Does South Africa’s ecommerce future really lie with niche players?

The South African ecommerce space is pretty complex. On the one hand you’ve got players like Takealot attracting hundreds of millions of dollars in international funding. On the other you’ve got people from some of the world’s biggest retail companies suggesting that it won’t be a major force.

That flies somewhat in the face of the reasons given for Takealot’s merger with Naspers-owned Kalahari. At the time, both parties said it was so they could better compete in the international arena. It is however consistent with industry talk, which suggested that the merger had come about because there was simply no way that both companies could exist independently and make a profit.

So if Takealot is to be the exception rather than the rule, then does the future of South African ecommerce lie in with niche operators. Takealot’s 2014 acquisition of Superbalist is certainly one indicator that this might well be the case.

Peter Harvey, CEO of payment management service Paygate thinks so too.

“Five years ago we’d load ten start-ups onto our payment gateway for every established business; now the ratio is more like 100 to one,” says Harvey. “The sluggish job market in traditional corporates is driving a lot of young people to start their own businesses. They have little to lose, so even when 60% of these new businesses fail they’re able to adapt and try something else. Things move fast in this market and we can’t predict who the successes will be, but overall about 10% of them do really well.”

According to Harvey, a large part of the growth is driven by lower barriers to entry and faster time to market.

Most of the innovation, he says, will come from established niche players including specialist online retailers, airlines, ticketing companies and travel and tourism players: “These are players who’ve been around for a while, who understand their markets, know how to manage risk and are investing strategically. We’re seeing continued demand from these players for more payment methods to offer their customers as they expand into markets where credit cards aren’t common – they need to be able to accept debit cards, international payments like Paypal and cash alternatives.”

One side effect of this growth of ecommerce, says Harvey, is further growth and innovation in logistics and distribution: “The Post Office is increasingly not a viable partner, so distribution is going to be an interesting space to watch. This week’s R20m investment in WantItAll’s logistics startup Parcelninja is probably just the start.”

Across the board, the PayGate CEO says, regulatory compliance and risk management will continue to be a key factor. “Banks, merchants and customers all need to manage the risks of fraud, and it’s a complex business. If ecommerce is to carry on growing, payment service providers like PayGate need to take the lead in reducing this complexity and offering easy, affordable fraud protection services.”

Featured image: FirmBee via Pixabay