PayPal launches in SA with FNB – and there goes the exchange-control neighbourhood
The Reserve Bank will tell you that it still has absolute control over the flow of money into and out of South Africa. And when it comes to amounts in excess of five digits that is largely true. But if easy global credit card transactions didn't destroy that control for everyday amounts, PayPal is about to do so.
It's a tremendous coup for First National Bank, which will, for a period of exclusivity it absolutely refuses to disclose (but sounds extendable), be the only South African conduit for money to and from PayPal accounts. It's great for local consumers and small businesses, who can now buy from and sell to people pretty much all over the world, cheaply, easily and with only miniscule amounts of paperwork. And it's pretty nice for PayPal, which gets to colour in one of the few parts of the world map that was dark until now.
But it's a bloody nightmare if you are one of the poor bureaucrats who have to keep track of money flowing into and out of the country. We like to think of these people as pasty, nervous types in bad ties locked up somewhere in a basement of the Reserve Bank building in Pretoria – and right now they must be crying into their pocket protectors.
Here's how it will work: You create a new account with PayPal, or admit to the company that the account you previously registered under the pretence that you live in the United States actually belongs to a Safrican. You open a new account with First National Bank and set it up for internet banking, or link up your existing account to PayPal.
Now you can transfer money to and from your PayPal account. It's not quite seamless; there may be a delay of up to four working days for the money to clear. PayPal doesn't yet recognise the rand as a currency, so every time you transfer money to or from PayPal the transaction will be handled in US dollars. But once the money is with PayPal you can transact with other people in any of the 21 currencies it supports. And if you are selling organic boerewors to expats, you can also accept payment in their currency of choice.
Every time you do a deposit or withdrawal via FNB, you'll pay 1.5% of the transaction value in fees. PayPal gets its pound of flesh when you receive money, charging either a variable rate of below 5% or a fixed fee typically below R1, depending on the country you're dealing with and the type of transaction.
In the middle of all this sit those unfortunate Reserve Bank gnomes. Because of exchange control regulations, you'll have to disclose a purpose for every deposit you make to PayPal, and give a source for any income that you withdraw from PayPal. The numbers for those count toward your personal annual foreign exchange allowance (currently at R750,000 for individuals), but also have to be to be tabulated to determine the how and why of all money flowing into and out of the country. Which was a great idea back in the day when there were a hundred people in the country doing foreign transactions via four banks, and the velocity of money was measured by the week. In a world where you can now pay R1.50 to a Ukrainian for a silly ringtone, however, it somehow seems a little less sensible.
FNB and PayPal flatly refuse to say whether their deal covers other African countries, or even the entire continent; FNB has operations in seven countries north of the Limpopo, and could offer this kind of service in any of those with little further development.
But that isn't the prize, says FNB CEO Michael Jordaan. The goal should be to allow the easy flow of money within, say, the Southern African Development Community. That will require a way for people without bank accounts to get their hands on cash, perhaps through a link-up with retailers, and definitely requires cellphone access to PayPal withdrawals and deposits.
"What we've learned is that to make it work with cellphones, you have to make it work for all cellphones, not just the smart-phones," Jordaan says. "I love my iPhone, but you have to start with the most basic phone out there and then roll out the cute applications on smart-phones."
Sounds like he's given it some thought, doesn't it?
FNB's immediate excitement about PayPal seems to be around it's pull as a customers' acquisition tool. It is hoping for a rush of new accounts to be opened, and Jordaan says it has priced PayPal transactions with that in mind.
In the longer run, however, the reach of PayPal and its near-frictionless infrastructure presents an opportunity to move money at rates that would be hard to beat in any other way. FNB has conducted its own study on the cost of moving money into and out of the country, a study it is slightly nervous to release. But the headline numbers clearly tell the story. To receive $100 via any of the big banks, including FNB, will cost a South African citizen around R100 in fees, or R70 at the bottom end. Via PayPal total fees will amount to less than R45. In sending money oversees the discrepancy is far bigger. A $100 transaction would cost between R170 and R200 via the banks, but using FNB/PayPal the cost should come in at under R12.
Does that mean a lot more money will be moving into and out of the country, albeit in tiny transaction amounts? Neither FNB nor PayPal will make any kind of projection or disclose their expectations on customer numbers of transaction volumes.
But both parties will only recover their costs, never mind show a profit, if those volumes are substantial.
Oh, and to our great disappointment – and contrary to our firm predictions – FNB will not allow the seamless transfer of eBucks, its alternative currency disguised as a loyalty scheme, to PayPal accounts. That, Jordaan says, is one of the many possible developments that will depend on customer demand.
By Phillip de Wet
Photo: FNB CEO Michael Jordaan (left) and PayPal's regional director for Israel (and now South Africa), Oded Zehavi, on stage at the official launch of their alliance in Johannesburg. Photo: The Daily Maverick
Watch the Zoopy news video of the launch