September 2009

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On why I don’t hate on PayPal for not operating in sub-Saharan Africa

I’m just going to get this out of the way: I am quite sympathetic to PayPal and how they’ve cut off the entire continent of Africa.

Going to a cybercafé in Cotonou means two out of three computers are occupied by Beninese or Nigerian boys scamming rich Americans and Europeans. Sometimes, they’re training 9 and 10 year olds.

Benin has a very small IP block, which means that almost all users of a given ISP share the same outward looking IP. Over the past two years, every single IP available to Benin has been blocked by my bank, one by one. My mother checks my online balance back in the States and emails me screenshots. Really.

Scammers from as far away as Ghana come to Cotonou to join scamming cults (in the French sense of the world) and learn rituals that will make their victims more likely to believe the scammers and more likely to hand over big cash. Sakata + Black Magic = Big Business.

Scamming is a mafia operation. The little guys working in cybers do it because its quick and easy cash, not because they’re making millions. Once a scammer gets a hook here in Cotonou, it’s passed up the line, usually ending up at a Big Man in Lagos, who will string the victim along as long as possible. This mafia includes policemen, commissioners, and judges that are regularly paid to look the other way on both sides of the border. It goes all the way up the chain. [1]

Victims are not just rich Americans and Europeans. Many scams involve visas and promises of marriage in exchange for various fees that always seem to create more and more fees until … oops, no more money to pay the rent.

Interesting and related story: SGB is a French bank with branches in Benin (SGBB). About a year ago, they started offering VISA debit cards that allowed anyone holding a bank account with them to make purchases online. Fraud rates were so high that they had to suspend the service.

Interesting and related fact: Banking regulations in the States and Europe protect the consumer. PayPal is on the line for all fraudulent transactions, even if the scammer has already pulled the money out of their system. How is PayPal going to chase down the money in West Africa? They can’t and they won’t.

Perhaps it’s because I live two hours from Lagos in a city where many Nigerians have immigrated because Nigeria has actually started to crack down on online scams (that’s what the immigrants tell me, anyway). Perhaps it’s because scammers make my life, as an entrepreneur and freelancer living in West Africa, bloody difficult, but I’m more sympathetic to banks who cut off Africa than Jon seems to be:

I realize that the problem can’t be solved entirely by Paypal alone but I would appreciate at least an option to flag my account in advance for what might be mistaken for ’suspicious activity’. I’d be happy to leave this to PayPal’s discretion but my problem is they aren’t using any. African transaction? Banned! Banks will allow customers to indicate that they will be abroad for a certain period so that they don’t shutdown accounts by mistake. Why doesn’t PayPal? You’d be surprised at how damaging these blanket policies can be to an organization like mine that simply just wants to pay employees and be paid by clients.

I suppose the complaint is that PayPal doesn’t give me an option to avoid my account getting bricked. It costs me money every time they do it. They give me no alternative to prevent it from happening and when I talk to them, somehow it’s my fault for existing ‘in that country where The Last King of Scotland took place‘.

The lack of e-commerce and e-payment options open to Africans is a huge problem, but the solution is not “make PayPal accept payments.” Don’t forget that PayPal alternative Moneybookers keeps 7% of every transaction in order to have enough cash on hand to refund claims against fraud. Banks and companies like PayPal want to make money. If they saw a way to enter the African market and not lose money, they would be all over it.

Before e-commerce solutions come to sub-Saharan Africa, Africa needs to be a profitable environment for e-commerce solutions. This means cracking down on fraud and improving justice systems. It means a better regulatory environment, or at least, enforcement of regulations on the books. PayPal needs legal protection from fraud as much as consumers do.

Perhaps an enterprising entrepreneur needs to come up with something brand new and not tied to the West.

[1] Note to self: do a corruption 101 post later this week