(Balancing Act) Payment Portal Promises Major E-Commerce Shift in Kenya When Quentin Faulkner launched an online store for parents looking for good quality clothing for their children two years ago, his peers told him he would close shop in weeks. But the business - a baby clothing store that has no physical location and is solely marketed using social networking website Facebook - now handles up to 90 transactions a month. That growth has inspired him to launch a second e-commerce website – www.Bagalicious.co.ke <http://lists.balancingact-africa.com/t/6647/235533/964/0/>, which sells handbags. We handle up to 155 orders a month on this website. January is shaping up to be our second best month in terms of orders and revenue," said Mr Faulkner. More recently, web commerce has become a key driver of the many online commercial portals that Kenya's restless technology entrepreneurs (also known as techpreneurs) have been trying to establish with the growth of internet use in the country. In this club of online commerce start-ups is Totallytoto.com <http://lists.balancingact-africa.com/t/6647/235533/965/0/> launched at the beginning of the year to solely sell goods online. The firm joins a growing list of websites that are selling mostly foreign made goods to Kenyan consumers at competitive prices. Mystrawberrystore.com <http://lists.balancingact-africa.com/t/6647/235533/966/0/>, pesapal.com <http://lists.balancingact-africa.com/t/6647/235533/967/0/>, enrakenya.com <http://lists.balancingact-africa.com/t/6647/235533/968/0/>, kalahari.co.ke <http://lists.balancingact-africa.com/t/6647/235533/969/0/> and nsoko.co.ke <http://lists.balancingact-africa.com/t/6647/235533/970/0/>, styleconnection.co.ke <http://lists.balancingact-africa.com/t/6647/235533/971/0/> and intokenya.com <http://lists.balancingact-africa.com/t/6647/235533/972/0/> are the vanguards of this budding internet economy. Growth of the internet sector is expected to create new opportunities for the development of e-commerce and m-commerce linking Kenya more closely to the global economy. This new push for e-commerce got an impetus mid last year with the landing at the Kenyan coast of two undersea fibre optic cables that linked the country to high-speed internet connectivity, laying the groundwork for a digital economy. E-commerce is expected to give rise to a digitally-enabled economy that runs on platforms such as e-government, e-health, e-education, social media and e-science. Because of its association with lower overhead costs, e-commerce has enabled retailers to charge lower prices besides offering consumers a more convenient shopping window. Globally, the e-commerce industry is now worth $500 billion, but Africa's many technological challenges, including the absence of local electronic payment portals, have ensured that the continent accounts for only a tiny fraction of it. With the arrival of broadband internet, Kenyan companies are now refocusing their strategies to tap on online commerce that is expected to grow at an annual average of 10 per cent in the next decade. Helped by the changing landscape in the travel industry, national flag carrier Kenya Airways is for example offering online ticketing and tens of small and medium-sized firms such as e-manamba.com <http://lists.balancingact-africa.com/t/6647/235533/973/0/> are offering commuters the opportunity to purchase tickets online. Media companies such as the Nation Media Group have also gone online to sell digital editions of their publications. Nakumatt, the country's largest retail chain is planning to launch an online hyper-mart that offers for sale on-line all products available in its stores. It will work as a complementary sales tool that will serve customers in remote areas. And to ensure its success, we have enlisted the support of a leading logistics solutions provider to handle the delivery and logistics support elements," said Atul Shah, the Nakumatt managing director. Currently, MamaMikes.com <http://lists.balancingact-africa.com/t/6647/235533/974/0/> - the oldest locally developed e-commerce portal - draws its customer base from Kenyans living in the diaspora but now hopes the availability of a local payment portal launched by I & M Bank last week will open the online shop to the domestic consumers. The website has been offering its customers a platform to buy gifts for relatives and friends in Kenya from abroad. The menu of items on sale includes mobile phone airtime, Nakumatt or Uchumi vouchers, or cakes and flowers during special occasions. The company now handles around 500 orders a month, a figure that had grown steadily until last year when a number of small enterprises offering the same service entered the market. We never realised growth last year, partly because of intense competition from new players offering the same services," said Segeni Ngethe, the company's founder. Analysts say last week's launch of the country's first electronic payments system may not have an immediate effect on the budding e-commerce industry citing the pricing structure that I&M Bank and Visa will offer the retailers. That pricing will determine profit margins for online sales - a key ingredient for e-commerce. For many Kenyan e-commerce retailers, card use translates to higher transaction charges and reduced profit margins. The larger the profit margins, the easier it is to accommodate Visa transaction fees. When an online company sells products with margins of 70 per cent, it is easy to justify paying a fee of 5 per cent of the sale price to visa to make the sale possible," said Mr Ngethe. But for smaller firms that generate lower sales margins, hefty payments to Visa may force them to hike prices in order to make profits. "This is an unnecessary expense for us. Our margins are small enough that this has a significant effect on our bottom line. It will also involves a much higher level of security and protection to safely use credit cards for online transactions and that administrative cost is too high for us," said Mr Faulkner. In Kenya, alternative payment systems have been gaining popularity as consumer demand for different payment avenues, other than credit cards, intensifies. Online retailers say Kenyan consumers have been shying away from credit cards in favour of cash on delivery or mobile money transfers.And as security concerns surrounding e-payments increase, some online retailers are turning to outsourced payment processing companies such as Pesapal to manage their e-payments. A poll of e-commerce outfits reveals that the most used payment system in Kenya is cash on delivery, which accounts for 70 per cent of on-line purchases. A growing number of payments (around 20 per cent are made using M-Pesa or Zap, a segment that many industry insiders believe will grow as more consumers get online using their mobile phones or computers. With eight million users already on the system, M-Pesa is gaining ground as the cashless currency of choice because they offer instant payments at rates lower than those charged by banks or credit card vendors. Only five per cent of online purchases are paid for using credit or debit cards which two million Kenyans have access to. The remaining five per cent of the payments made through intermediary payment sites such as Pesapal or Paypal. (Source: Business Daily)