I&M Bank pioneers Online Merchant Services in Kenya enabling e-commerce

Kenya Wednesday made a big leap into the world of electronic commerce with the conclusion of a deal for an online payment portal that allows consumers to buy goods from the internet in local currency using credit and debit cards.

I&M Bank unveiled plans to establish the electronic payment platform in partnership with the global financial services provider Visa card, removing one of the major obstacles to the growth of e-commerce in the country.

The e-payment portal is the first in East Africa and is expected to relieve recipients of online payments of the trouble of engaging offshore electronic gateways to receive money. Besides raising the cost of online transactions, use of offshore gateways to settle payments made locally also means the businesses cannot immediately receive the cash and often incur heavy losses in the event of exchange rate fluctuations.

It also forces local consumers to make special arrangements to pay for goods online – a process that has proved more time consuming than walking to a shop for a simple cash transaction. Millions of Kenyan consumers have instead turned to the use of mobile money in the consumer goods market, opening a robust revenue stream for companies such as Safaricom and Zain.

Jump-starting electronic commerce has been a niggling issue for financial and internet service providers, a challenge that has inspired innovation and the introduction of new products.

Analysts said last year's enactment of the Kenya Communications Act, which allowed e-commerce, has become the main driver of growth in the sub-sector.

Local financial institutions have been reluctant to establish electronic payment gateways curbing the growth of e-commerce in the country and giving Kenya the distintion of having one of the lowest levels of electronic transactions in the world.

Low uptake of e-commerce in the country is also thought to be a stumbling block to growth in key sectors such as tourism, where the internet is the main platform for transactions.

I&M launched the electronic payment gateway after it acquired an e-commerce licence from Visa International, making it the first bank in Eastern Africa to offer the service.

Apart from removing the many bottlenecks that have prevented Kenyan consumers from buying goods through the internet, availability of a local electronic payment gateway should help e-commerce merchants such as airlines, tour and travel companies, and utility service providers expand their sales globally at significantly reduced transaction costs.

Mr Arun Mathur, the chief executive of I&M Bank, said the gateway opens yet another business opportunity for web site developers to earn additional revenue by helping potential online traders establish online platforms that can use I&M's system to receive payments.

"Many of these traders have been looking for ways of using technologies to expand their businesses but have been constrained by the scarcity and high cost of online payment gateways," he said.

I&M did not, however, give details on its charges but promised they would be much lower than those levied by offshore service providers.

Users of the system will have to open a payment and settlement account with I&M Bank or opt for transfer services.

Initially, the service is expected to become an attractive proposition for the four million credit and debit card holders tying its growth to increased use of plastic money in Kenya.

Kenyan merchants have lost billions of shillings worth of business deals in the global market because of their inability to accept online payments.
Electronic commerce is expected to get a further boost beginning later this year when the government is expected to launch a five-year plan that aims to place the public sector on an online transactions mode.

The plan is expected to begin with the establishment of an electronic market for public procurement that will see government departments and state firms buy goods and services online.

In the private sector, e-commerce is particularly expected to benefit industries that depend on foreign supplies such as cars and tourism.

"The fact that most used car dealers are based abroad offers providers of e-payment solutions a huge opportunity for growth," said Dr Bitange Ndemo, the Information permanent secretary. Kenya is a major importer of Japanese used cars, taking in 30,000 units in the first nine months of 2009 according to the Kenya National Bureau of Statistics.

In tourism, the application of the technology has enabled the players to offer new and flexible services that are cost- competitive and convenient to consumers such as on-line booking of airline tickets, hotels and transfer services.

Mr Gerson Musimi, the managing director of Tamarind Group, said that although the company has been using the internet to market its services, it could not offer complete e-commerce solutions because of lack of a local electronic payment system.

Online sales have been one of the few sectors that recorded growth last year as the world sunk into a recession. Travel is the number one selling commodity online that generates more than $110 billion annually in sales said e-tourism Africa chief executive Damian Cook.

The launch of two undersea fibre optic cables in Kenya last year has boosted e-commerce through increased broadband capacity and greater online access at reduced costs.

A recent study by Forrester, eMarketer, and IDC, global e-commerce is set to continue growing steadily in the next five years. The value of e-commerce sales is expected to reach $711 billion by the end of this year, growing at a compounded annual growth rate of 19 per cent.

In Africa, e-commerce has been growing in the past five years though shackled by poor infrastructure and low internet literacy.

Some of the companies that are now offering e-commerce are Mamamikes. Kalahari, Vuma an online Kenyan based business selling music by local Kenyan artists and a number of hospitality providers.