Inside SnapScan

Stellenbosch’s SnapScan, whose smartphone application won MTN Business’s 2013 App of the Year award this week, is betting that consumers will take to the idea of making in-store payments using their mobile phones instead of credit or debit cards.SnapScan falls under FireID, the company that now houses six start-up technology businesses, SnapScan being the most recently launched.

FireID started life as an information security company specialising in “two-factor authentication” technology for mobile phones. It was funded by billionaire Johann Rupert, through Reinet. Justin Stanford, one of FireID’s co-founders, was instrumental in securing the initial capital injection. However, Stanford was unable to convince Reinet’s investment committee to continue investing and in 2011 it pulled its funding of FireID, forcing the company to lay off its 40 employees. A month later, former Mxit boss Alan Knott-Craig, through World of Avatar, came to the rescue, but the terms of the arrangement were not made public.

SnapScan co-founder, 28-year-old Kobus Ehlers, says there are a number of benefits to this approach for retailers. “It takes about 30 seconds to sign up. We issue a QR code, which you print, and you’re done.”Merchants without bank accounts can cash out their takings at the end of the day. “Customers can pay with the app, the retailer can then get a voucher code at the end of the day that they can punch in at a Standard Bank ATM — or hand over at a Spar — and get cash.”

If customers don’t have the app installed, scanning the QR code will take them to the relevant app store where they can download it.“Payment information sits securely in the app,” Ehler says. “So, your card details only have to be put into the app once and thereafter all you have to do is enter your Pin. This means we never transmit your card details to the merchant.”

The company makes its money by charging a small transaction fee to the retailer on each purchase. This fee varies. “We take a small transaction fee, much like the acquiring component to third party merchant account,” Ehlers says. SnapScan has a partnership with Standard Bank, which means it can process transactions at “competitive rates”, he adds.In addition to transaction fees, SnapScan offers its customers the option of accessing analytics or running loyalty programmes, both of which are billed as add-ons.

The company offers three products. The first is an “instant merchant product” aimed at informal retailers who want their takings in cash. The second is the “standard” product that settles into a bank account like a traditional point-of-sale (POS) unit. The third is an “enterprise solution” designed to integrate with existing POS systems.

SnapScan started out operating in a number of stores around Stellenbosch. Ehlers was surprised by the good response  and the company is now planning to expand to Cape Town and Johannesburg. However, the timing isn’t confirmed yet. Expansion will be gradual and carefully monitored, he says.

“We work very iteratively. We want to understand the market really well. We’ve been really impressed with amount of repeat purchases we’ve seen in Stellenbosch along with the low rate of people abandoning it. To maintain that momentum we need to do a controlled roll-out.”Part of that means making sure SnapScan is accepted in multiple stores. “No one’s going to commit to an app if they can only use it in one store.”

Alipay, China's largest third-party e-payment provider, announced on Tuesday it will discontinue its still-nascent offline-payment service, a move widely perceived as a capitulation to its State-backed rival, China UnionPay.

While the company declined to elaborate on its reasons, industry observers believe Alipay's encroachment into the business of offline payments was eating away market share once firmly held by the country's largest card processor. UnionPay has recently insisted that its services are still required to conclude all bank transactions.

The abrupt cancellation of the collect-on-delivery service stands in stark contrast to Alipay's bold entry into the market last year, when it unveiled a 500 million yuan ($81.7 million) investment plan with the introduction of a handheld device to consolidate package tracking records with card payment functions.

The rollout was part of the broader strategy of Alibaba Group Holding Ltd, Alipay's parent, to grab a bigger share of business in the financial sector and satisfy soaring demand for package-tracking from China's booming e-commerce industry.

According to iResearch, a Beijing-based IT consultancy, online payments are expected to account for only 15.8 percent of all online transactions in 2015. About 70 percent of all online purchases made on China's business-to-customer sites are paid on delivery.

While Alipay holds almost half of the online-payment market, that has failed to translate into even bigger revenue, given consumers' preferences to pay for online-purchased, big-ticket items at the time of third party payment gateway.

Delivery people in China typically carry two devices, one for tracking and the other a portable POS terminal. Alipay's wireless device was able to combine both functions into one machine, ensuring that merchants receive payment within 24 hours of delivery.

Zhu Zhu, a Hangzhou-based company spokeswoman, said that over 10,000 such devices, which cost less than its competitors, were installed nationwide to cover e-commerce logistics, airlines operators, hotels, and similar businesses.

According to a news release by Alibaba's public relations team in Hong Kong in March, each Alipay device cost 3,000 yuan. To encourage use of the device, Alipay allowed package delivery services and e-commerce sites to use them for an unlimited period of time by paying a 500-yuan-per-device deposit.

Alipay said at the time that it was "essentially giving away these devices ... and is showing it's willing to lose money on hardware in exchange for a piece of the potentially vast revenue stream from COD processing fees," it said.

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