New hope for eCommerce in Nigeria

New Hope for eCommerce in Nigeria!
Nigeria is not known for large deposits of gold or silver, but it may well be a gold mine for savvy Internet
investors. Nigeria is the largest market in Africa with over 5 million Internet users and this is only 3.57% of
Nigeria's 140 million people according to the official 2007 census. Meanwhile, Nigeria's economy has been
growing steadily for decades. In US dollars, Nigeria's GDP in 1997 was a mere $36.2 billion. Ten years later it
grew to $265.5 billion. During the same 10-year period, the country's debt dropped from $78.5 billion to $7.8
billion in 2007. No wonder Internet giants Yahoo and Google are now setting up presence in Nigeria. Not that
there aren't challenges. It is often difficult to pay for goods and services online even when buyers have debit
cards, due to lack of regional payment system with capability for global access. Nigerian banks did not issue
international credit or debit cards until recently, although local cards were issued much earlier by formidable
pioneers like Interswitch and eTranzact. As a result, despite the burgeoning entrepreneurial spirit of Nigeria's
youth there is still a major eCommerce knowledge gap that is costing Nigeria millions in lost revenue.
Those who have ventured to start an online business have had significant setbacks and are often discouraged
from trying again. The average life span of a web site in Nigeria is between 3-6 months, after which it's
deserted when owners are unable to surmount the numerous obstacles to paying for further ongoing
maintenance and hosting. And if a site accepts payments for goods or services, there are several more layers of
challenges that are rarely overcome. Even if a determined entrepreneur manages to survive, there is still the
problem of finding a reliable eCommerce infrastructure that will safely and reliably handle the electronic
transactions without viewing the seller from Nigeria as high risk. So bi-directional commerce is virtually not in
existence in Nigeria.
The influence of online merchants is critical in ecommerce chain in that when online shopper enters debit or
credit card information at the point of purchase online, the seller's Website (in some cases) captures the card
information and passes it on to an eCommerce payment processor. The processor then presents that
information to a payment gateway, which in turn presents it to an inter-bank network for processing by Visa,
MasterCard, American Express, Discover, etc. In this chain, sellers generally have the option to approve or
decline a purchase made with debit cards whether or not it was initially approved by the card issuer. Basic
economics would indicate that merchants are generally happy to have as many buyers as possible, irrespective
of the location of the buyer. In fact, the broader the scope of buyers, the better for the seller. So one might well
ask why a merchant would deny a sale that had already been approved?
All things been equal, a merchant would not deny such an approved sale, so long as the payment was
guaranteed. However, due to the nature of existing payment systems, a seller may lose the money even though
the buyer consented to the purchase - even after the item has been shipped and received. Nearly every
merchant worries about chargebacks, which can occur for a variety of reasons that have nothing to do with the
seller or his integrity. The purchase could have come from the fraudulent use of or a stolen credit card, or the
shipment could get lost in the mail, or the buyer could come up with any number of reasons why he is not
happy with the product after the product has been opened or used. Most credit card companies stand behind
the buyer and will issue a full refund, leaving the merchant with neither his money nor his product. Even if the
buyer should send the product back, it is unlikely that it will be suitable for resale.
If the purchase originated from the US or a European country, these issues can usually be handled with minimal
loss to the seller. Dealing with buyers from elsewhere, however, can be quite risky because of the time and cost
of dealing with the issuing banks in those countries. This puts sellers in a very difficult position. If merchants
lose too many sales due to chargebacks, the banks may penalize them or cancel their accounts, putting them
effectively out of business. It is much easier and safer, from the seller's point of view, to simply deny the
purchases from the so called "unsafe" countries. Contrary to popular opinion, it is more often merchants rather
than the credit card companies that make the final decision to deny an order. For this reason, merchants are
very important in the chain and are the most difficult to deal with from a buyer's point of view. However, this
dynamic changes completely if a different mode of payment is used.
Although buyers in Nigeria have been shut out of eCommerce for nearly 15 years, this trend can be reversed
almost immediately. Historically most eCommerce payment processors were regional in their outlook, but
they've all expanded beyond their original boundaries. While most regions now have their own ecommerce
centric payment platform, PayPal, Money Bookers, Alipay are three such examples. PayPal (acquired by ebay
for $1.5b in 2002) started as a USA-based eCommerce payment processor. Money Bookers is a similar service
that began in the UK and Alipay the Internet payment subsidiary of the Chinese B2B e-commerce giant Alibaba
Group. Because these companies rely almost exclusively on credit/debit cards to operate, their position as an
aggregator more or less puts them in the role of a merchant, placing them in the same risk as the merchants
described earlier. In fact, their position is even more tenuous in that they have no guarantee of a finalized sale
and no control over the product itself. Such an extended risk and responsibility is what has kept such providers
from extending service to Nigeria. There must be another alternative if Nigeria is to fully participate in the
profits generated from an exploding eCommerce market.
What is needed for Nigeria is a fair system to handle dispute resolution between a buyer and seller that doesn't
penalize the merchant simply because a buyer lodges a complaint. Except in blatant cases where a merchant is
clearly defrauding customers, sellers should be able to compromise when necessary without the worry of losing
their account due to some arbitrary number of chargebacks. So far, the best solution that seems to be
emerging is VTN (Virtual Terminal Network). VTN began as an experiment to see if Nigerian market would
benefit from a change in merchant attitude given a proper payment solution for the region. Specifically
designed for Nigeria with ambitions for the rest of the continent, VTN offers a unique blend of features that
have become very popular.
First, VTN is a very simple and secure way to make online purchases, even through the use of a GSM mobile
phone. Money is safely transferred from VTN account of buyer to that of merchant or person to person
transfer. Recipient can withdraw sales proceeds to their Bank account at anytime. Security features include a
five minute recyclable 4 digit pin that comes from atmospheric noise that flashes on users GSM for added
security and the ability to lock an account if it is suspected that an account and password have been
compromised. VTN account holders can even add minutes directly to their cell phones without scratch cards
and there is a referral program that earns them commissions if a friend uses the service. Sellers like the crossborder
payment system and a dispute resolution system that doesn't automatically blame merchants when
something goes wrong.
The seller's account is no longer held hostage by the whims of a foreign bank.
Due to the global economic downturn, the competition for new markets is fiercer than ever. More and more
merchants are following the lead taken by Google and Yahoo, as evidenced by the recent surge in merchant
registrations outside of Nigeria. In fact VTN was selected to power USA-AFRICA trade mission summit held in
Maryland , USA in November 2008. Merchants are now flocking to VTN, which is projected to become the
dominant eCommerce payment processor in the region. After years of waiting, VTN is finally paving the way for
Nigerians to join the eCommerce marketplace with minimal competition.
Nigeria has the highest penetration of Internet users in Africa and because VTN satisfies the single most
important concerns of merchants outside Nigeria, and the bi-directional transaction capabilities which will
assure inflow of funds into Nigeria, they have a historic opportunity to reach millions of potential new Nigerian
customers and thousands of global merchants. VTN has been growing at phenomenal rates since its preinauguration.
Its initial success has allowed VTN to recruit thousands of new merchants from around the globe,
making Internet shopping more attractive and useful for Nigerians than it has ever been. With millions of
transactions already processed by VTN, there has not been a single case fraud - a remarkable achievement in
today's world and a positive example of what is possible in Nigeria.

For more information about the VTN Solution, visit the Website at: http://www.virtualterminalnetwork.com/Invite.asp?ID=35326
Click here for flash presentations and more: http://www.virtualterminalnetwork.com/vtnvideo/video02.html

By Peter Ojo, a former ODASSS (now DFID) Scholar.