How the payment gateway makes or breaks a startup

When I was attending the Digital Cream event earlier this year in Dubai, I got a chance to talk to a few bright and innovative minds behind a bunch of novel startups that have mushroomed in the Middle East lately. Ranging from providing a cyber market place to the home businesses in the Gulf to providing a daily lifestyle guide, these online ventures have managed to not only generate considerable word of mouth in a relatively shorter time period, but most important of all, have kicked off a revolution. Now, anyone with a unique idea is able to start off a company, with the region being very conducive to entrepreneurs wanting to do so. The process one goes about to set up a company, is still under debate. But the growing number of entrepreneurial endeavors is testament to the fact that it is not completely hopeless.

However, one common pain that has emerged is the sorting out of the payment gateways, or the lack of it in the region. Local e-payments solutions are still pretty much in their infancy stage or simply not there at all. For startups which are cash strapped, the whole hassle of getting money across from the likes of Paypal etc and that too within a considerable longer frame of time, is proving to be a crucial factor in limiting their growth. 'Cash on Delivery' is still the dominant channel, as you are sure your money will come through on the delivery of your product and services. This also minimizes the hassle of moving money acorss borders, which in today's financially challenged world is proving to be a cumbersome exercise. One of the local telco operators here in the UAE has put forth a payment gateway that enables local businesses to get money credited to their local bank accounts. But the deposit that has to be kept as a collateral is crippling, specially for the likes of high school graduates trying to set up an online bazaar, or something similar. A couple of factors ascertained by payment gateways will continue to impact the industry here in the Middle East. 1) The timeframe: This refers to the period of time between which the money flows in from the payment gateway vendor to the startup. Credit terms aren't really favorable for small businesses in the UAE, specially in the absence of specialist micro finance banks. This contributes to the tendency of startups to 'hold themselves back' on a number of ventures till the capital pool becomes favorable to tackle payment delays. A delay in channeling payments back to enterprises might just prove to be too late for a number of players. 2) The fees and costs of setting up the gateway: Usually nominal in the developed economies, these charges determine the choice of the gateway. This is critical for companies who are already facing cash flow crunches. 3) The ease of releasing funds to individual stakeholders: Most startups are run out of homes, college dorms or university libraries. Although uncommon in Gulf countries because the local laws do not permit entities to work out of non-physical commercial premises, it is still a make or break factor in other markets out there.

A lot of effort is still to be made to bring the payment gateways at par with what is being delivered in developed economies. This will help open up ideas and innovations for the region, and encourage more people to venture out in the field. We keep hearing fascinating stories about how some bright chap bumped into a venture capitalist at the steps of Stanford, started off a company and then sold it off to an international conglomerate for a few million dollars. But in truth it’s the system that’s been put in place to serve the interest of the entrepreneur that makes the key difference.