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Increased usage of prepaid channels signals big opportunity for local online retail in the Middle East

United Arab Emirates: Sunday, April 08 - 2012 @ 12:33

The biggest increases in prepaid channels was recorded in Lebanon (seven-fold increase), Jordan and Egypt (five-fold increases in both markets), followed by the UAE (x 3.9), Kuwait and Oman (each increasing threefold), Qatar (x 2.7), Saudi Arabia (x 2.5) and Bahrain (2.1).

Sukar.com’s findings support the general consensus of several recently released regional reports that show consumer confidence in prepaid channels is increasing at a rapid rate. According to a recent MasterCard Survey, security concerns relating to credit cards used to be the number one barrier to online shopping among UAE shoppers, but that’s no longer the case, having dropped from 67% in 2009 to 49% in 2010.

According to Muhammad Chbib, Chief Executive Officer, Sukar.com, the increased acceptance of prepaid channels signals an increasingly mature online marketplace. “The online marketplace is mirroring the offline marketplace in its acceptance of credit card and other prepaid online channels. People in this region preferred cash over cards for a long time but once the fear of credit card scams waned and everyday usage increased, that’s when retail really took off in this region. It’s the same online – people are more comfortable using prepaid channels today and use them more often for everyday purchases ranging from cinema and concert tickets to airline and hotel bookings. There is greater customer trust in buying online today and it represents a huge opportunity for this region.”

Chbib says the higher level of security protecting monetary transactions made online has gone a long way towards reassuring potential customers to use this medium to make purchases. For example at Sukar.com all transaction data is sent over extended validation secure socket layer protocol (EV-SSL) which is the highest security rating any web page can attain.

The convenience factor of completing the transaction completely online is also believed to play a role. Shoppers both in the UAE and KSA display a “convenience shopper” mindset. According to Sukar.com, shoppers in the UAE made most of their purchases during lunchtime hours, between 1pm-3pm on working days (Tuesday and Wednesday saw the most purchases) while shoppers in KSA shopped mainly on the weekend, predominantly in the evening and late at night, with purchases peaking around 11pm.

As acceptance of prepaid methods increases, banks and card issuers are also seeing the value in streamlining the ability for Middle East companies to offer prepaid payment options online.

“We are already seeing online prepaid infrastructure developing rapidly. The process of setting up these channels involved bank escrow accounts and a lot of bureaucracy which excluded a large chunk of local online retailers, but things are changing.”

He continued: “It’s something that online retailers, banks and credit cards are working together on for a combined return. For example, at Sukar.com we incentivize credit card payments in many ways, such as offering free shipping. For businesses, prepayment erases many issues that the cash-on-delivery model raises and customers also receive many benefits. In addition to the ease and convenience of paying online, they can collect miles, get discounts… it’s a win-win situation. We notice a significantly high rate of repeat buyers among our members who use prepaid channels as opposed to cash.”

Chbib adds that prepaid methods can also lead to increased spend as opposed to cash orders. “As people in the retail industry say, the pain of paying with plastic is less than with paper. Online retailers who offer prepaid channels on average can expect to enjoy a larger basket size and a higher volume of orders.”

The increased acceptance of prepaid payment channels signals a huge opportunity for more local businesses to offer these channels online. According to a report released by the technology research consultancy Arab Advisors Group last year, of the 102 e-commerce portals across the MENA region, only 64 provided customers with a credit card payment scheme to buy goods online.

As more retailers move online, the region can look forward to experiencing a rising online sales. According to a Euromonitor Report released in January this year, online sales in the Arab world are forecast to top $2bn by 2016, amidst a boom in e-commerce in markets including the UAE and Egypt. The report attributed the boom in the UAE market to more people signing up for credit cards and to a slight increase in home-computer usage.

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Sunday, April 8- 2012 @ 12:33 UAE local time (GMT+4) Replication or redistribution in whole or in part is expressly prohibited without the prior written consent of Mediaquest FZ LLC.

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