e-commerce hampered by inadequate payment systems

. PHOTO: Star Graphics

Ten years ago, online retailers in the US and Europe were fast in setting up credit card payment systems. Today, buying and selling goods online would be unimaginable without them. Sites like Amazon -- the US based book and DVD stall -- achieves a billion Dollar revenue yearly on transactions using credit cards and would probably not exist, if it wasn't for electronic payment systems.

Humayon Alamgir Jewel, the founder of the e-commerce site clickbd.com, says, as long as credit card transactions are impossible, e-commerce remains a difficult endeavour. Jewel says: "We have set up an office in Canada, so Bangladeshis with foreign credit cards can use our services -- from abroad."

But why don't Bangladeshi credit cards work on the net? Why hasn't a single one of the 28 Bangladeshi commercial banks introduced an online service for local credit card holders? "I believe the banks are afraid of unresolved security issues, fraud and money laundry", Jewel suspects.

Mahbubul Alam Tayiab, head of operations at Eastern Bank, says security is an issue. "But there are more important reasons why we don't offer online credit cards", he stresses. As of spring next year, the Eastern Bank will be adding a credit card service to its portfolio. But the bank is not planning to take the service online as card holders and the market in Bangladesh are not yet ready for such a service.

"People don't trust credit cards here", says Tayiab and adds, "people are even further away from trusting online payment systems." He believes that people need to see and maul products they want to purchase before hand, as fear of fraud is large.

Tayiab also stresses that e-commerce and the credit card market is not big enough in Bangladesh. In total, there are an estimated 200 000 card holders in the country. Only about 10 percent of these, according to Tayiab, would use their cards for online transactions.

Noor Alam Chowdhury, IT advisor to various banks in the city and an expert on the technical implementation of credit cards, sees great infrastructural barriers to overcome next to the societal difficulties. He examined the market closely in 2004. His plan was to set up a credit card gateway for Bangladesh. Such a gateway makes sure online transactions are safe. (cf. info box)

"Initial investments for a gateway in Bangladesh are at around $3 million", said Chowdhury and added, "to break even within a year this would have meant 1 million larger transactions. This is currently not possible in Bangladesh."

Considering the low internet penetration in the country, Chowdhury has a point. However, growing numbers of mobile phone users -- the market has an estimated 7 million phone users at present and may grow to 25 million in the next 5 years -- could make investors reconsider the possibilities of online payment systems and a credit card gateway.

Introduction of GPRS by AKTEL and EDGE by GrameenPhone all over the country in the coming months could fundamentally change the way mobile phones are used in Bangladesh. Namely not just for phoning, but also for accessing and surfing the Internet and, who knows, maybe buying or selling products on the Internet

Both the technologies allow cheap access to the information super highway. This means that people living or travelling in the remotest areas of the country could settle simple transactions, if online payment systems were established.

What is a credit card gateway:

A credit card gateway is a server that makes online credit card transactions safe. This is how it works: The customer supplies name, address and credit card information and clicks "send" or "submit". Data passed between the secure server and the customer's computer is encrypted while travelling trough "cyber space" and only decrypts at the destination point. The software protocols in the credit card gateway use the information provided to check for availability of funds and to make sure the credit card is not expired, lost or stolen. This takes only seconds. When the transaction is approved a receipt is generated for the customer, and the funds are transferred to the vendor's bank account. Companies that offer a credit card gateway normally charge the merchant certain fees. These vary widely from set up fees, technical support and commissions on sales.