Monday, April 19, 2010

Online retail in Australia sucks - Part 2

Following on from our earlier post about online retail in Australia I wanted to write about another issue that bugs me about the industry here - credit card processing. For an industry to thrive it needs strong supporting industries. A key part of running an online retail business is having a good credit card processing vendor to work with and the Australian vendors are terrible.

We're using the US based PayPal to process credit card payments for Shoes of Prey and PayPal is fantastic. Here's why:

1. Convenience
You can access your merchant account online, just like normal online banking.

2. Easy to set up
Integrating PayPal into our site was easy for Mike to do, the whole sign up process happens online and is fast and simple.

3. Multi-Currency
We can accept payments in multiple currencies which has boosted our conversion rates overseas.

4. Fraud Detection
They have amazing fraud detection built into their system so we haven't had a single charge back or issue with a fraudulent transaction. When I was accessing PayPal a couple of weeks ago from China using a VPN they locked me out of our account as they thought someone might be breaking into it. That's a smart thing to do, I was impressed.

5. Fees
There are no up front fees to use PayPal.

Last year when we were setting up Shoes of Prey I did some research into credit card processing through the Australian banks. In contrast to PayPal their offerings are a complete disaster:

1. Convenience
For most of the banks a credit card processing account requires you to install software on your computer to access your account. NAB, who are actually our online option (more on that shortly) require you to run Windows to run their software. This is not at all convenient.

2. Easy to set up
NAB don't publish their fees online so you need to ring around to get quotes, and their application process requires you to go through a lengthy quoting and approval process that, among other things requires you to send them a detailed business plan and takes more than a month. In addition to signing up with a bank you also need to sign up with a second vendor to run a 'payment gateway' for you. I don't even understand what this is because it's explained so poorly. PayPal don't require this.

3. Multi-Currency
NAB is the only bank in Australia that currently allows you to accept payments in multiple currencies. With more than half our sales in foreign currencies this is a must which means our only choice in Australia is NAB. And using this option sounds like a nightmare. We have to have separate NAB accounts in each of the currencies that we want to accept, and pay a $400 set up fee per currency.

4. Fraud Detection
The banks put all the onus of fraud detection on you, the merchant. And if you get chargebacks from customers who's credit cards have been used on your website fraudulently the bank charges you extra fees and if it happens too much they might cancel your account. We don't know anything about credit card fraud detection so if we want help with this we'd need to sign up with a third credit card related vendor to help us with this.

5. Fees
There are so many different fees to use NAB it takes a spreadsheet to work them all out, and I don't think I ever actually got across all of them. Here's some of them:
Annual Fee: $28
Minimum Monthly Fee: $22
Fixed Transaction Fee: $0.15
Percentage Transaction Fee for domestic cards: (I vaguely remember being asked not to publish this, so I won't)
Percentage Transaction Fee for international cards: (I vaguely remember being asked not to publish this, so I won't)
Multi Currency Establishment Fee: $1200
Multi Currency Set Up Fee - charge per currency: $400
And to top it off, NAB wanted a security deposit of $10,000 in case we got a whole bunch of those fraudulent transactions that they can't help us prevent.

In contrast, PayPal only charge a percentage transaction fee. PayPal's fee is higher, and at a certain point NAB becomes cheaper for us to use, but we'd rather be investing our time and energy into increasing our sales than wading through the nightmare that is trying to accept credit card payments through an Australian bank.

And we shouldn't expect any innovation in this space. In August last year the Commonwealth Bank told me they were trialing a multi-currency service. From what I can tell on their website they still haven't launched it. Compare this situation with the US. In addition to innovators like PayPal coming from the US, new companies like Square and Verifone are launching credit card scanning devices that attach to the iPhone and iPad so small businesses can accept credit card payment using these devices. Square's device works by plugging into the audio jack on the iPhone. The scanner reads the credit card details, converts the data into an audio signal which transfers through the audio jack and is read by their iPhone app which then speaks to their servers and processes the payment online. That's incredible and would be amazing for us to use somewhere like the Bondi Markets.

The Australian financial industry is so heavily regulated that we're unlikely to ever see companies like these launch out of Australia, and it's likely to be years before these US companies are able to expand here.

So that leaves Australian online retailers behind their US competitors in what is a large, growing global industry. Online retail in Australia sucks.


  1. I'm looking at this right now as well for our Kaboodle Designs website.

    And, I've come down to the same conclusion. Paypal will probably be our choice for simply being the most straight-forward..!

    We currently use a wireless EFTPOS machine for our market stalls which works great..!!

    It seems that the off-line EFTPOS market in Australia is much more competitively priced than its online counterparts.

    I've been following the Square system too but I think that it will take some education / marketing for consumers to use it.

    Don't you think that the Square device would look suspiciously like a card skimming device (to the customer)?

