Are people paying online in the UAE?

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UAE e-commerce seems to be booming as the country’s tech-savvy, young population embraces online shopping, but consumer wariness about paying over the internet will constrain growth until retailers find a convincing alternative for cash-on-delivery (COD).

Ostensibly, the signs are encouraging. A Visa survey published in June found that 63 per cent of UAE internet users shop online, with each shopper on average spending $1,648 annually. Average transactions values were $144, nearly six times the emerging market mean of $26.

Yet this high purchase price also indicates that UAE consumers are not so much shopping online for goods they could buy in a store but for intangible services such as government services and education, airline tickets, transport and telecom subscriptions. General retail services and goods only accounted for 6 per cent UAE e-commerce sales value in the 12 months to the end of February 2019, according to Visa.

Such intangible services do not require the physical delivery of a product; convincing shoppers to pay online for goods they will later receive at their home or workplace is proving a tougher sell and that spells trouble for e-commerce retailers, with less than 5 per cent of total UAE retail sales conducted online.

That was a key conclusion of a joint survey by Google and consultants Bain & Co, which also found that 44 per cent of UAE consumers prefer cash-on-delivery when buying online. That compares with less than 5 per cent in the UK.

COD means that a sale is not completed until the customer pays the delivery person, usually a day or several days after an order has been placed. That leaves the online retailer vulnerable to the customer suffering buyer’s remorse, while other chance factors can also jeopardise the sale such as whether someone is at home when the delivery arrives and whether they have cash on them at that exact moment.

Yet COD is likely to remain the most popular payment method, in part due to banks’ intransigence towards customer complaints about unfulfilled or unsatisfactory online purchases. Unlike in Europe or the US, the burden of proof is on the customer, not the retailer, with reimbursements and payment disputes in the Gulf often taking more than six months to resolve.

“The biggest challenge in e-commerce in Mena is payments,” says Ahmed El Alfi, Chairman of Egypt-based Sawari Ventures. “You can’t pay seamlessly for products. Delivery and logistics are being sorted out but really, once the payment is sorted out that will really change e-commerce.”

Visa believes offering consumers the option to pay by credit or debit card at the time of delivery via a mobile point-of-sale (POS) device could help convert them to digital payments.

“Every year, we see consumer confidence and trust in online shopping significantly increase from where it was last year and in the coming years it is only going to expand further thanks to the rising adoption of digital wallets, arrival of better security technologies and modernisation of e-commerce platforms,” says Shahebaz Khan, Visa’s general manager for the UAE.

Another solution could be direct carrier billing (DCB), which enables consumers to charge the cost of their online purchases – usually digital content such music, movies and games – to their mobile phone account.

“It’s a very simple, secure and convenient payment experience,” says Brad Whittfield, chief financial officer at Mondia Group, whose Mondia Pay platform is integrated into the networks of about 50 telecom operators worldwide including UAE duopoly du and Etisalat. “Consumers are not required to provide their credit card details or even personal information to the merchant – all they need is an active SIM.”

That enables consumers without bank accounts or debit cards, which make up a sizeable portion of the Middle East’s population, to shop online.

“We are seeing the potential of DCB extending well beyond digital content to becoming a real alternative to your credit card for ecommerce,” said Whittfield.

“Consumer experience and behaviour will always be the deciding factor at the end of the day, which is why we see online conversion rates with DCB up to 10 times that of credit card.”

Mondia Pay offers mobile wallet, SMS billing and mobile billing, with the latter by far the most popular with end-users.

“Mobile wallets have the potential to help address the cash-on-delivery challenge in Mena,” the Bain-Google report states. “As smartphones capture the majority of e-commerce transactions, mobile wallets offer a more secure and convenient way to pay when compared with credit cards.”

Of course, to sell online goods requires a virtual store and checkout. Dubai-based Network International last year launched Go-Online for UAE-registered businesses to create a web-based online store that includes a payment gateway which accepts debit and credit card payments. Companies can choose from around 60 templates. Go-Online costs Dh2,999 for a 12-month subscription.

“The technical integration (of an online payment gateway) for a merchant is very simple,” says Whittfield. “But ultimately these merchants still need a bank account and have to go through a bank’s KYC [know your customer] process, which can take time in this region for a startup.”

The issue of financial inclusion and COD has become an impetus for several startups looking to provide a solution. Wamda recently invested in Tabby, a 'buy-now-pay-later' platform which provides customers the ability to pay in installments and forego providing their credit or debit card details at the point of checkout and so works as an alternative to COD. 

A joint study by Visa and Dubai’s Department of Economic Development (DED) found that 73 per cent of UAE online shoppers prefer paying by card.

“If consumers see the logos of certain payment providers and trust certificates on the website, they feel more secure,” says Khan.

Visa research indicates that 63 per cent of consumers are swayed by such logos, while 61 per cent cited strong customer service as a factor in deciding whether to buy and 49 per cent cited displaying customer reviews. Among UAE consumers, 42 per cent prefer one-time passwords (OTPs) for authenticating digital transactions.

Visa notes that the relatively late adoption of online shopping coupled with the high penetration of smartphones and social networks has led Gulf consumers to opt straight for m-commerce.

Such behaviour could prove a boon for online retailers that are Instagram-savvy.

The Facebook-owned network recently launched shopping tags in Saudi Arabia, Lebanon and the UAE that it hopes will create “more opportunities and simpler ways for people using Instagram to discover and explore brands and products”, says Priya Patel, product marketing lead at Facebook Middle East.

On Instagram posts featuring tagged products, there will a shopping bag icon which when tapped, displays further products details, enables users to click through to a product page and also shows a link to buy the item on the merchant’s website.

“Instagram shopping enables businesses to build a flagship store,” says Patel.

“Because it's mobile first, it takes everything that consumers love about shopping on their phones - speed, convenience, accessibility - and combines it with the fun and immersive experience of a bricks-and-mortar store.”

To be eligible for Shopping of Instagram, retailers must also have an Instagram business account linked to a Facebook Catalogue, a connected Facebook page and primarily sell physical goods.

Checkout, which enables retailer to purchase directly through Instagram is only available in the US, so the conundrum of how to facilitate payments remains.

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