By Chanel Smith, EMEA Editor (@PYMNTS_EMEA)
Retailers all over the world are prospering from the burgeoning trend of online shopping. Yet Middle Eastern countries lag behind as late bloomers, and are still struggling to grow their eCommerce markets.
Interestingly, various countries in the Middle East have some of the world’s highest Internet and mobile penetration rates. Alternative payments are quickly expanding, and having access to some of the world’s most coveted natural resources allow countries in this region to have some of the highest GDP in the world. There are over 190 million consumers living in the Middle East, and the total GDP has been estimated at about $1.6 trillion, reported Cash & Trade magazine. So, if the funding and technology is available, what is slowing down eCommerce growth in the Middle East?
There are several challenges prevalent in the Middle Eastern market that will require international merchants to develop strategies based on innovation and vigilance. This is a unique region that is plagued with complications many other countries have little to no experience with, which highlights the need for retailers to have a deep understanding as to how this region operates before they can begin finding solutions.
Rohit Misra, former VP at Havas Worldwide (a global marketing and advertising agency) explains her experience while working in Dubai for seven years:
“My responsibilities were managing the group’s presence across nine countries in the region and spearheading the introduction of new services and new media,” she said. “One of the challenges that we faced as regards eCommerce was the lack of postal addresses. There were no street addresses, only P.O. boxes. So this ruled out mail as a means of shipping.”
A GPS is essentially useless in Dubai since no home delivery postal system exists. This means there are no street addresses for residential or business locations within the city. Drivers in Dubai must be familiar with the city’s layouts since locals commonly provide buildings and landmarks as a means of navigation.
Online businesses struggle when only provided with a district name and a city postcode for delivery. P.O. boxes are available, but not common. Local online businesses have the advantage of knowing how to get around Dubai and will often make deliveries by motorcycle if the order is small enough. However, international merchants have a hard time with shipping items to cities like Dubai and are hesitant to do so. Dubai acknowledges this is a major problem for eCommerce, but it could take years before the infrastructure can be corrected.
Lack Of Confidence
There have been great improvements in regards to Internet access and smartphone usage in the Middle East, which indicates technology is not a barrier for eCommerce growth.
The issue is a lack of confidence – amongst both consumers and merchants – in online payments. According to Biz Report, only 6 percent of Internet users regularly shop online, and almost half (43 percent) of users said they do not purchase online because they don’t trust the region’s online payments process.
Despite the region’s improvement in building a more mature financial market and banking infrastructure, it still suffers from an inadequate clearing and settlement process, and underdeveloped electronic channels for money transfers. And of course, the Arab population’s long love of cash does not help, either.
The Middle East card industry needs improvement since most regional and national card processors are fragmented, which leads to high cost-per-transaction fees.
The governments and banks of the Middle East need to actively educate merchants and explain how accepting more card payments can be better for online and international sales. Currently the majority of merchants in Arab countries prefer to accept payments in cash, because they do not trust the banking system and have a lack of alternative payments acceptance knowledge.
Some are even unsure of the differences between credit and debit card payments. An increase in card acceptance would also decrease risk of theft and counterfeit currency in shops.
Vulnerable To Fraud
Unfortunately for the eCommerce market, the Gulf region is also highly susceptible to online cyber attacks. A study by Norton from Symantec reported that two-in-five mobile shoppers in the MENA region have become a victim of cybercrime. The same study revealed that 71 percent of the respondents said they witnessed cyber attacks in the region.
The issue is not limited to the virtual world, but is permeating to all financial transactions across the region.
Rania Saghir, who is from the Middle East and has worked with market movers in Syria, Lebanon and the UAE, explained her experience with fraud while out in Dubai:
“We were in Dubai couple of years ago and we were dining at a restaurant. We gave our credit card to the waiter so he could charge us for the dinner we ate. The guy went to the kitchen, Xeroxed the credit card, and at night while we were sleeping, he went online and bought goods for about $3,500. Upon our return we were faced with this problem and we had to convince the credit card company that it wasn’t us who did it.”
Middle East Etiquette
Jim Angleton, the President for Aegis Prepaid Debit Card Financial Institution, works in the Middle Eastern market often for eCommerce and eCatalog sales. Angleton reminded PYMNTS.com of a difference between business in the Middle Eastand elsewhere, but one that is crucial for international retailers to understand.
“It is a mixed bag, and very difficult to conduct business in the MENA countries, ” explained Angleton. “Needless to say, it’s extremely challenging as you must be vigilant about understanding the customs for proper business and business conduct in this market.”
Before retailers decide to do online business in this market, it is important for them to study the business culture and proper etiquette. Differences can include meeting protocols, conducting the right communication practices and understanding techniques on how to negotiate business in way that is not offensive.
There is great diversity in the Middle East, as well as a high respect for religion. The culture does not differentiate the professional and personal world, which is an important concept for retailers to keep in mind. The Kwintessential reported that the Islamic faith is saturated in nearly all aspects of life.
Arabs generally address others by their first name when doing business, and handshakes are commonly used when greeting others for business. Moreover, gender roles are more sensitive in the Middle East compared to other regions, and how you interact with the opposite gender is important. More women are joining the eCommerce industry, but male merchants must be careful to avoid prolonged eye contact and shaking hands as this is condemned in their culture.
Retailers hoping to increase eCommerce sales in this region need to pay attention to the daily routines of Muslims to avoid disrespect and establish professional networks.
A Promising Future
The Middle East may be late bloomer of global eCommerce, but in a short period of time the region managed to become the new up-and-coming market. A recent Visa study estimated a 45 percent year-on-year sales increase in the MENA region—jumping from $10 billion to $15 billion from 2011 to 2012. Moreover, Visa named MENA as the fastest-growing eCommerce region in the world.
Saghir predicted, “The middle east will be in the future the place to be for eCommerce in 10-15 years.”