Two years into running PayPal MENA – after a longer stint at PayPal Asia – Elias Ghanem’s hopes of growing the payment gateway in the region were quickly shattered by one realization: “It was much easier to sell PayPal to MENA than it was to sell MENA to PayPal.” When, in early 2013, Ghanem allegedly announced at digital conference Arabnet that PayPal would be available in Lebanon and Egypt by the end of that year, tweeps and geeks salivated for the game-changing opportunities that the gateway could offer the region. PayPal made it to Egypt. Lebanon is still waiting. “As an aggregation of markets, the MENA region is significant. But, on a standalone basis, [PayPal] is a hard business model to adapt. And the challenge [for PayPal] has been the resource allocation to a given market. After two years, I realized that it would not be a large organization that would change the landscape in the MENA region. You need to be much more nimble,” says Ghanem, who recently left PayPal to co-found Telr, a payment gateway for SMEs catering to the region outside of the UAE.
The growth of global solutions such as PayPal is hindered by their limited currency options, says Ghanem, whereas Telr, as its name indicates, serves as a “local teller in every single country. If you were to conduct a transaction in dirhams in the UAE, for example, PayPal would need you to convert the value in dollars, so that it can then convert it back again into dirhams for the merchant,” he explains – granted, Telr’s model is easier said than done, as the service has just launched in the UAE, with ambitions to expand into Africa, the Middle East and South Asia by the end of next year. Regional payment gateway PayFort offers “at least 35 currencies,” according to its managing director, Omar Soudodi, who adds that PayPal could make money off of exchange rate conversions, while merchants “could lose”. He speaks of PayFort’s soon-to-be-available dynamic currency conversion service, whereby “merchants will be able to make money on the transaction. Right now, the bank is making the money”.
For Omar Kassim, founder and CEO of regional e-commerce platform JadoPado.com, which recently dropped its COD (cash on delivery) offering, choosing the right payment gateway is, naturally, of paramount importance. Having worked with e-payment solutions Cybersource and Network International, Kassim was not particularly sold on PayPal before it came to the region. “I was not a believer [in PayPal]. [But] when they set up the operation in the Middle East, I understood its mentality, [but] it will be another 18 to 24 months before it has a more holistic solution for the region,” he explains, however, adding that there is a huge advantage in PayPal being recognized “as a payment option globally. They’ve got 160 million-plus customers and [as a merchant], you’re essentially paying to get access to that locked-in customer base that already understands how to shop online. [Besides], customers sometimes have credit on their PayPal accounts. They might want to shop in US dollars [from overseas merchants].”
In response to concerns around the localization – or lack thereof – of its solution, PayPal recently signed a partnership with Network International to allow transfers from merchant PayPal accounts to local UAE banks – whereas usually, “it would allow you, as a merchant, to withdraw a limit of, say, $2,500 dollars from your PayPal account if you have Visa. So, you’d need to withdraw blocks of $2,500 with a $5 fee for each time,” explains Ghanem. The gateway is also to gradually roll out its “Arabic experience” in the coming months, according to PayPal MENA’s regional director, Laurent Wakim, “starting with the iPhone app. Allowing our customers to interact in their own language, Arabic, will certainly allow us to reach much more people that are today concerned about paying in English, especially in markets such as Saudi Arabia or Egypt.” Citing “regulatory constraints”, Wakim adds that PayPal does not provide peer-to-peer transfers, rather allows banked customers to send money from their bank accounts “from their online banking interface through PayPal. This is a cheaper, faster and a more convenient way to pay, when compared with traditional bank transfers or other remittance services”. This service is currently available for QNB customers in Qatar and Cairo Amman Bank customers in Jordan.
Still, Ghanem believes that regional merchants need more than easy and versatile payment gateways to grow their online transactions; they need, first and foremost, money to grow their businesses. In this regard, Telr is eyeing opportunities in working capital financing for SMEs. It’s devised a risk scoring system, based on which it can decide to lend merchants money – or not. “Banks have no way to confirm a merchant’s credit worthiness, because there are no credit bureaus in the region. What if we use the data that we have on our payment gateway to tell you how good your credit standing is? As Telr, we will de facto be gathering data from merchants: the number of transactions, the customer base diversity, and the volume and ticket price, among others,” explains Ghanem, adding that: “If I see any change in behavior, I will be able to stop the payment. Or, if I see a positive change, I will be able to lend you more. I enable your business to run and I build your credit story.”
What’s more, Ghanem promises a fast setup period for Telr, averaging three to four weeks and soon-to-be-made immediate, and sparing merchants the time- and paperwork-consuming process of setting up other gateways – for which the integration takes three to nine months, he claims. “We’re a Singapore-based company. We’re extremely well funded,” says Ghanem. Similarly, PayFort is also supporting SMEs, having negotiated with acquiring banks – those that process debit and credit transactions on behalf of merchants – to spare startup security deposits and partnering with incubators, such as Flat6Labs, to waive startups’ setup and annual fees for the first year.
The fact that it has acquired so many acquiring banks serves as a competitive edge for PayFort, adds Soudodi. “We have multiple acquiring banks and we’re growing in other markets. If I’m a merchant that requires working capital in Saudi Arabia, the UAE, Egypt and Kuwait, then PayFort becomes appealing. Today, [merchants] are going back and forth exchanging local currencies and losing three percent to four percent on them. If we solve the problems for regional merchants and startups, we’ve basically solved the problem for everything in between,” he explains, however, admit- ting that PayFort’s requirement to integrate within the acquiring bank’s system could take between one to six months. “Banks have lengthy technical roadmaps and you have to be on their priority.”
