Small Business Stuff Chat about SMME issues

Paypal in SA – Will it Work ?

After a series of careful leaks it looks like we will have our own SA PayPal portal operated by FNB - "PayPal - operated locally by FNB".  A bit like "British Airways - operated locally by Comair".

SMME business will then be able to transact locally and internationally in Rand and remit the proceeds back to a local bank account.  Oddly enough for a system developed by a Saffer, we won't oficially be able to do that until PayPal is formally launched in SA.

It makes sense for PayPal to partner with a local bank.  They can then transact under the FNB tree without going through the rigour, cost  and formality of becoming a bona-fide SA deposit taking bank, an activity that doesn't sit well with their international profile.  If it a sucess we can expect other portal and bank associations to follow.

What does it mean for SA SMME businesses ? My reading indicates that it will be warmly welcomed as a way of allowing us to transact internationally and remit cash back into SA easily and directly.

However, PayPal in SA will be a bit like the curate’s egg – good in parts. Of course it all depends on the arrangements, but since at least two SA banks are involved I expect there to be a sting or three in the tail.

It will be welcomed by the Government who will see it as a shot in the arm for an  ailing and malnourished business sector, and at no cost to them.  It will be welcomed by SARS, who see it as bringing curently invisible SA businesses operating and holding cash off-shore under their microscope and available for rape and pillage in the name of taxation.

Internal SA to SA trade in rand will be simple and easy, except there will be fees for withdrawing cash from the Paypal account into your SA FNB bank account. If you have an overseas purchaser buying your stuff and paying in foreign currency, then you will be stiffed on the exchange rate, plus additional fees for FNB carrying out the conversion when it hits your SA PayPal account.

The next issue is that of rand purchases from overseas merchants. Firstly, will the Reserve Bank allow it using a SA Paypal account? Under current forex regulations for personal purchases, no, or at least only up to a certain amount.  All other business transactions will probably continue to need hoboes of documentation and approvals.  If so, that throws the instant nature of Internet commerce and the need for a local PayPal portal out with the bath water.

There may be an announcement removing or easing exchange control in the Budget in March, but there may not.  Perhaps that is what PayPal and FNB are waiting for.

Next our beloved SARS. If you have money coming into your bank account from a SA or non-SA Paypal account,  they will want to know how it arises and decide that you need to pay income tax on it.  If you buy overseas and import stuff, even electronically, there are duties and levies, principally ad-valorem duties and VAT, and SARS will want their cut.

FNB will have reporting requirements to SARS, so it will be difficult to continue to avoid income tax, duties and levies on electronic transactions as many people do now.

Most of those SMME businesses affected will be online businesses selling products, perhaps electronic stuff, software, ebooks, videos and so-on.   Their market is worldwide, and so is the competition. The differentiator between the SA business and someone elsewhere is the ease of completing the purchase, and of course the price.

PayPal will certainly help with completing the purchase by offering a trusted and well known world-wide payment portal.  Where I am not so sure are the costs associated with using it.  Fees need to be factored into sales prices, and that is where the whole thing might come crashing down.

SMEs need to recover the PayPal and bank charges and if these make the product cost too high, customers will move to another site that offers the same or equivalent stuff for less.  Unless PAyPal and FNB are very careful with pricing, the per-transaction costs may be too much for a small business to bear.

A second cost will be the additional adminstrative burden of compliance.   SMME businesses will need to prepare and submit Forex and VAT returns, paperwork to support overseas sales and purchases, and any other SARS and bank inspired bureaucracy. Annual returns and accounts to SARS are another issue altogether.

Most small SME entrepreneurs won’t have the skills and indeed the time to do all this.  They will therefore need a new or upgraded bookeeping service, an additional cost to the business.

Again SMMEs will need to think about the implications of that in margins and product pricing before rushing off to sign up.

So, while it may well be “A Good Thing”, I am waiting to read the fine print very carefully. If a bank is involved, you can bet your bottom dollar (if you still have one) that they are in it to make money, not as a benevolent gesture to you.