Secure and efficient channels for processing online transactions are core ingredients of a good startup environment. For Pakistani startups, securing such methods has proved to be a stiff challenge. The local financial services industry, while growing steadily, is only making baby steps in terms of providing the right solutions for online businesses. As a result they have had to struggle with limited options as they try to integrate reliable payment methods into their services.
For e-commerce startups like Kaymu and Homeshopping, the go-to solution is Cash on Delivery (COD), and for good reason. Because of the availability of a fairly widespread courier/delivery network (BlueEx, TCS, etc) that also offers cash collection services, COD becomes a relatively hassle free solution for both the company and the customer. Of course, COD has its own drawbacks, like the inconvenience of having cash on hand and the uncertainty of payment for suppliers whose products are such that they need a guarantee of payment before they prepare an order. Also, it is not the answer for non-ecommerce operations , e.g. classified sites like Zameen and PakWheels who would like a convenient method for their users to pay for posting premium ads on their site.
This brings us to the pre-paid transaction methods, which still have a long way to go in Pakistan. Plastic money (credit and debit cards) already suffers from a big lacuna because of the absence of a universal payment channel like PayPal. Add to this the fact that there are only 24.3 million such cards active currently out of a much larger number of potential consumers, with 90.6% of these being debit cards, and one can see how very limited the payment options through plastic money are in the country. Only very few banks offer debit cards that can be used for online payments. Also, only a handful of banks offer users the facility of transferring money from their online accounts to other bank accounts, plus internet access is not a guaranteed fact especially in far flung areas of the country. All of this further complicates the payment process, especially for small transactions which do not make it worth one’s while to utilize methods like writing a cheque to a specific account holder and sending it in or going to the nearest ATM to make the transfer.
Very recently, there have been some developments like MCB partnering up with Mastercard and HBL joining hands with Visa in order to provide safe payment portals to online businesses. While this means that cardholders can now transact online on websites, it is still a payment channel that is limited to account holders who have the right cards and the right banks. The M-Net network used by MCB is not compatible with most other banks here in Pakistan who are on the 1-Link network. Also, these payment gateways are expected to have transaction fees of around 3% plus some additional fixed charges, which might make them unfeasible for purchases of low cost items like a T-shirt on Daraz.pk that costs Rs 500.
Other options that have been gaining traction include some of the branchless banking solutions introduced by telecom companies in collaboration with banks, like Telenor’s project with Tameer Microfinance bank called EasyPaisa and Warid’s joint effort with Bank Alfalah called MobilePay. These methods have the advantage of expanding the net of online transactions to cover people who do not own the right cards for online transactions. Also, users of these services only need a mobile connection to complete the payment, which is handy in places where internet access is infrequent. Telenor has also introduced a service where you can make payments online through Fortumo which will then be deducted from your mobile balance. This eliminates the need to have a bank account for payment, thus opening up another demographic for online businesses.
Despite the hopeful picture being painted by these advances, new challenges are being created as a result of them. The payment gateways provided by different banks and the solutions being introduced by telecom companies mean that the payments industry is becoming more and more fragmented. For an online business to capture the widest possible market of customers, it will have to juggle different banks accounts and strike deals with multiple payment providers. Accepting payments made through EasyPaisa means you are catering to Telenor customers, but not to other telecom company users as yet. The same goes for catering to M-Net/1-Link networks and Visa/Mastercard networks. This probably signals the need for an innovative payment startup that can find a way to work around this fragmentation and provide a coherent payment platform to businesses and customers alike.
You can learn more about the payments climate in Pakistan on this site which is updated frequently with new developments: http://dyl-ventures.com/online-payment-methods-pakistan/.
1. SBP’s Payment System Review 2014: http://www.sbp.org.pk/psd/pdf/2014/PS-3rd-Qrtly-FY14.pdf