Unlike Telr, PayFort focuses on tailoring its payment solutions and user experience to merchant requests, “such as in-app transactions”, rather than financing them. “When merchants’ operation sizes justify that we put our technical team’s efforts and resources in tailoring solutions further, we’ll do it as well,” adds Soudodi. Moreover, the gateway’s Pay At Home product, recently launched in the UAE, works as a COD solution in the reverse: an integrated system between PayFort, merchants and courier services arranges for cash pick-up before the products and services are delivered. This doesn’t make much sense for physical goods delivery, of course, because “it’s not developed for e-commerce, but rather for services. We call it anti-COD”. Meanwhile, PayatStore offers buyers vouchers, including information on their purchases, and locations where they can process payments for their orders.
When asked about Telr’s business model, Ghanem says the gateway makes money on not only transaction fees, but also much like what a lender would on interest rates it charges merchants that borrow money from it. PayFort, on the other hand, takes its tailored offerings into account when charging merchants a per-transaction fee. But, while payment gateways continue to customize their offerings in the MENA region, they, ultimately, need the support of issuers such as MasterCard and Visa, as well as of banks if only to provide a facilitative environment for their operations. “We do talk to issuers and banks about enabling their debit cards on PayFort, but, sometimes, it’s about the card itself and the technology it employs. Banks are currently migrating from an old to a new technology for that purpose. It’s about banks wanting to mitigate risk as well,” says Soudodi. Ali Abbas, sales manager at research company Euromonitor, says that the UAE’s financial cards’ growth has been underpinned by the upcoming Expo 2020, but also by the “increased trust among Muslim consumers. Once reluctant to utilize consumer credit on religious principles they are expected to take advantage of the rise in shari’a-compliant banks,” he explains. According to Euromonitor, Emirates NBD currently leads with the issuance of financial cards, followed by the National Bank of Abu Dhabi, Abu Dhabi Islamic Bank and Abu Dhabi Commercial Bank. “The main drivers supporting banks in financial cards’ issuance are a large consumer base, strong consumer confidence and innovative promotions and incentives aimed at encouraging consumers to consider debit and credit cards when making purchases,” adds Abbas.
“With the recent addition of Qatar, we now have eight offices in the MEA region, [including] our regional office in Dubai,” says Raghu Malhotra, president MENA – international markets at MasterCard, which is slated to launch MasterPass in the UAE by the end of the year. MasterPass allows customers to safely store their shipment and payment information as they check out their purchases, while “MasterCard’s SecureCode enables cardholders to authenticate themselves to their issuers before making a purchase using a unique personal code,” adds Malhotra.
Still, many attacks on merchants’ security and payment systems have highlighted major cracks in them; take, for example, Target’s hacking scandal earlier this year, where 40 million credit card numbers pertaining to the US retailer’s customers were stolen, as reported by Bloomberg Businessweek.
“I’d like to separate the media effect from reality. From time to time, we hear that ‘X’ company got hacked. How frequent are these hacks when compared with the number of transactions being processed everyday? I do believe that the [security] systems are quite solid here. You’re not hearing about attacks because the door is quite closed and because they [hacking attempts] are probably being pushed back. When I met with the central bank, I was amazed with the guys’ thinking process,” says Ghanem, while Soudodi adds that fraud risk in the region is three times less than the world average, whereby “93 percent of the cards in Saudi Arabia is 3D secure-enabled [meaning users’ identity is authenticated at the time of the purchase]. In the UAE, we’re between 30 percent to 40 percent”.
The central bank has little direct involvement with payment gateways’ security and anti-fraud provisions. “The only requirement is compliance with the PCI (Payment Cards Industry) Council standards. We are PCI-certified and are constantly doing penetration testing – people are constantly hacking technology that we build [to test its resilience],” says Soudodi, pointing to a “scrambler” that sits in one of PayFort’s office corners, which “deciphers everything that happens. Fraud is an on-going animal. We combat it with technology and people. We have a risk management team and fraud management tools, [the latest of which is] a third-party tool from Europe. It will device-fingerprint the hackers,” he adds. As such, only PCI audits are forwarded to the central bank.
Armed with strong security systems and localized offerings, PayFort is hoping to grow out of the UAE – where it launched in June 2013 and has processed AED2 billion in transactions – Egypt and Saudi Arabia, is finalizing the launch of its Kuwaiti operation and is expanding into North Africa by 2015. Its roster of clients has grown to include e- commerce websites, airlines, governmental agencies and event planning companies. PayPal’s has, too, as the gateway has on-boarded top regional merchants such as Souq.com, MarkaVIP, JadoPado.com and Namshi, among others. “We have 500,000-plus active users across the MENA region and have signed a number of strategic agreements with key partners,” says Wakim, adding that PayPal has seen a strong uptake in Egypt, where it recently launched, and in other regional markets where its services are available, such as the GCC, Yemen, Jordan, Morocco, Algeria and Tunisia.
Having just launched in the UAE, Telr is eyeing expansion into Africa, the Middle East and South Asia by 2015. “We’re continuously working toward expanding our services to other countries in the region. But that, of course, takes time. It’s not enough to just make the services available. [We] must have local and regional partnerships that will add value to our users,” says Wakim. Lesson learned.
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