Payment gateways

Although e-business is still very much in its infancy in the Middle East, an increasing number of companies are offering online payment facilities as they attempt to add value to their existing online services. As such, a growing number of banks, credit card companies and IT vendors are offering either inhouse or hosted payment gateways.

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By  Maddy Reddy Published  August 26, 2004

|~|1visa_Kamran-Siddiqi1.jpg|~|Kamran Siddiqi, general manager at Visa Middle East. |~|Last month, e-commerce celebrated its tenth anniversary. On August 11, 1994, the first item to be purchased online was a music CD. A credit card company facilitated the payment gateway for the US$12.48 purchase. A decade later, e-commerce has come a long way. This year alone American shoppers will spend US$144 billion according to Forrester Group. The global research firm also predicts that with an annual growth of 27%, this figure will reach US$316 billion by 2010. In the Middle East, e-business is slowly making inroads, thanks to the efforts of regional banks and payment-processing companies such as Visa International, MasterCard and American Express. E-government initiatives are also playing their part in facilitating transactions over the internet. One of the most important e-commerce decisions a business will make is the choice of a payment gateway, the bridge or gateway between its e-commerce website and its bank’s credit card processor. A number of factors go into the decision, and it cannot afford to make the wrong choice. While the whole process may seem simple enough in a developed economy, it can be overwhelming in emerging markets like the Middle East, where even the internet is still relatively new. However, companies that facilitate online transactions say it is a simple process and over time businesses and individuals will be comfortable with online transactions. “It is as simple as swiping a card at a point of sale, but it is done on the internet,” comments Mohammed Al Jalaf, senior manager electronic banking services at Emirates Bank. To provide an impetus to emerging markets, credit card companies have unveiled turnkey payment gateway solutions to help local merchants. In 1999, MasterCard launched an e-commerce payment gateway initiative called MasterCard Internet Gateway Service (MIGS) that leverages each member’s existing transaction processing connectivity to the company’s Banknet global network. “Banks want all their transactions over the internet to be facilitated in a secure [environment] through a payment gateway. Also, we felt that there was a need to deploy a payment gateway in order to push the growth of online transactions and payment,” says V.S. Chandraskhar, vice president product delivery at MasterCard International, South Asia Middle East & Africa region.||**|||~|mastercard.jpg|~|V.S. Chandraskhar, vice president product delivery at MasterCard International, South Asia Middle East & Africa region.|~|Based in Australia, the payment gateway links back to the credit card company’s network where all the member banks are linked through a virtual private network (VPN). MasterCard has also unveiled Smart Link, an expense management and reconciliation system. Smart Link integrates the credit card company’s corporate payment solutions with its customer’s enterprise resource planning (ERP) system to automate manual processes and harness the tight controls inherent in ERP systems. Despite such initiatives, electronic payments are still shadowed by security concerns. Customers are cautious about using their credit cards on the internet and this is inhibiting growth. However, Emirates Bank says customers should not be concerned about the safety aspect. “It’s riskier to give your credit card in a restaurant or at a shop in a mall. The payment slip has all the credit card details with a customer’s original signature and other details. Also why would hackers bother to tap into a telephone line or hack into secure websites with encrypted pages and then decrypt it, which is very time consuming,” argues Al Jalaf. In order to provide a more secure environment for online transactions, Visa introduced its 3-D secure protocol. The authentication technology uses Secure Sockets Layer (SSL), an encryption method designed to enhance and validate online payments. One of the company’s first local customers was Emirates Airlines. According to Visa, the endorsement by Emirates came at a time when the annual turnover of e-transactions by regional Visa cardholders was on the up, as it rose to 60% in 2003. Despite claims of success by the credit card companies, the Middle East lags behind in e-commerce. Credit card companies say it is due to the nature of the market. “In the Middle East, the market is fragmented. Each country has its own initiative, there are no defined e-commerce laws and there is no one single view,” explains Ahmed Abdul Kareem Julfar, general manager of the recently formed eCompany. Visa says it can only provide the means and not an end. “Online economies around the world are at different stages of evolution. The Middle East is couple of years behind in terms of electronic payments. At the end of the day, there is a question of readiness from governments and businesses, and how much [customer] demand there is for it. We don’t create the level of usage or evolve the market for the state of readiness — we only facilitate it,” says Kamran Siddiqi, general manager at Visa Middle East. However, due to the introduction of the internet and the pressure from the financial sector, the region’s central banks are embarking on setting up national payment gateways (NPG) for online transactions. “We have already linked up all the ATM switches of the various GCC countries through GCC Net and created a single hub between the different networks. All they need to do is take it one step further and create it for the internet transactions which allow direct debits of accounts,” says Emirates Bank’s Al Jalaf. By extending the existing services, the regional governments are also in a position to serve a larger population that does not have credit cards. “When it comes to payment gateways, the world still links it with credit cards. In developed markets credit cards are practically the main payment method, but in the Middle East region, the primary method of payment is by cash. Not everyone has credit card or debit card. Some people only have a bank account. By extending the services to accept debit card payments, we are opening up new frontiers,” says Sadek Shunnar, chief technical officer at STS. For example, out of a population of five million in Jordan, 1.2 million people have debit cards and 200,000 have credit cards. To serve the majority, STS and Visa Jordan Card Services (VJCS), a consortium of eight member banks, recently unveiled an NPG, a consolidated facilitator for clearing electronic payments from different electronic channels and expanding the ATM and POS channels to the internet and mobile channels. The solution also allows non-card holders to take