    I know that the banks and my 80 secs of fame on radio about the issue warns people to be aware of attachments or add-ons that looks suss... (^_^)

  2. Great post. Like Daniel, I'm hip-deep in this very same issue. My concerns with PayPal is they provide a system that works very well, but fails badly: when things go wrong, it is almost impossible to get them on the phone. At the end of the day, you don't have the regulatory protections that you get (and pay for) with a bank. That said, today's Australian has a story about PayPal in Australia increasing their customer service headcount:

  3. Foxy,

    Online retail in AU really does suck. I've been trying to buy some electronic supplies this morning that I need a friend to bring over in a few weeks. So I turn to some of the major retailers.

    On the whole, site search is terrible. I search for a SONY product on DSE and they give me Samsung as the first product. This is by far the best site. I try smaller sites with no luck of finding the product I need.

    I'm having trouble trusting any of these sites on face value alone, which is a shame because in person they are probably great little shops run by great people. Finally, I find a supplier with good prices but there payment gateway was so dodgy I decided not to go through with it.

    Finally I succumbed by buying from the brand directly. AFTER submitting my CC details they tell me they are out of stock! Only then do they give me the option to take items out of the bag. I'm talking SONY here! And they never give me any notice confirming no charge went through. So then I write an email to find when the item will be in stock, only to find it will take 48 hours. Give me chat please! I'm trying to work fast here. I don't want to stuff around talking on the phone to people. I have all the codes that I can ping here right now.

    Then, also this morning I booked some domestic flights. Honestly, I never thought you'd hear these words come out of my mouth ... but ... based on only one experience ... Tonga's ecommerce is better than Australia's ecommerce!

    OH! And don't get me started fresh, clean, consistent navigation of AU sites.

    To say online retail in Australia sucks is an understatement.

    Foxy, I do have to congratulate you though. You guys are truly all over it. Well done.


  4. Thanks I really enjoyed yr post. I've not done a huge amount on-line but enough to know I LOVE Paypal.

    When are the big Aussie retailers gonna pull up their socks and join the rest of the world??

    Thanks and keep the great posts coming.

  5. Daniel - agreed regarding wireless EFTPOS devices, those do work quite well and we're at least semi happy with the NAB one we're using. It's certainly a 1000 fold easier to sign up and use that compared with accepting payments online. Agreed to that the square device might require some education in the market, particularly given the recent press credit card skimming has had.

    Doug - thanks for forwarding that link. It's great to see PayPal are adding to their customer service team. That said, the two times I've needed to contact them they've been great. I called them once and didn't have to wait long to speak to someone. Then when they limited our access to our account when I was accessing it using a VPN in China (which was a good security move on their part) it was relatively easy to send them the appropriate proof of ID docs to get the account re-instated. So my experience has been all positive dealing with their customer service so far.

    Sib- that shopping experience sounds like a nightmare. And thanks for your kind words, we're doing our best to offer our customer's a good experience! We do have more we could improve on though, like site search... but we need to get some more content up on the site first I think.

    Traveller On The Road - Thanks. Hopefully the aussie retailers get their act together soon!

  6. Excellent - very excited about the Square reader - I wish that was available in AU *now*. Coming from several years of BDM work in private payment gateways and e-commerce it's definately a race to mediocrity.

    They don't want user experience, they want 50c per transaction infinitum and are the clean-skin provider of transaction services for most banks.

  7. yes, we run and have online customers in 42 countries. Weadvertise in USD and accept 3 currencies. We have used Worldpay as a provider without a hitch for 10 years now... we also use PayPal . We find about 25% of our sales use PayPal. Cheers

  8. Hey Michael,
    Jeni from Oye Modern, Jodie and I have shared some jewellery and video shoot together!

    I have just discovered your blog and am now an avid follower :-) So many of your posts are relevant to me. On this one maybe I can offer some useful info.

    At, we offer PayPal and credit cards. On average, 30% sales are PayPal. On average 60% of our sales are to customers not in Australia. When we started Oye Modern, we thought it important to offer checkout in multi-currencies (which is why we went with NAB), but it was a cost and tech barrier at the time, so we launched in just AU currency processing. Customers can browse in their local currency, but we transact in AU dollars.

    We have been trading 3 years and I have not yet had a customer comment on the fact we charge in $AU.

    In addition to PayPal, we use NAB merchant account and eWay. Actually we found it easier to integrate with eWay/NAB than PayPal at the time. Also, I recently did an audit, and the fees seem to be comparable. Maybe you should look into it again - PayPal certainly scares people off as they think they have to register, even though they don't. Might help with your goal to double conversion :-)

    Hope that helps, cheers!

  9. Philip - it's such a shame that there is so little innovation from the AU payment providers and banks.

    Steve - Worldpay looks interesting I should look into that again. I think last time I checked their fees were quite high which was why we decided not to use them.

    Jeni - Thanks for that great information, that's very interesting that you use both NAB and PayPal, and it's good to hear that customers don't mind transacting in AUD, we had thought they might not like that so much, but it sounds like that's not the case. PayPal apparently have a product where you can integrate the payment process much more tightly into your website and the customer doesn't need to be taken to the PayPal website. We're going to test that shortly. If it doesn't work out though we'll probably go back to looking at NAB. Thanks for the info!

  10. Hi, Anyone have any advice using the Westpac online paymenst system.thanks interesting article on Paypal.