Business

PayPal is coming to SA (almost certainly): what it means for you

By Branko Brkic 8 February 2010

It is still, strictly speaking, just an online rumour. So don't tell anyone we told you. But we have sources with a history of reliability who tell us First National Bank and eBay's PayPal will soon announce an alliance that will give SA users access to its payment mechanism. Which changes not everything, but quite a bit.

Look, don’t ask how we know, okay? And don’t point and laugh if it doesn’t pan out, because until it is formally announced there’s always the chance that one party or the other could still pull out. But we have excellent reasons to believe that PayPal will be entering the local market within months if not weeks, and only slightly less reason to believe that it will be doing so via a partnership with FNB. So yes, we can (with those caveats) confirm the buzz on Facebook and Twitter over the weekend.

PayPal, if you’ve been living under a rock and don’t already know this, is an electronic currency that is excellently suited to small payments. Think of it as an online bank account with low transaction charges; you buy credit using a credit card or online transfer or something similar, and can have PayPayl pay money back into your real-world bank account; the flow to and from cash is nice and smooth.

Customers with credit cards don’t care – but merchants do. If you’re selling a ringtone online for R5, or even a poster for R20, the minimum charge levied by credit card companies is ruinous. But that is only the start. You have to be a pretty significant business with a decent track record before any bank will give you a merchant account so you can accept credit card payments. Without that merchant account you have to channel your transactions through a third-party gateway, which then takes another percentage off the top.

With a PayPal account, on the other hand, you can make and accept payments at negligible cost. So suddenly the numbers on that weird business idea of yours (the one where you want to sell pencils with motivational messages engraved on them) don’t look as bad. Depending on the structure FNB comes up with, the introduction of PayPal could merge with the rapidly dropping price of bandwidth to open up new doors for online entrepreneurs – especially those targeting consumers in the USA or Europe.

The more sophisticated part of the online shopping market will also welcome the company with open arms, as will local auction sites and, yes, even banks. Because somewhere along the line you have to use a bank account with its verging-on-gouging fees, and an increase in transaction volumes will eventually make up what the banks lose on those credit card transactions.

PayPal’s entry will make for three major US online companies entering the local market in quick succession, with just one left out in the cold. Google has spent a considerable amount of money in recent months to upgrade its satellite imaging of South Africa, map out roads and otherwise prepare its geographical services for the World Cup. Facebook now has a local partnership with Habari, through which South African advertisers can buy ad space. Apple, on the other hand, continue to shun South Africans who seek access to its iTunes store. Maybe executives there haven’t noticed that Safrica is suddenly the cool place to be.

By Phillip de Wet

Read more: MyBroadband, Fin24

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