Residual distrust amongst Nigerians to conduct online shopping in a society where cash still remains king, with the attendant fear of electronic fraud, has seen many e-retailers change tactics in recent times by encouraging Cash on Delivery (COD) payments to bridge the lack of confidence in the system, industry analysts have said. E-retailers however express optimism about converting many of these COD payments to electronic payments at a later stage. Though many pessimist in the emerging ecosystem consider the change in strategy by e-retailers as an anomaly, which breaks the flow of ‘true’ end-to-end e-commerce where purchase and payment are conducted online, industry analysts told BusinessDay, yesterday, that it had become necessary to further sustain business growth and speed up service adoption levels.
According to the World Bank and Euromonitor International, the country’s middle class has risen by 28 percent while its GDP based on purchasing power has increased by 21.67 percent in the last four years. The rise in consumer spending, and the expansion of broadband service, has boosted the growth of Internet-based businesses in the country. The value of Nigeria’s online payment has risen exponentially in the last few years. Online payments grew from $314 million in 2010 to $488 million in 2012, according to Nigerian Inter-Bank Settlement System (NIBSS). Analysts expect this figure to reach $630 million in 2013, piggy backing on rising sales at leading e-retail websites. According to the analysts, this payment value could assume a downward trajectory if concerns over fraud are not quickly addressed.
“One of the major challenges of e-Commerce growth in Nigeria is the culture barrier”, said Tobenna Okoli, business analyst, entrepreneur, in an interview. “Buying and selling online is still a foreign concept to most Nigerians, even to most people that reside in the city. Ignorance and a general air of distrust remain to blame for this”, he added. “Nigeria is still largely an offline market when it comes to retail. Customers have doubt about entering details online to make payments. “They would rather want to have their goods in hand before parting with their hard earned cash”, said Kehinde Tunde and Raphael Afaedor, both co-founders of Jumia, in a recent interview. Nigeria’s notoriety for online fraud has further worsened the situation. Ernst & Young has estimated that the economy loses about $200 million annually to cybercrime.
In 2006, PayPal, a global eCommerce operation that allows internet-based payments, shut down all transactions in the country, even refusing to transact with Nigerian IP addresses for a time. According to Venture Africa, “financial services avoided Nigeria. Orders received in from a Nigerian IP address triggered red flags at the backend of numerous online payment firms.” As a result, a number of local independent transaction-processing platforms have emerged including e-naira and ePayNigeria, though popularity is constrained by their lack of credibility. Until 2009, the only medium of payment for online purchases was for Nigerians to deposit money in the e-retailer’s bank account before a sale could be processed. Three payment and card operators – ValuCard, Interswitch and eTransact – moved to offer payments switching.
The Central Bank of Nigeria (CBN), on the other hand, established the NIBSS Electronic Fund Transfer (EFT) switching system. Yet, it is taken time for Nigerian shoppers to trust e-retailers. According to a 2012 survey conducted by Enhancing Financial Innovation and Access, 92 percent of adults have never used online bank transfers. MasterCard Incorporated, however, included Nigeria for the first time in its global online shopping survey in 2012. The survey found that 92 percent of Nigerians who had shopped online were content with their experience, with 57 percent of this group intending to repeat online purchases and 59 percent purchasing from international websites. However, the majority of Nigerians (78 percent) do not shop online, and 59 percent of that group said it was due largely to security concerns.
Industry analysts say the cash-lite policy of the CBN, aimed at encouraging electronic transactions, which started with Lagos in 2012, is already acting as a tributary stream for growing e-payments channels. In March 2013, online retailers, Konga and Jumia claimed to be filling 1000 orders a day combined; by September 2013 both ranked among the top 25 sites in Nigeria. The ministry of communications technology has expressed high hopes of further growth. In Western economies like the UK, e-commerce is expected to account for 10 percent of GDP by 2015, or roughly $200 billion annually. Sim Shagaya, chief executive officer, Konga, share the same optimism but says the emerging ecosystem is fraught with numerous challenges. One of which, he said in an interview, is the inefficiency of Nigeria’s postal system.
“In the United Kingdom (UK), if you are starting an e-commerce company, for instance, you can very easily rely on the Royal Mail. “All you do is to stock your warehouse and Royal Mail comes to pick up things from your warehouse. With all of the reforms in NIPOST, it is not an effective organisation. To this end, as an e-commerce firm, you would have to build the infrastructure outside of your warehouse”, he said. In view of the under performing postal service, poor road conditions and often unspecific addresses both in major cities and rural areas, e-retailers have built independent distribution networks to ensure efficiency and a satisfactory end-user experience. Investor confidence in e-retail is growing going by the level of investments made. With cash-for-equity funds from investment giants such as JP Morgan, Summit Partners and Millicom, as at 2013, Jumia has raised over $50 million in the last 12 months
Jumia’s local competitor and Nigeria’s second-largest ecommerce operator, Konga, also secured funds from Kinnevik – a Swedish investment group – and Naspers MIH Internet Africa – the Internet investment arm of South African (SA) media giant, Naspers – to grow operations, though the value of the investments is still undisclosed. Below these two big players are numerous companies with multimillion dollar valuations. iROKO TV, Africa’s largest movie digital distributor, received $8 million in funding from Tige Global in 2011 and now generates over $2 million annually. DealDey.com, which received $1 million from Kinnevik in late 2011, had generated $1.27 million in gross revenue by the last quarter (Q4) of 2012. iReportersTV, a YouTube-like technology start-up, announced in June, last year, that it had recorded over 1.5 million views and received an investment of $8.5 million.
Ben Uzor Jr
