The potential of electronic and mobile commerce in a developing country in Kenya

Introduction

E-commerce is a method of trading that replaces paper-based documentation by a mutually binding electronic protocol between buyers and sellers. On the other hand, m-commerce is a new form of e-commerce brought about the rapid growth of wireless communication. It is the buying and selling of goods and services using wireless handheld devices such as mobile phones or personal digital assistants (PDAs). Simply put, it is 'mobile' business.

The main types of e-commerce are: B2B, B2C, B2G and P2P. In developing countries mobile business applications, especially when used by small and medium sized enterprises in rural areas, will become the key method of reaching potential customers, and expected to become an important feature of the m-commerce .

In the last ten years, the growth in the number of mobile telephone users worldwide has exceeded the growth in the number of fixed lines. It is well documented by the ITU that mobile telephony is growing faster than in anywhere else in the world. This is supported by World Bank reports that "the African mobile market has been the fastest growing market of all regions, expanding at twice the rate of global market". Closer home, as of June 2008, the two players in the mobile telephony sector, Safaricom and Zain (formerly Celtel) reportedly had between them 14 million subscribers, covering roughly 35% part of the Kenya's landscape, and reaching 80% of the country's population.

Current Status in Kenya

Studying the e-commerce scene, it is observed very little is transacted online. Typical scene is where when you wish to buy or sell a good or service, an enquiry is sent and in return an email is received from the business. Compare this with m-commerce, and the contrast is evident. The m-commerce is robust and growing at a phenomenal rate, with the efforts being directed at m-banking services which as of June 2008 saw some Ksh. 12 billion (USD 185 million) move through the system. Presently there is experimentation for purchase of goods and services through the m-commerce platform, and this is expected to be much more promising as it is seen to be a more secure and reliable way of payment. No money is transacted online.

There are a number of factors that act as impediments, and when considering these factors, the potential of both e-commerce and m-commerce can be easily discerned.

Outlets using Credit Cards

E-commerce is likely to pick up if there is an uptake in numbers of credit card holders. Kenyans have traditionally been averse to the "plastic money", but estimates indicate that more and more Kenyans are acquiring credit card and subsequently becoming users. This is more to the fact that the commercial banks are aggressively promoting use of credit cards, and increasing the number of outlets which has been a stumbling block in the past.

After South Africa, Kenya is the next fastest growing credit card market in Africa. According to the Credit and Debit Card Association, there are just over 4,000 across the country with the majority clustered in the capital. Sixty per cent of the merchant network is located in Nairobi, while 30 per cent are in Mombasa and the remaining 10 per cent are scattered across the country .

But with available figures still placing the number of Kenyan credit cards at just under 1.5 million, a new solution that will drive more consumers to use credit facilities being offered by banks is needed. With the mobile phone, new solutions are raising hopes that card use will pick up. MasterCard is employing Near Field Communication (NFC) and Over-The-Air (OTA) technology, working closely with industry players to add its PayPass capability to an NFC-capable phone in order for it to carry the same payment functionality and services that payment cards provide. The technology enables mobile phones to securely transmit and receive information over a short range, maximum range of a few inches, when customers make payment. Industry pundits are excited about the new technology, pegging it as a perfect solution for the Kenyan market, which has already demonstrated its openness to merging using a mobile phone with making financial transactions with mobile money transfer services such as Zain's Sokotele and Safaricom M-Pesa.

Therefore both e-commerce and m-commerce can be seen to be supplementing each other.

Absence of enabling legislation

There is the perceived government's failure or slowness in addressing ICT policy and strategy in a cohesive and comprehensive manner, which would have provisions for e-transaction (and also m-transaction). The current ICT and Electronic Transaction draft bills are still lacking in many areas and the stakeholders agree that certain provisions need to be included if there is to be support for e-transactions and m-transactions.

According to the Kenya ICT Federation (KIF) report of 19 June 2008, e-commerce will add at least one percent growth to Kenya's overall economic growth within five years. This will be dependent upon adoption of legislation that supports e-transactions. Legislation is needed to legalize e-commerce transactions by recognizing electronic signatures; manage and control e-commerce risks; and remove e-commerce barriers. KIF has studied both drafts of the bills, the ICT Bill (2008) and Electronic Transactions Bill (2007) and suggested improvements such as: provisions on who can prosecute, eliminating of ambiguities on admissibility of electronic evidence and the need for data protection and privacy provisions.

