The launches a year ago of FNB’s PayPal and MWEB’s uncapped service generated a lot of buzz in the industry. But while MWEB’s service is having an important impact, FNB’s PayPal is disappointingly inadequate.

The Good News: MWEB’s uncapped services rock the boat

MWEB’s new uncapped services are themselves not revolutionary – they were an inevitable evolution that is rapidly aligning South Africa’s web with the rest of the world. But the impact of these low-cost uncapped services will be revolutionary for South African business.

In the flurry of competing offers, you can now get uncapped 4Mbps service for less per month than a full DStv contract, and 348 Kbps for a third of that, from MyISP. And this is only the beginning. Low-cost web access will stimulate an extraordinary surge in usage of the internet among those for whom anything other than dial-up was too expensive. It will also put 3G services, which flourished under the expensive aDSL regime, under serious threat. Expect to see access costs tumble there, too, especially as municipal WiFi rolls out later this year.

The digital floodgates are opening. South Africa’s consumers and business users can now go further online, do more communicating, sharing, exploring, shopping around and researching – without worrying about the tank running dry. They can comfortably download music, movies, software, and ebooks. They can read online magazines that are rich in images, join the YouTube bandwaggon, watch video news updates, and listen to personalised online radio services like LastFM all day.

The implications for local media companies, marketers, advertising agencies, retailers and service providers are immediate and profound. In fact, there is not a business in the country that is not affected. The liberation of the web is both a threat and a major opportunity. South African businesses who hoped that e-commerce would never take off, who do not understand the culture of the internet, and who do not have a really good strategy for thriving in it, will find themselves struggling to retain customer loyalty. Conversely, businesses who have taken seriously this shift in their competitive landscape, and know how to exploit it, will grow and prosper.

It is now more important than ever for senior business executives in marketing or business strategy to really understand the fundamental shifts taking place in the digital landscape. They need to, as a matter of urgency, grasp how these changes dramatically impact the way customers make buying decisions or evaluate brands. Even traditional brick-and-mortar or business-to-business companies must have the strategies and structures in place to engage with their customers in the online space – because this is where South Africans are spending increasing amounts of their time.

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The Bad News: FNB’s PayPal Service seems pointless

So long as the SA Reserve Bank continues to view global e-commerce as potentially harmful to the countr’s currency, South Africa has no real hope of experiencing the kind of digital entrepreneurial boom that would propel the country into the 21st century.

PayPal operates on really low transaction fees compared with local gateways, and has a system that is brilliantly quick and simple to use. It is available in nearly 200 countries and dozens of currencies, and it is a standard in most e-commerce installations around the world. But, largely because PayPal has been unwilling to accommodate the bureaucratic restrictions of the SA Reserve Bank, South African local businesses have had to work with clunky and expensive local payment gateways.

When news of FNB bringing PayPal to South Africa leaked earlier this year, it seemed for a while that local e-commerce was finally going to come of age. Sadly, that is not the case. FNB’s half-hearted interface to PayPal is fundamentally flawed in too many ways for it to have any significant impact on e-commerce in South Africa. While FNB is to be applauded for trying, it failed to overcome the SA Reserve Bank’s paranoia about global e-commerce, and so has had to put together an awkwardly inefficient compromise.

Why FNB’s PayPal is inadequate:

1. SA businesses still can’t use PayPal to transact with SA customers in Rands. (FNB’s PayPal account has to be dollars-based, with Rands coming back out. Figure the bank charges and weep).
2. The Reserve Bank sees every transaction, and you have to classify each one. Commercial privacy aside, the administrative burden on any high-volume e-commerce business vastly outweighs any benefit.
3. What you can pay (or get paid) for is restricted to a small subset of purchase types (primarily travel-related services, or physical goods that can pass through the hands of a customs officer). You can’t legally use FNB’s PayPal to pay software developers in India, for example, if you download their work (though you can with a credit card). Technically, purchasing or selling virtual goods like MP3s, movies, ebooks, and commercial software with FNB’s PayPal is not permitted, though it is fine to buy those online with a credit card.
4. For each outgoing payment with FNB’s PayPal, you must give a Balance of Payments (BOP) Reason Code, and, depending on the category of the transaction, an invoice number and Customs Client Number. For incoming money, there is a similar bureaucratic burden. Keep your documents for five years in case you get audited.
5. FNB charges 1.5% on top of what PayPal charges (around 2.5%), and makes you use their PayPal-specific dollar-Rand exchange rate in each direction – which is not guaranteed to bear any resemblance to the prevailing commercial rate. So you might as well be using a credit card or a local payment gateway.
6. You have to repatriate every amount entering your PayPal account within 30 days – individually classifying each one with the above-mentioned BOP codes and providing the relevant Customs Client Number and Invoice Number – for every transaction (no bundling allowed!). That may be fine for a hotel taking several bookings per day. But if you are selling, say, Africa-themed football ringtones at a dollar a time, and doing a thousand transactions per day, the admin burden and bank fees will kill you. But, then, you are not allowed to do that kind of transaction with FNB’s PayPal anyway, so maybe it’s a moot point.
7. You have to have a qualifying FNB account. Unlike the real PayPal, which doesn’t care which bank you are with, this is an FNB exclusive arrangement, at least for now.
8. It takes up to four business days for money to move in either direction, instead of four milliseconds. Computers apparently work to rule. Either that, or it’s a frantic paper-based back-end pretending to be e-commerce.
9. You can’t earn interest on an FNB PayPal account. You can on a real PayPal account. But I guess this is an additional incentive to repatriate all your income immediately.
10. You cannot use a credit card to pay into or draw from your FNB PayPal account.

It is at this point that exasperation sets in and you are left wondering why you would ever bother. What are the upsides? There are only two. If you are making payments overseas and you fear that your credit card details may fall into the wrong hands, PayPal offers a buffer. More importantly, there are potential customers overseas who are aware of SA’s notoriously poor records on credit card safety and identity theft, who might prefer to transact with PayPal.

But here’s the thing. It is not illegal to set up a foreign company or a foreign bank account, so long as you declare them, and both can be done securely from here online for a couple of thousand Rand. With that infrastructure, in five minutes online you can set up a foreign PayPal account that has none of the above failings. Then you can legitimately repatriate foreign revenues in one bundled transaction from your foreign bank using EFT. Unless the SARB has some small-print to once again make it impossible for SME’s to compete in global markets?

The bottom line on FNB’s PayPal service is that it misses the point: PayPal grew to where it is by being cheap, fast, flexible, private and simple. FNB’s version of it doesn’t make the grade on any of those dimensions, largely because of the Reserve Bank. Now that capped internet access is on its way out and access prices are tumbling, the SA Reserve Bank’s medieval attitude to local and global e-commerce has become the single biggest obstacle to explosive economic growth in South Africa. It’s time they stepped back, as MWEB have done, and looked at the big picture.