to-use, cost-effective payment gateway.” Banks can play a great role in facilitating a secure and strong electronic payment system, but not a lot of that is happening in the region.
“Right now the banks may not be concentrating on it; they are looking at it as just an after-sales product,” saidMikail. “But once they focus on it and bring down the barriers to entry to a payment gateway, it is going to go crazy in this region.”
According to Jashanmal, “other than being extremely expensive, the other big hurdle of the payment gateways that are around here is that they redirect the user from the website. For instance, once the checkout process is initiated, in order to do the payment process, you take the user away from your site to another site where the transaction happens and then sends them back.”
“Every study will show you that this is one of the biggest areas around what we call shopping cart abandonment. If you’re already dealing with people who are shopping online for the first or second time and this happens to them, they’ll get nervous, they’ll close the window,” he said. “It is a learning curve and people will learn. But at the same time, when you combine the small potential user base with an expensive payment gateway which, on top of all that, redirects users and you have shopping cart abandonment, it’s not a recipe for online success.”
“For us, a perfect online transaction is where a customer comes in, buys a product, checks out and it is delivered to him without money being physically traded – everything happens on the website,” addedNahel’sHejazi. “The more we can get people to do that, the more we reduce our overheads, the more savings we pass to our consumers.”
Nahel recently launched a secure credit card payment gateway. It initially offered payment methods such as cash on delivery and PayPal. Hejazi says that prior to the gateway launch, 78 percent of the payments were cash on delivery, while 22 percent were through PayPal accounts. But after the introduction of a credit card payment method, 16 per cent of the payments have been through credit card, while cash on delivery has dropped to 67 percent and PayPal to 17 percent. “As consumers realize the security and convenience behind credit card payments, we are confident they will opt-in for credit card payments,” Hejazi said.
Internet penetration has grown in the region and broadband speed has improved over the past few years but still isn’t on par with international broadband rates. The cost of broadband in the region is “outrageous,” said McNabb. “Broadband in Japan costs 0.27 cents per megabyte per month. Here, it is $68.”
“I believe there is a duty with the telcos to foster the adoption of online technologies and help consumers. If you look at a market such as Jordan, which is highly competitive, the access costs are much lower and the access speeds are pretty much higher on average. The other thing is mobility is going to become more and more important to us and mobile broadband access likewise. But mobile applications are going to be carving their way forward. Will they be the solution to online e-commerce? Not necessarily. But there will be a number of things you’ll be able to transact with your mobile,” he says.
NahrainJashanmal, however, doesn’t think that broadband is an issue. “I think we all enjoy a reasonable quality of the Internet in the region’s countries. I wouldn’t say Saudi Arabia, but [countries such as] Kuwait, the UAE, Bahrain, Qatar, have pretty good access to broadband Internet,” he said. “And even the mobile broadband infrastructure is very good. It’s not being used for much, other than some casual browsing and apps; but on the technical side, the data infrastructure is fine. It’s more than adequate,” he added.
A strong delivery system is also important for the online shopping process. This is where courier companies and shipping services come in. Aramex, for instance, delivers products bought through websites such as Souq and Nahel. Its Shop and Ship delivery service brings in products bought through websites abroad.
But while these services are available, the logistical infrastructure in the region appears to be a challenge.
According to Hejazi, procuring products is a step that has been difficult. “Distributors and suppliers don’t understand what e-commerce is,” he said. It is very different from the bricks-and-mortar stores, “so there is the educational phase that we have to go through with the distributors to explain the benefits to them.”
“Logistics and distribution are still problems for us because the infrastructure is not there,” he added. “There are streets that have no names; delivery addresses use landmarks, so it delays the delivery and complicates it for us. We always have to confirm exactly where [the delivery has to be] – before or after the mosque, or which speed bump you go left at,” he adds.
Once these issues have been addressed, we can see more brands going online and online retail flourishing in the region.
Hejazi says that while the UAE has many shoppers buying online, Saudi Arabia and Kuwait are the dominant countries when it comes to e-commerce. “Kuwait spends more than Saudi and Saudi spends more than the UAE,” he said. “Kuwait has been shopping online from the West.
Although its population is much smaller, Kuwaitis still shop and spend more online. Saudi has a much bigger population. E-commerce hasn’t penetrated as high, but its population makes up for it.”