This guest article was authored by Prosper Chikomo, an internet entrepreneur and author of Turning Iron into Gold: Golden Opportunities: How to Spot Them, Create Them, Make Money from Them, and How Not to Miss Them (Available on Amazon.com) When mobile payments were introduced in Zimbabwe, I thought here is the chance for me to sell my book to Zimbabweans who do not have Visa cards, MasterCards etc. I made my first call to Big Bank in November of 2011 and asked them about accepting payments via their mobile money transfer solution. I was told it was Ok.
I wanted to accept mobile payments via a merchant number and for the whole process to be electronic. The mobile payments solution did not work out because it was going to cost thousands of dollars to integrate and I was going to have to integrate the website to the bank’s own system which was going to require RBZ approval etc and a lot of money too, plus insurance. (Yawn)
Because integration in that case would be at bank level I was told by a manager of the bank that, “You would have to come to Harare and there will be a date set for you where you can present your thing and everyone from IT to risk etc and Reserve Bank of Zimbabwe officials will be there. The RBZ will be interested to know if you are insured etc.” (Ok, all that just to integrate at bank level in order to sell a few digital products, accepting mobile payments.)
Come on! Imagine you are a young guy with just $1, the next big idea, and a website hosted by Project Brandify and then you are told you will need to have a meeting with the RBZ etc, entire bank staff, present etc. where you will explain your business and how it works, its model, resources, security features, expertise of your staff etc. … and say whether your business has insurance or not!
Then I remembered Big Bank had eTranzact which could do online payments processing, including of major credit cards. I wanted the website to process Zimbabwean payments and eTranzact had it all. It could process even MasterCard transactions.
Finally in June of 2012, I would get a call from eTranzact’s managing director who was pleased that I was interested in their service (Yeah right). Maybe later I will tell you my service experience.
I am speaking from experience.
The ugly truth
As it is, I MYSELF, an individual, can open a vendor account on Amazon and start earning money. I can even receive payments for eBay sales and get paid electronically to my bank account. I can even open a merchant account that can enable me to accept purchases made with a major credit card like MasterCard, Visa etc. on my website without being a bank or having a physical shop. I can even accept PayPal payments and I do not even need a physical store to do so. I can do all this without a shop licence. This is something not readily understood or appreciated by many Zimbabwean bankers, even at the Reserve Bank. Yes.
To cut many long stories short, being a writer, when I find a good story, I always end up investigating the matter to the full so I will have something to write about. That’s exactly what happened.. many months ago.
How eTranzact merchant application works
To integrate eTranzact on your website, you need to get a merchant account from your bank first. You do not get a merchant account from eTranzact. Those are the RBZ rules. The bank will vet your application and if all is well, a merchant account will be opened for you by the bank. Once the account is opened, you will have a terminal Id etc and other technical stuff which can be used to identify your account and payments to your account. The eTranzact Channel Interface Specifications (APIs) are a very closely guarded secret you only get when approved. They are not public. You will then be able to test the integration and you are good to go.
The merchant account application process is similar to that of Vpayments in that the bank decides the criteria for who becomes a merchant or not, even though integration will be to the eTranzact platform.
Getting the merchant account from Big Bank
I was ready to integrate eTranzact. So I visited their (eTranzact) participating bank. I told the bank everything I was going to do (completely virtual online store) and they said I must complete a merchant application form. The bank’s merchant application form, it turned out, was specifically designed for companies because if someone asks you for a CR14, it obviously means you must be registered as a company and not anything else, not even a Private Business Corporation (PBC).
I told the bank I was a sole trader and that the nature of my business did not require me to have a physical space or be a company and I was told that in that case I must bring a Shop Licence if I am a sole trader. I told them that the local authorities said it would be illegal for them to give me a shop licence because they are not authorised by the Shop Licences Act to issue licences for my type of business (completely virtual operations). I even “educated” them about PayPal. (laugh).
The bank said it was just following Reserve Bank of Zimbabwe rules. Things were now getting interesting.
What eTranzact said
I later called eTranzact to find out if they accept individual merchants like PayPal does and they (the lady I spoke to on the phone) said they do but the individual would have to submit KYC (Know Your Customer) information.
So you see, Big Bank had its merchant application forms tailored for companies which meant only companies could apply, while eTranzact was saying even individuals can have merchant accounts. (Just like Vpayments saying lone-ranger web developers “informal traders” will be able to open accounts, but the banks saying you can’t have a Vpayments merchant account unless you meet specific requirements e.g. CR14, Shop Licence etc.) The bank effectively did not accept merchant account applications from individuals/sole traders, let alone from purely virtual/electronic players.
The plot thickens
On Big Bank’s side, there are Reserve Bank of Zimbabwe rules they have to follow “risk mitigation” blab bla.
In one discussion on the issue of companies and shop licences, a manager at Big Bank put it this way, “Can you imagine, say there is a problem that happens – I am not saying it will but let’s just say – and its effects run into say hundreds of thousands of dollars. You know how most Zimbabweans feel about banks these days. Anything, no matter how small can lead to a run on deposits and even bank failure. Now, we are not saying we don’t trust you, but just saying what if something wrong happens? The RBZ will come in full force with its teams of investigators and find that there was a tiny little guy making millions of dollars in business out of thin air and they will ask us how this tiny little guy was doing such business under the bank’s nose, without a trading licence, and how and why we allowed that to happen.”
