LACK OF SECURITY FEARS SLOWS UPTAKE OF E-COMMERCE IN KENYA
A perceived lack of security has slowed down efforts to promote online shopping in Kenya, but the banks, product and service providers running websites are optimistic that with rising awareness and availability of network security, electronic shopping will soon catch on.
Already, airlines operating in the country are using the Internet for ticket bookings, confirmation of reservations and general information. Local supermarkets see it as the way of the future, but are hesitant to use it until security is guaranteed.
"It is still the ultimate convenience for modern shopping of all commodities, especially gift items, but the risk of fraud is too high and banks are not prepared to take it," said Fred Odhiambo, head of marketing, public relations and community affairs at Barclays Bank. He said that while the demand at the moment did not justify investment in high-cost security software, it is bound to be introduced as demand rises.
Online shoppers are required to e-mail their credit card details to the shops, upon which the cards are verified by the authorised banks before any transaction is enforced.
Currently, Barclays and Kenya Commercial Bank are the only two credit card providers who conduct such verification on local and international card payments in Kenya. In the event of any losses, the banks bear the risk.
Dr Tony Githuku, IT director at KCB, said that while the Kenyan urban elite had the necessary awareness, the market had not developed confidence in information security. He said that there could be a viable clientele for online shopping by next year and his bank was already studying how to guard against hackers.
"We already have a mechanism to detect such fraud immediately it is committed, which enables us to pre-empt repeat thefts from the same card; what we now require is a preventive mechanism to deter hacking," said Dr Githuku.
He said that the risk factor would be resolved when Kenyan banks adopted the superior technology of smartcards. "It is a requirement now by Visa and other international card systems that we change our current card system to the more secure chip card, which has more anti-fraud protection."
He said that international credit card providers had set a 2006 deadline for the change and those failing to adhere would be left out of international transactions.
The smartcard is already in use overseas; Kenyan banks have been slow to issue it due to the cost factor. "Our current card system costs $1 per card, while a smartcard costs up to $9 per card to produce. It will be a major investment to replace all existing cards with the more secure Smartcard," said Dr Githuku.
With a smartcard, one has to use the actual card for any transaction to take place, unlike the current system where card information can be used by hackers without physically inserting the card.
Kenya Airways introduced the card system last month; KQ web administrator Judy Waruiru says that, already, an average five customers buy tickets online daily.
However, Ms Waruiru noted that all the customers were expatriates or employees of non government organisations; the general Kenyan traveller had yet to take to the concept.
Where Kenyans are engaging in online transactions most of the users avoid paying with their own credit cards, and would rather outsource credit card services as a precaution against the risk of Internet fraud.
This has created a new line of business for online shopping providers who are charging a nominal five per cent fee per transaction.
"We mainly deal with items of low value such as books, magazines, CDs or tapes, which are either not locally available or which users consider overpriced in the Kenya market," said John Ochieng of Afripay Ltd, which provides such services.
Like others in his business, the company facilitates the purchase by using its own international credit card and charges a five per cent fee per transaction, thereby allowing the customer a risk free purchase.
"There is a general risk of hackers, but we view it as a global problem that should not deter our utilisation of its many conveniences," said Mr Ochieng. The challenge is for online shoppers to be fully conversant with the products they want to buy.
Mr Ochieng said that the popularity of DVD players had seen Kenyan buyers at times ordering equipment without checking its regional specifications. "There have been cases of buyers paying for goods with European or American market specifications, which means a waste of money," said Mr Ochieng.
Sheryl Kibaki, marketing manager at Marshals, says that the company runs a website which serves mainly as a shopping brochure for its customers in the East African region. "People could probably buy through the site but prefer to use it to identity their requirements and then come around physically for the purchase. I think there is that general scepticism about the safety of online payments," said Kibaki.
Major hotel chains in Kenya have also noted a slow but steady growth of online shopping although largely for booking purposes, with payments done on arrival.
Among those experiencing this trend is Serena Hotels, which works closely with Barclays to verify details of credit cards.
Mr Odhiambo, however, said that overseas holidaymakers use E-mail to book hotels and local banks are able to verify the authenticity of the card holders’ accounts before the bookings are allowed. But the actual payment is made by tourists upon arrival. "We have worked closely with Serena Hotels and the system is efficient and risk-free" said Mr Odhiambo.
The Holiday Inn also reports growth in online bookings by corporate clients. "There are occasional payments online, but most of them are made physically," said Edwin Muturi of the hotel’s marketing department.
The general apprehension among Kenyans has to do with reports of thefts perpetrated by hackers in the past three years.
At a security seminar for the banking industry in Kenya held in September, Col (rtd) Jan Kamenju, director of the Security Research & Information Centre, warned bankers of the increasing incidence of Internet fraud, committed by hackers who are able to overwrite passwords and make unauthorised intrusions into corporate websites.
Two years ago, the police anti-banking fraud unit reported that Ksh50 million ($641,000) intended for a firm in Dubai was diverted by hackers. This year, Ksh10 million ($128,000) was also stolen by hackers.
These and other cases have made Kenyan banks wary of online shopping. "We operate in an environment in which a single intrusion could cause undue panic, thereby killing the concept, which is largely why banks are cautious about online shopping at the moment," said Dr Githuku.
He said that even when it takes root, the immediate clientele is expected to be the elite, especially frequent travellers and expatriates, who appreciate the concept and are not deterred by the risks.
"More and more Kenyans are travelling, while increased exposure to the Internet and awareness of the cashless culture of credit is cultivating the concept of online shopping," said Dr Githuku.