Industry sectors, such as tourism are expressing the need for e-commerce to be covered by law. Those countries with tourist destinations that do have legal support for online booking will likely lose their market. This argument is based on the fact that online bookings in countries such as USA and in Europe account for over 80 percent and 50 per cent respectively of their total bookings. Already most airlines locally, regionally and globally are today registering a large proportion of their flight bookings and reservations online. E-commerce and m-commerce in agriculture will improve small scale farmers living standards. Looking at the health sector, there is room for improvement in health care efficiency and affordability through online health data management systems.

Financial transaction capabilities

There is lack of financial transaction capabilities, unlike in Egypt and South Africa where e-commerce has turnover that runs into billions of dollars. This is as a result of financial capabilities brought about by the commercial banks that are still yet to introduce online payment gateways. Without the commercial banks support for such gateways, such as issuance of online merchant accounts that allow businesses to receive payment for their goods and services through credit cards, e-commerce will not take off fully. Some of the two most successfully run and locally established e-business ventures, MamaMike.com and Biashara.biz, use international (and offshore) online merchant accounts such as PayPal, Checkout and Paymate to facilitate their transactions.

This is forcing most of the start ups to look outside the boundaries for offshore online accounts so as to solve problems related to payment. Most of these third party online merchants, such as PayPal will not issue accounts to a Kenyan address directly, and for those who do, they do so at exorbitant charges. This is due to the fact that Kenya is not in the geographical jurisdiction of most these merchants.

As mentioned elsewhere, m-transactions such as mobile banking are therefore still hampered by these requirements for online systems and standardized payment cards. In the few developing countries that have implemented m-commerce, there is evidence of success with securities trading where investors buy and sell shares using mobile phones. Saving time, simplicity and speed of payments are the main advantages of mobile settlements that have been noted.

An example of where both commerce technologies are being used together to improve transactions, is the partnership between Standard Chartered Kenya and Cellulant, who are developing a software that would among others allow their customers to: check their bank balances; pay for electricity, water and other utilities; and even shuffle funds between their accounts. The software-Commerce 360-will link banks, utility services and other companies with mobile phone owners. The service can be used to make transfers from one bank account to another, unlike Safaricom's M-Pesa and Zain's Sokotele that that is used to transfer funds from one individual mobile phone to another. If successful, the initiative will accelerate the modernization of the national payment system and most importantly help the banking system access a wider distribution system, cheaply and more efficiently by leveraging on technology in targeting Kenya's unbanked population, which is estimated at 10 million. Commerce 360 will complement money transfer and e-commerce offering .

Regulatory Issues

In developing countries, mobile communication services ate new and operators are being licensed to compete with incumbent carriers, who in most cases are publicly owned and grossly inefficient. Interconnection between landline operators and competing mobile operators has been a major difficulty constraining mobile development.

Security

Concerns about e-commerce and m-commerce security are heighted especially in the m-commerce domain. Landline Internet and PC-based browser technology provides a media richness (though user perceived) and interactivity that can be used to implement technological security and assure commercial partners that transactions are under way safely and surely. In contrast, the present day mobile interface, be it SMS or WAP, is fairly poor and does not inspire confidence. Though this is changing with the mobile platform technological shift from 2G to 3G that support greater bandwidth and Internet services. Mobile handsets are more prone to theft and consequential misuse, particularly since they contain passwords and personal identification numbers (PINs) used to provide the authentication and data integrity required for verifying financial transactions.

Most of these issues can be addressed through adoption of a fully comprehensive legislative act such as the ICT bill. Some of them are related to the confidence of the businesses and users to the concerns of security and fraud of credit (and debit) cards.

Conclusions

Both forms of commerce are eliminating the need for middle men, and making purchases of goods and services cheaper. Kenya needs to strategically position herself so as to determine the emerging opportunities and make best use of the available human resource that is technologically experienced and available technology that is ready make use of e-commerce.

The growth of wireless technology in the last ten years has created new voice and data communications that can support widespread consumer and business m-commerce applications. It will not parallel e-commerce. B2C transactions will remain more extensive than B2B due to the already established landline channels of e-commerce among companies. Individuals are already finding it increasingly attractive to initiate B2C contacts with companies to order purchase products and services. The conduct of m-commerce is limited by difficulties in making electronic payments and concerns about security and privacy of transactions. Technology also plays an important role because mobile terminals must be Internet enabled if they are to provide full m-commerce possibilities.