Why PayPal sucks and Kwedit doesn’t

One of the biggest factors, apart from bandwidth and audience size, that’s restricting the development of the internet and the emergence of startups in South Africa is the lack of a safe and convenient method for consumers to buy goods and services online.

The recent announcement that PayPal have officially entered the country through a partnership with FNB could help to solve this problem, but it still comes at a price and only benefits those of us who bank with FNB and have the patience to put up with the rigmarole of getting your PayPal account approved for sending and receiving money (something I know a little bit about having gone through it myself when I finished my undergrad degree in the States a few years back). There’s another pretty serious downside to using PayPal, which for obvious reasons, they prefer to keep hush-hush.

Before you start thinking that I sound like a 9/11 crackpot who enjoys giving lectures on why the American oil companies colluded to bring down the twin towers in order to boost the oil price, think again, because señor Google is littered with complaints about PayPal and their draconian policies.

The long and short of it is that as soon as you open a PayPal account, you agree to play by their rules, and they have the authority to freeze your account at any time without rhyme or reason. In fact there is very little you can do about it and what’s more, the personal bank account that is linked to your PayPal account may also be affected. And you thought that our local banks were creeps?

This might not be a biggie to some, but I for one am going to throw caution to the wind and limit the amount of funds and transactions I do through my PayPal account. The question that I’ve been asking myself lately is whether there is a better alternative to PayPal and credit cards in South Africa, especially for virtual goods and micro-payments?

There are a number of innovative payment solutions coming out of the mobile space, but unfortunately there aren’t many good alternatives in the online world. There is an American company however that has caught my attention and they go by the name of Kwedit.

Kwedit gives consumers the option to purchase digital content and virtual goods securely without requiring a credit card or bank account. You can either pay in person at a local convenience store, through a family member or friend (called Pass the Duck), via snail mail, and most controversially, not at all!

This is where things get a bit hairy because Kwedit has come up with their own rating system called Kwedit Score, which is modeled around real-world credit rating and allows you to buy virtual goods immediately in exchange for a pledge to pay back your debts at a later stage, or one would only imagine. Sounds crazy but they have clearly thought things through because if you don’t pay back the small initial credit limit that is granted to you, your score nosedives and eventually you get booted off the system. However, if you pay back your debt in a timely fashion your rating will soar and you will be granted a higher credit limit and greater street cred amongst people that actually give a damn such as accountants and SARS employees.

Kwedit appear confident that enough people will take their scoring system seriously to make it work and the fact that more than 100 companies signed up to accept Kwedit at launch is a clear sign that they may be onto something.

Whilst the service is only available in the US at present, the question is would something like Kwedit work in South Africa given the numerous “challenges” we face around curtailing fraud and bankruptcy?

I believe it could, especially for virtual goods and content where nothing ventured, nothing gained and convenience is a critical factor. Can you imagine buying a months supply of Farmville credit for the whole family whilst filling your car at the petrol station or buying a loaf of bread at the local Spar? I can as this model has been used very successfully for purchasing pre-paid airtime for years.

Even the option of “buy now pay later” would probably work without a hitch as millions of South Africans walk around with retail accounts that they can’t pay each day and most stores seem to be doing just fine. It’s built into the cost of doing business.

Perhaps the only aspect of Kwedit that I know without a doubt would not work in South Africa is the pay by mail option. Asking SAPO to deliver cash is a little too optimistic, and even if you get lucky and the letter doesn’t go missing, by the time it arrives inflation will have kicked in and the merchant will ask you for more money.

It remains to be seen if a payment system like Kwedit will revolutionise the South African internet economy, but until a viable alternative to bank cards and the PayPals of this world emerges, we have to accept that only a small minority of the population will be able to participate in the buying and selling of goods and services online, which is bad news for the development of the Internet and e-commerce in this country.