I had a good laugh. There is a lot more but I cannot fit everything in one article
What’s that got to do with Vpayments
Vpayments information I have read so far says that your bank will be the one approving merchants and opening merchant accounts, and it is your bank that determines the criteria and not Zimswitch. (It will be up to the bank, and Zimswitch will not have control over the decisions of the banks.)
So while Zimswitch will tell you it will welcome “informal traders” or rather “virtual traders”, you will find that your bank will want a physical building to come with your merchant application (RBZ rules), either in the form of company registration details or lease agreement and a shop licence. So if you were thinking of starting Yahoo in your dorm room, which you do not have a Shop Licence for, accepting Vpayments, you may have to forget about Vpayments.
Oh yeah, and eTranzact said they also charge fees for integrating. When I asked how much I was told “it depends”. I learnt from West Africa that their charge there is US$1,000.
Licensed to trade
The Shop Licences Act was crafted many many years ago before electronic businesses were the thing. A copy of the Shop Licences Act (1980) I have clearly states that it is:
AN ACT to provide for the control and licensing of certain trades and businesses carried on in shops, stores and other fixed places of business and by means of vending machines; to establish licensing authorities and to confer powers and duties thereon..
Your completely virtual online store is therefore not covered as it is not a “fixed” place of business. The Shop Licences Act is for brick-and-mortar businesses.
“Not covered” does not mean you are exempt. It means where a trading licence is required – like by your bank when you apply for your Vpayments merchant account – (or when you want to open a business banking account) – you will not be able to produce a trading licence, which means you won’t be able to have a Vpayments merchant account.
You could try to circumvent the Shop Licences Act and place your computer in the “vending machine” category but this is how the Shop Licences Act defines a vending machine:
“vending machine” means a machine or appliance designed to contain goods which may be obtained by inserting a coin or any other token or disc therein or into any appliance attached thereto or which is accessory thereto.
That’s a “vending machine” for you, as defined by Zimbabwean law. That means exclusively accepting mobile payments or even “card swiping” (both not coins) will automatically disqualify your machine.
If you are like me and you do not like to pay rent when you could be renting to buy, obviously you will not want to rent. What the banking requirements (Shop Licences , CR14 etc.) then do is force you to do is to have a physical space which will be inspected by the city health department and then licensed If you run a completely virtual operation, you will therefore need an office and not a shop. A licensed fixed physical place of business will add thousands of dollars in start-up costs. An office with nothing will cost you anything from US$500 – US$2000. If you add desks etc, that will add several thousand dollars more. In my case, I see no justification even for an office.
Don’t, therefore, expect to see US-style PayPal powered garage businesses. Vpayments may turn out to be not be for everyone. Most online start-ups are started by individuals who do not already have offices etc, and almost all of them do not have the capital to splash on fancy offices a bank would find acceptable for a “high-tech” business. (At the City Council, when I explained my business (online store) and demonstrated that I could operate it from anywhere and from a laptop or even cellphone, I was told it was too “high-tech”! There was an expectation that you can do this sort of stuff when you have infrastructure a la Econet with a heavy physical presence in every city in the country. Those folks could not conceive that it is possible to do so out of thin air right off he internet. My oh my how I laughed!)
I remember reading somewhere how WordPress (an Automattic project), a virtual business ,makes tens of millions of dollars annually with very few physical meetings and no physical facilities. Such a business would not have a place in Zimbabwe, except for taxation and maybe suspicion of money laundering. That is the kind of business I like. Un-invadable.
During my research, I was informed by one mobile money product operator that they have received many applications to use their product from many individuals for internet-based businesses who they cannot sign up for reasons of RBZ regulations I just mentioned above.
As long as it is up to the banks to grant merchant accounts and set merchant requirements, merchant accounts may turn out to be very hard to get to the point of excluding a Zimbabwean Jeff Bezos with a business model that could exceed Zimbabwe’s current GDP in under 10 years.
Banks are now too afraid to even deals with individuals that they would feel safer dealing with companies with visible fixed premises like Enron and WorldCom. That way, even should anything happen, they will produce documents of the company (CR14, Shop Licence, Lease agreement (all the usual KYC stuff etc) to say they actually did due diligence on the business.
After 2008 “The Year of Burning”, there is also always the suspicion that individuals who make too much money electronically will be engaged in some form of illegal activity that I prophesy account suspensions may become a normal business and banking risk for such players.
I have an idea for “unlicensed” virtual start-ups. Since CABS is now connected to Vpayments. You can just apply for a Youth Loan even if you don’t need to. They will give you up to 3 months to register as a formal business like a company or PBC etc. You will need a Textacash account and Textacash is Zimswitch ready. (Although I was told you cannot have eBanking on Textacash.) Since you would have borrowed money from CABS, and you use CABS Textacash, who knows, they might be more inclined to grant you a Vpayments merchant account. Anything to get their dollar back!
Besides, there have been many complains that youths are only applying for chicken projects funding.
You may also just rent a building and get a shop licence/whatever and sublet the space to somebody else. All the bank will want will be the shop licence/CR14s etc. So long as you can present a utility bill, shop licence, or lease agreement.