NextBillion - An Initiative of the William Davidson Institute at the University of Michigan

Tuesday, December 20, 2005

There have been a number of obstacles to increasing e-transactions in Africa, even in those countries visited by large numbers of tourists. Two of the most important have been the cost of the Point of Sale equipment and the other has been the high cost of dealing with relatively small numbers of transactions. South African company iVeri Payment Technology has come up with a solution that tackles both of these obstacles. Isabelle Gross reports on how it works.

In South Africa, Namibia, Rwanda, Kenya, Nigeria and Ivory Coast, small businesses can now afford to take credit card payments on the spot. How does it work? Whether you are a local craftsman or a small hotel and restaurant, all you needs as a business owner is your own own mobile phone and airtime. The business owner takes the customer’s credit card, and then dials the access number to the IVR system, which takes the call. The IVR asks what language is to be used, and prompts the shop owner to enter his username and password. When the authentication process is successfully completed, the seller enters the customer’s credit card details and the transaction amount. The data goes from the local IVR platform via the Internet to a gateway in Johannesburg, South Africa. From there it goes to an offshore processing centre (a Lebanese company known as CSC) and then on to the cardholder’s bank and back via the same route – taking 14-20 seconds all in all. A voice prompt then informs the seller whether or not the transaction is authorised, and gives a reference number when it is successful.

Behind this service is iVeri Payment Technology, a company based in South Africa. As its CEO Barry Coetzee puts it, iVeri provides cost-effective credit card transaction solutions to financial organisations (mainly banks and remittance companies) that want to allow their customers to accept credit cards as a means of payment. According to Coetzee, mobile operators offer the most wide-ranging network for data and voice traffic and are therefore the ideal platform for rolling out such a service, since they far outnumber internet users. Although mobile networks use different technologies, all modern mobile phones use DTMF signals (dual tone multi-frequency), allowing their users to use their phone’s keypad to enter data.

Coetzee further explains that traditional credit card terminals widely used in the developed world are not entirely suitable for developing countries. He puts this down mainly to two things: the insufficiency of the local infrastructure, and the level of credit card transactions. Modern credit card terminal equipment depends on a basic level of existing infrastructure such as electricity and telephone lines, which are not always available in Africa.

Beside this, investment in such equipment and technology would require both the bank and the local craftsman to make a hefty initial investment that is unlikely to be quickly recouped, since the volume of transactions is low compared to that in developed countries. According to Coetzee, there needs to be at least a couple of hundred transactions per month if the service is to be viable.

In contrast, the initial investment required for iVeri’s service comes to just a few thousand dollars for the bank, and the service is flexible enough to interface with the bank’s existing system. Subsequent charges are on a pay as you go basis – iVeri’s fees being around 1% of the total amount transacted. The relatively modest level of these investments gives banks room to expand their service in a user-friendly manner, and the language of the IVR system can be customised to accommodate local needs. In Ivory Coast for instance the IVR system script had to be set up in French. In this country the payment service has been taken up by Moneycash, a company which already provides financial services to local banks.

The service is not only cost-effective for the bank, but also for the shop owner himself, who could never afford to buy into a credit card terminal on his own. In Kigali, Rwanda a women runs a little shop which she rents to local craftsmen who exhibit their products there. Despite having neither electricity nor a telephone line, they can accept credit card payments by using their mobile phones. All transactions are checked live following Visa and Mastercard’s standard rules. Barry Coetzee claims that as long as the seller has a bank account, the service takes only a day to set up. iVeri’s local partner in the country is Simtel, a consortium of Rwandan banks.