Can local payment gateways capitalise on the opportunity and realise the benefits of digital payments?
Amid endless speculation, the news of PayPal's decision not to come to Pakistan in the near future comes at a time when the country is in dire need of foreign remittances to offset the trade deficit. The global payments giant cited 'internal issues' as the reason behind the decision further elaborated by internal sources as concerns regarding money laundering and regulatory inadequacies in the local financial infrastructure.
This is in line with what prominent local technology influencer Iqra Hameed learnt during her visit to PayPal's HQ in Silicon Valley last year, where she had the opportunity to discuss the matter with senior members of the organisation who expressed scepticism regarding expansion rates, expenses, taxes, language barriers and market potential for the service in Pakistan, especially in light of their experience in India where PayPal is struggling against local competitors.
Although these concerns and the comparison with India may be questionable due to the significant differences in the payment landscape between the two countries, the fact is that PayPal is not coming to Pakistan anytime soon, despite government efforts and pleas by countless freelancers and start-up owners who hoped to capitalise on the ubiquitous payments solution to sell their products and services online.
So, what exactly makes PayPal this important, and why can't we use alternatives like Payoneer, Skrill and Transferwise among others? One word: ubiquity. Having the early-mover advantage, PayPal has become a de facto global standard for quick money transfers for individual and B2C transactions. Whether it is to buy a couch off eBay, hire a freelancer to design a logo, pay a monthly software subscription or lend money to a friend, PayPal makes it quick and dead-simple. And for PayPal-to-PayPal transfers, free. Good luck trying to pay or get paid by someone from the US via Payoneer or Skrill; it's unlikely they would have an account on the service in the first place and the KYC and verification processes of these services gives them little incentive to open one for an odd, one-off payment.
While freelancers offering their services on platforms like Upwork and Fiverr or medium-to-large businesses conducting B2B transactions over wire transfers can manage without such a service, independent freelancers and small digital business owners suffer the most. Wire transfers are cumbersome and expensive for frequent transactions with multiple users, especially when the value of each individual transaction is low. Similarly, freelancing platforms take a major cut for every project, making them unviable for those who do direct business development and don't wish to pay the 20% Upwork fee to get paid by a client they didn't find on Upwork in the first place.
Fortunately, PayPal isn't the only ubiquitous mode of quick and easy online payments. While they might not let you quickly send $20 to your mate by simply entering his email address and the amount to send, credit and debit cards such as those on VISA and MasterCard networks offer a great, no-frills method for global commercial online transactions. In order to accept payments via these cards, a payment gateway is required at the seller's end, and since both VISA and MasterCard operate here, that should settle things, right?
If only it were that simple!
Unfortunately, most major international credit and debit card payment gateways don't offer their services in Pakistan and the few that do (2Checkout is the only one that comes to mind) have a rigorous approval process and high rejection rate. When it comes to local options, almost all banks offer merchant accounts for the purpose, and then there are EasyPay and JazzCash, which are successfully used by major local merchants to sell online. However, If you are a freelancer or a start-up, good luck even hearing back from them months after you have applied.
After speaking to representatives from several of these providers, I have come to the conclusion that in the most outrageous display of short-sightedness and being penny-wise pound-foolish, their only aim seems to be to service established businesses with a significant transaction volume, hanging most freelancers and start-up owners out to dry. By not providing freelancers and early-stage start-ups with a payment solution when they need it most, these providers are not only depriving them of a way to effectively start selling their products and services online, they are depriving the economy of much-needed foreign exchange, not to mention themselves of future business they can get through supporting them in their struggling phase.
Earlier, I would have attributed the lack of a local payment gateway with easy on-boarding facilities for freelancers and early stage start-ups, to restrictive regulations. However, after speaking to senior officials at the State Bank of Pakistan (SBP) and its Pakistan Remittances Initiative, I found them to be most accommodating and welcoming to the idea of local players entering the market.
For the few who manage to open an account with these providers, there's the question of integrating these gateways into their websites. Before we get into their options, let's take a look at the way freelancers and early-stage start-ups need to accept payments online.
First and foremost, most freelancers and many companies in the services industry need to send invoices to their clients that can be paid on the click of a button, enabled by the payment gateway. Then, there are providers selling products and services on their e-commerce stores as one-off purchases or ongoing subscriptions, both of which need to be enabled at the gateway level. The most widely used solution for all three billing scenarios (and which does not require custom coding and also provides the quickest and easiest on-boarding process) comes in form of WordPress and its plug-in ecosystem.
However, not many local providers offer plug-ins to integrate their solutions with WordPress and its popular plugins like WooCommerce, Easy Digital Downloads, Gravity Forms and the like, while the few that do, only support integration for one-time transactions, which isn't too useful for those selling on a subscription-based model, a practice common in the technology industry as well as in the increasingly popular virtual assistant landscape. Most local providers require custom integrations to be built for every client, adding needless on-boarding delays and significant expenses that many freelancers and early-stage start-ups cannot afford, especially if they are already paying a hefty monthly fee for the gateway due to their low transaction volume.
Earlier, I would have attributed the lack of a local payment gateway with easy on-boarding facilities for freelancers and early stage start-ups, to restrictive regulations. However, after speaking to senior officials at the State Bank of Pakistan (SBP) and its Pakistan Remittances Initiative, I found them to be most accommodating and welcoming to the idea of local players entering the market. In fact, I was surprised to learn that all commercial banks have instructions from SBP to facilitate freelancers with monthly sales volumes of up to Rs 500,000 with no documentation required other than their CNIC and biometric verification.
It's about time that banks, digital payment service providers such as EasyPay and JazzCash and investors interested in the financial sector realise the disservice they are doing not just to freelancers and early-stage start-ups but to the economy as well as their stakeholders, by not facilitating them in selling their products and services online directly without having to limit themselves to an intermediary platform like Upwork and Fiverr. These platforms are earning hundreds of millions, if not billions of dollars per year from our local workforce in the form of service charges, when a hefty part of that sum can be earned by local providers, not to mention the potential earnings from those currently un-served by such platforms.
They say "it's never too late" and "it's better late than never", but considering it's 2019, and we seem to be stuck in the previous millennium when it comes to available options to capitalise on the benefits of digital payments and e-commerce, my question is "if not now, when?"
Haroon Q. Raja is a technology solutions architect and founder of Happy Cloud. email@example.com