advantage of e-government services and e-commerce using account-to-account electronic fund transfers from Jordanian member banks. The majority of the NPG customers are e-government entities and merchants who offer utility and bill payment services. With Visa’s approval the joint venture company has set up a network to process credit cards. For example, if a credit card is issued and acquired within Jordan, Visa and MasterCard do not charge a fee, which reduces the commission charges by as much as 1.5%. Prior to this initiative, the charges for having to clear transactions with the gateways of other countries were 4%. If the cards are not issued locally, then it is switched to the international networks of Visa and MasterCard. ||**|||~||~||~|“This initiative has created self-sufficiency. We are no longer dependants on external payment entities. Such initiative helps us process cards on a local rate and with a much lower commission. There’s no need to settle payments outside — that’s one more driver for not moving to clearing outside,” says Shunnar. Following hot on the heels of the Jordanian initiative is Qatar Central Bank (QCB), which has implemented an e-straight through processing (STP) over a realtime gross settlement (RTGS) system for all Qatari banks. The Central Bank is taking its NPG one-step further by integrating it with its e-government initiatives and Doha Stock Market (DSM), so brokers can purchase and sell stocks online in realtime and citizens can pay for utility services online. Scheduled to go live this October, traders can also use direct debit for all their transactions. “The NPG represents a dramatic change in the future of Qatar’s e-economy. For the first time in Qatar, even non-card holders can avail of a secure, quick payment channel for all their online transactions, effectively extending Qatar’s e-governance net to a wider base of end-users,” says Hashim Al-Sada, director of system development and planning department at Qatar Central Bank. “This will have a multiplier effect on Qatar’s e-business economy. It will also boost the popularity of the government services.” The NPG expects to process all electronic transactions of 3000 individuals and Qatari businesses by November this year, and 20,000 by 2005. “We have plans to market this service in other countries in the GCC after the project is mature and successful, but we need to work out the logistics and discuss the initiative with other central banks,” comments Al-Sada. After seeing the benefits of national payment gateways in Jordan and Qatar, Oman has also set the ball rolling. The country’s central bank is now gearing up to unveil its NPG by Q105. The RTGS, which will facilitate the acceptance of all forms of electronic payments within Oman, has given the necessary push to Omani e-businesses such as Oman TradaNet (OTN). The online document exchange company has teamed up with eCompany to take advantage of the new payment services. “We already deliver 90% of the supply chain and with the payment systems in place we will offer the remaining 10%. By facilitating online payments, we are positioning ourselves well. A year ago, it would have been a waste of resources and time for us. Now, we are ready for such an initiative and Oman is getting ready for it,” says Andrew Stafford, CEO of OTN. The national initiatives of Qatar, Jordan and Oman are not necessarily reflective of the Middle East market, says STS’s Shunnar. “The most difficult part is coordinating all the logistics behind the gateway — it’s not the technical part. It’s comparatively easier for smaller countries such as Jordan or Qatar to find a market leader who will enforce the initiative. In larger countries [such as Saudi] it is difficult to bring different initiatives and strategies under one umbrella,” he adds. Dubai government has also opened up its payment gateway to non-card holders. Its citizens can now make online payments for public services at no additional cost, using the ePay facility, which allows registered users to pay for public utilities or fines using the eDirham card. The card has the approval of the UAE Ministry of Finance & Industry. As for Jordan’s online initiative, the country’s telecom subscribers can now log on 24/7 and pay all their bills online. They can also check their billing status and update their subscriber details. Making government bodies in places like the UAE or Jordan sign up for e-government initiative, or use the central bank driven NPG, isn’t the big challenge, says Julfar of eCompany. “In the UAE alone, the growth of e-payments is increasing each year and that itself is an achievement. Utility companies are adopting this because of the benefits it offers. The challenge is to convince other merchants to adopt and offer online payment services,” he adds. Faced with growing challenges such as the uptake of the internet, security concerns and lack of nation wide payment services, M-Net has taken an altogether different path. Led by a consortium of Kuwait’s largest mobile operator MTC-Vodafone, National Bank of Kuwait, the Al Shaya Retailing Group and the Al Roudan Group, M-Net is betting on a mobile gateway to drive business. M-Net has partnered with PayBox, a German provider of m-payment solutions to implement the service in 10 Middle East countries by 2005. The Kuwaiti company is targeting 60% of the population that has a mobile phone and a bank account, but not necessarily a credit or debit card. “E-business and e-commerce has not taken off in the region but the mobile phone usage is high and has the potential to grow. Most of the consumers in the Middle East have a mobile phone and a bank account,” says Khaled Al Roudan, project coordinator & marketing director at M-Net. The start-up claims to have received a good market response during its trial period. The m-payment services include mobile payments, delivery, top-ups for prepaid cards and mobile transfer of money regardless of the mobile phone technology used. “We want it to be simple for merchants and consumers. They don’t have to implement anything or make any modifications... As mobile phones technology matures the features in the phones are increasing as well. Previously, it was just a voice instrument, now we have smart phones we expect that, within the next five years, m-payments will become a norm,” says Al Roudan. However, companies like MasterCard are not threatened by such initiatives, which bypass the traditional payment through credit and debit cards. In fact, MasterCard is welcoming new ways to facilitate payments, which it hopes will drive the overall market. “The transactions at the end of the day will still need to flow through a network from the acquiring bank to the issuing bank — it’s just that the medium of effecting the transactions is different. With a mobile phone, you complete the transaction with m-payments, where as in a shop you may swipe a card [or withdraw cash from the ATM], to pay in cash…its only the customer experience of making the transaction that differs,” says Chandrasekhar. ||**||

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