DUBAI // Online business in the region has been hampered by a lack of suitable payment mechanisms and a general distrust from consumers that their personal information will be secure, web retailers say. Though internet penetration in the region is high, obstacles to establishing secure, affordable payment methods have stalled the growth of many online retail businesses. "The major problem to get this business to flourish and expand is the lack of a really strong payment gateway," said Hamdan al Marshudi, the owner and managing director of ellaMart.com. The Dubai-based portal stocks and delivers a range of name brand goods at discounted prices. Mr Marshudi said his transactions were done primarily through PayPal - a tool that facilitates money transfers over the internet - because local banks either did not have the mechanisms for processing online payments or they charged extremely high rates for transactions. According to website administrators, credit card transaction fees in the UAE are higher for online retailers than for those in malls, inhibiting many from developing more sophisticated and secure methods of payment. One Dubai-based website operator, who spoke on the condition of anonymity, pays as much as 2.5 per cent on the price of each transaction, well above about 1.5 per cent paid by private shops. While the percentage differs from one website to the next, businesses say local transaction fees are often as high as 3.5 per cent for some websites. "This is really a major problem when you take that into consideration for every single amount," said Kajsa Dokakis, the managing director of QuickDubai.com, an online website for purchasing and delivering gifts. "No one is being charged like that except us." Those higher transaction costs have many online retailers looking to have their financial matters handled oversees. "I have seen some companies who start dealing with US banks because transaction fees are cheaper with them; even with the risk of money going and coming from the US, it is cheaper than having a merchant account on this side of the world," added Mr Marshudi. Experts point to the massive potential of online retail that exists overseas. Despite the gloomy economic outlook for many western countries and an overall slump in consumer spending, online retail sales in the UK rose by 11.3 per cent in July compared to the previous month. The IMRG Capgemini e-Retail Sales Index showed Britons spent over £4.8 billion (Dh32.5bn) online in July, the equivalent of £79 for every person in the UK. In the UAE, a survey released by the Arab Advisors Group, a Middle East consultancy firm, showed that 51.2 per cent of internet users, or 1.16 million people, reported purchasing products and services online and through their mobile handsets last year, spending a total of over $1.15bn. The survey also found that 83.8 per cent of e-commerce users in the Middle East reported using credit cards as their preferred method of payment, while 31.7 per cent reported using bank account transfers. "It is getting better," said Naeem Ghafoor, the chief executive of Skyline Retail Services Consultancy. "I pay all my bills online now. The trend is slowly picking up, especially in places like Saudi Arabia where many women do like to shop online." But security issues, such as identity theft, are a major concern for retailers who say banks are not doing enough to monitor suspicious activities. "They let through payments that we can tell are definitely fraudulent because of the amount purchased or if they are new customers," added Ms Dokakis. "I think this is the biggest obstacle all online shopping websites have in Dubai." Officials with the Government say they are working to improve online payment methods as part of a push to integrate the internet into all their business. "For any company having an online presence to sell their products, there is a local payment gateway to help them," said Salem Khami al Shair, director of eServices and a member of the Dubai eGovernment executive team. "One of the problems stalling progress now is that online users go to the western online companies to order, so locally there is no incentive to create here," said Mr Ghafoor. "So if they want books, they go to Amazon; if they want other products, they go to eBay." vsalama@thenational.ae