Trinidad and Tobago retailers call for e-payment reforms amid increased online shopping

With cash transactions dominating the Trinidad and Tobago retail sector and with an estimated 200,000 credit cards in circulation, the country has lagged behind in the implementation of online payment systems. The popularity of online purchases from foreign websites demonstrates that Trinbagonians are comfortable with buying goods online, but a lack of competition among payment processors in the domestic market means that moving trade online is too costly for many of the country’s merchants. If the current government can push through the crucial legislation needed to liberalise the segment, the economic benefits could be manifold. The exact date of the legislation has been delayed a number of times but in March 2017 Prime Minister Keith Rowley said it would be presented in the “not too distant future.”

Online Tax

Internet shopping was an obvious target in the 2016/17 budget and the imposition of a 7% tax on online purchases was widely anticipated before its announcement. The problem is that purchases of products and services – the vast majority of which come from overseas given the lack of e-payment infrastructure in T&T – undermines two of the government’s economic goals. First, it accelerates foreign currency outflows. The government estimates that a total of $1bn, primarily from T&T credit cards, is spent on an annual basis, mainly with US retailers such as Amazon, Walmart and Staples. “It is a well-established precedent for a tax of this nature in countries such as the US, UK and New Zealand. Online purchases are now a significant area of foreign exchange demand, which is putting a strain on our reserves since credit card transactions are settled almost immediately,” Colm Imbert, minister of finance, told media.

The preference for foreign products, usually shipped by one of T&T’s rapidly growing Skybox companies, also reduces demand for local products and services at a time when the government is looking to diversify the economy’s productive base. The tax, which went into effect on October 20, 2017 only affects goods that are shipped by air and is applied to the cost, insurance and freight (CIF) value, before value-added tax and duties are applied.

Local Issues

However, while Trinbagonians are no strangers to buying foreign products on the internet, very few local companies have developed online payment mechanisms. While e-payment is possible in T&T, set-up and transaction costs are far higher than in other countries. This is due to a lack of competition among payment-processing companies, the absence of a payment verification system and the unwillingness of banks to relinquish control of their current direct links with merchants, according to Eddy Devisse, COO of Digi-Data Systems, a local firm providing technology-based solutions. At present only one independent sales organisation (ISO) – Bermuda-based First Atlantic Commerce – is registered for electronic payments to T&T bank accounts.

Because of the varied nature of internet commerce in developed markets such as the US, thousands of ISOs compete for client accounts, usually carving out niches with segments such as government services, restaurants or furniture shops based on the type of payment systems they require. Competition and specialisation keeps costs low. “In T&T you typically pay the bank around $200 to set up a merchant account, $100 in monthly fees to the bank and the foreign payment processor, and a 3-5% fee on every transaction,” Devisse told OBG. “In the US you could probably cut that total bill in half. For small mom-and-pop stores in T&T, these costs are prohibitive.” With only 200,000 domestic credit cards issued in T&T, the small size of the market does not justify the costs involved.

According to Devisse, one reason for the inflated costs is the lack of a competitive environment, allowing for multiple payment processors and ISOs. Also, the lack of a centralised identification and verification process for TT bank accounts increases the risk of fraud and processing costs. However, it also permits the country’s main banks to maintain control over their merchant clients. “If you want to trade online in T&T, you have to go to your bank to open a merchant account,” said Devisse. “All the banks use the same ISO and charge similar fees. There is little incentive for banks to look for innovative payment solutions when they have a tight grip on merchants. This has caused a bottleneck in the introduction of alternative systems.”

Local Solutions

Certain organisations are prepared to absorb the costs of e-payment processing. The country’s telecoms providers use First Atlantic to receive payments, as do utility providers such as the Water and Sewage Authority of T&T and, since September 2016, T&T Electricity Services. What these organisations have in common is large numbers of clients paying modest sums on a regular basis. Therefore, the efficiency gains and staffing savings to be achieved by reducing in-person sales points are high.

With very few exceptions, retailers have been reluctant to offer online payment options. Cinema tickets can be purchased online, but this is marketed as a premium service, and as such the additional costs are passed on to the customer. Grocer Pricesmart offers online shopping on its website, but the groceries are simply reserved in the store to be picked up and paid for in person, while furniture chain Courts allows it its products to be ordered online and delivered to an address where payment with cash or credit card is accepted. Smaller retailers make use of PayPal, linked to their credit cards, but the revenues from sales simply go to their credit cards rather than banks.

There is also a strong demand for Trinbagonian products abroad, particularly among diaspora populations located in the US and the EU. Major retailers such as confectioner KC Candy and cosmetics firm Sacha satisfy overseas demand by bulk selling their products to distributors who then list them on online platforms such as Amazon. “T&T firms have found a number of ways to get around online payment restrictions, but they are often inefficient or involve additional costs,” Simon Aqui, country manager for IBM, told OBG. “For small vendors such as independent hotels, handicraft makers and musicians selling their products and services is a real challenge. At a time when the economy needs to diversify and promote entrepreneurship, the lack of online payment options reduces options to create new businesses, generate foreign exchange and tackle unemployment,” Aqui added.

Government

Many local entrepreneurs say that for e-payment to flourish in T&T the public sector needs to play a stronger role. Under the iGovTT agency, significant strides have been made towards developing e-government initiatives, and today many licences, permits and procedures can be completed online. Payment must still be made at a branch office, however.

Government institutions also have limited control over pricing policies for their services, meaning any additional charges for services as a result of electronic payment must first receive higher approval from the government. “The T&T government is a huge user of services both with individuals and companies,” Aqui told OBG. “It should lead the way in providing the infrastructure for online payment and promote its adoption with the private sector.”

The Old Bill

Under the previous People’s Partnership government, an e-payments bill was passed through Parliament, but the regulations and amendments to financing law have yet to be made, meaning it has yet to receive presidential approval. As of spring 2017 new government had yet to set out how it would pursue the issue and what changes it is likely to make to the bill. For 12 years the Ministry of Public Administration has hosted an e-business roundtable, a forum made up of government, private sector and academic stakeholders with the goal of increasing dialogue on the issue and helping to guide policy. The first round-table of the new government was held in December 2016. Aqui, who represents the American Chamber of Commerce in the group, told OBG, “Right now the Ministry of Finance’s Treasury division is responsible for the regulations governing electronic payments with relation to citizen to government payments.”

The implementation of the electronic payments bill should be a top priority for the current government. In June 2016 MasterCard published a study entitled “Evaluating the Social Cost of Cash”. It reported that the country’s economy had the potential to grow by 3.5% if electronic payments could be increased by 30%. “Contrary to what many people think, there are costs associated to cash. From direct costs, like production and transportation of bills and coins, to indirect costs, such as corruption, social insecurity, financial exclusion, timely state aid payments and tax collection complications,” Gabriele Zuliani, senior vice-president and general manager for MasterCard’s Caribbean region, told press.

Political will and the cooperation of the banking sector will be required if the benefits of electronic and online payments are to accrue to the nation.