For people in emerging markets like South Africa to buy online, they pretty much have to use a bank card of some sort. And while fraud, online security and chargebacks all add to the difficulties that both consumers and merchants experience, there are many companies and startups trying to crack the mobile payments industry. This is simply because many more people are browsing content rich ecommerce websites on their smartphones.
But recently someone asked me: why not simply let people buy via SMS? If I wanted to pay for a R100 t-shirt online, I should be able to SMS a string of text or codes and pay for it. The money could come off my cellphone account (whether contract or prepaid) or from my bank balance. I can already do this for my prepaid electricity, my friend said, and for any amount. Why not on an ecommerce website?
While it is great that someone did ask this and was thinking out of the box, there are numerous pitfalls within the way that payment structures work, that all make this sort of billing either very restrictive, not so profitable, or simply unnecessary. There are many options to use SMS billing, but here’s a simple overview of how things actually work.
Firstly, the concept of billing someone via SMS means you require their cellphone number. This is mostly not a problem for South Africans. As long as you don’t misuse that information, you’re in the clear and they won’t mind.
Next comes the question of where the money comes from. If you are billing someone from their prepaid or contract cellphone balance, you will effectively be using Vodacom/MTN or another mobile service provider as a bank, and come up against massive fees. The last figures I heard were around 50% – meaning that for the R100 payment your client makes, you receive around R50. Premium rated SMSes are not treated much differently, and what’s more, legislation has started clamping down on them as well, with limits to the amount you can take from someone’s balance.
The other option is billing the person’s bank account or card. The factor that weakens the argument for using SMS here is that if you are taking the money off their card, all you have to prove that they wanted the transaction is the SMS. While this should suffice, you would also have to save their card details to do so, something which will definitely not make you PCI compliant. Most people are not happy to have a company save their credit card details online.
However, there are some very good use-cases for using SMS to buy something. Electricity (prepaid) is definitely one of them. Bear in mind though that as mentioned above, this is in effect a card payment, where the merchant is storing your card details. Personally, I use PayCity for this, and there are many more options and apps as well.
Another good example for premium rated SMSes is Bid4Africa.com, an auctioning website with numerous products. You buy R10 worth of bids each time you SMS, and these are translated into 100 bids on the website. By using those bids, you can win auctions and receive the auctioned product.
In general, SMS payments are possible, but the amount of industries that can use them are few and far between. Even so, it’s good to keep this option in the back of your mind when exploring new ideas.