Godwin Muhwezi-Bonge
18 September 2007
CYBER trade has gathered steam and finally uncovered the once muted frustrations of many Ugandans.
Online traders have for long watched trade opportunities slip away for lack of credit cards.
And now traders are getting edgy over the reluctance of financial institutions to issue credit cards, which has turned cyber trade into a nightmare.
"Doing an online transaction in Uganda is impossible unless you were fortunate (and wise) enough to get a credit card the time you were either in Europe or America," Mr George Lule, the managing director of East African Center for Open Source Software, said.
Nightmare
Mr Lule discovered the nightmare while making an online order with his Crane Bank Visa electron debit card, despite the bank's assurance that the service would permit online payments.
He ordered products from a site he could not disclose for personal reasons. However, twenty-four hours later, he received a notice that his transaction could not be completed because his debit card was not authorised.
Mr Lule sought solace in Western Union money transfer but found that the service was limited to individual recipients and not companies.
He settled for the rather expensive direct money transfer, which cost him Shs90,000 ($52) to transfer Shs426,000 ($250).
Many cyber companies insist on using credit cards for most online purchases.
However due to the limited presence of credit cards on the market, Ugandans have failed to exploit the advantages of e-commerce.
Of the 14 commercial banks operating in Uganda, only Barclays offers credit cards with banks such as Standard Chartered Bank, Crane Bank, and Orient Bank still stuck to debit cards.
Credit cards at Barclays Bank are only issued to customers with prestige bank accounts, a service limited to clients with a monthly income of more than Shs1.2 million.
While the current visa debit cards on the market allow customers to withdraw money from anywhere in the world, they are constrained when it comes to online transactions.
Unlike debit cards, where funds are withdrawn directly from the cardholder's bank account, credit cards do not remove money from the user's account after every transaction but instead the bank pays on behalf of a customer up to a pre-established credit limit.
Each month, the credit card user receives a statement indicating the amount owed. The cardholder must pay the bill by a due date, or may choose to pay a higher amount up to the entire amount owed.
Crane Bank Head of Marketing Aldrine Nsubuga maintains that holders of Crane Bank debit cards can make online purchase on condition that they check with the bank to confirm the acceptable limits for online purchases.
Although some online businesses may accept debit cards under special circumstances, most web-based companies such as Amazon, and E-bay prefer credit cards as a form of payment.
"Most online traders prefer credit cards because the banker commits to pay regardless of whether the consumer defaults on their credit card payment," Mr Micheal Nampala, the chief executive officer of the Uganda Online Website Directory Ltd, said.
Mr Michael Kaddu, the head of corporate affairs at Barclays Bank, said: "Companies prefer purchases done through credit cards because they are guaranteed of payment and are sure that they are dealing with a credit worthy customer because financial institutions do due diligence on person before issuing credit cards".
Limited cards
He said Barclays has limited credit cards to customers within the upper income bracket because the bank wants to guarantee that a customer will be able to pay the credit accumulated.
Fairly advanced economies have reduced the use of paper money in favour of debit and credit cards. Most of the leading financial institutions in Kenya issue out credit cards, a thing analysts say has increased consumer spending and boosted the economy.
However credit cards, remain limited on the Ugandan market. Mr Grace Kavuma, the chief finance officer of Dfcu Bank, said: "Tracking people in case they default is difficult in Uganda because we do not have a good identification system."
Uganda is yet to establish a Credit Reference Bureau, despite repeated calls from players in the banking industry over the need to establish a Credit Reference Bureau to provide accurate information relating to the creditworthiness of borrowers. It is envisaged that the introduction of a credit reference bureau will improve the functioning of the banking system and deepen access to credit.
While credit cards present immense opportunities, often times the cards are prone to fraud. There is a huge black market of stolen credit card numbers in the United States and other economies.
There is also a risk of bad loans since the business is based on giving out unsecured loans, creating a generation of debtors that has dogged countries such as the United States.
"With a credit card, there is always a risk that people may spend beyond their means; that is why banks are very careful with the service," Mr Kavuma.
Plans
With the success the Barclays card service has so far registered, other banks are watching with an eagle's eye keen to venture into the market.
Mr Nsubuga said plans are underway to introduce credit cards to Crane Bank customers.
"We started with the Visa debit card as the first step. Our intention is to provide the credit card as well in the future," he said.
However, lack of infrastructure at most retail outlets may further delay the process, and reduce the allure of the service.
"There is still limited or no infrastructure at point of sale to efficiently effect use of the service; there is need for financial institutions to invest in point of sale infrastructure," Mr Kavuma.
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hallo, This is a great article.I sincerely share the misery with Mr.Lule of the much elusive credit card as an online payment method.
I think there are two reasons why the transaction failed.
1.The website does not accept Visa Electron cards,only Visa and the rest.Note..Visa Electron is different from Visa card in that the Visa Electron is limited in use than the Visa card. 2.The card really did not work either due to the bank's system or even reason beyond their control (Force majeure).
However you can use virtual credit cards which work just like normal credit cards except that they're specifically for internet purchases and cannot be used offline.they come in prepaid denominations from as little as $5 to $1000.
They work great for anyone anywhere and one does not need an i.d to order for it nor a bank account.it is a great option for those who fear fraud as it is not linked to your actual bank account with its nature of being virtual.
Generally the online payment options widely used like paypal are still hurting Africans trying to do business online.We hope the governments are working on this and give us a back to back opportunity to share in the internet opportunities together with our brothers and sisters in the West.
Regards, Victor. www.digitalmoneyafrica.com