Banks, Cards and the net…

Gareth    eCommerce    

Well, we’re flying high here over at Webtogs HQ. Business is good and we’re not seeing any signs of the ‘Credit Crunch’, in fact, all we seem to do is grow our business from month to month.

Now, before you switch off and file this in the ‘yet-another-corporate-ego-things-are-great-rubbish’ drawer, I actually have a more sour point to make in my post today.

This one is all about, well…. Banks.

Now, for some background. Like nearly all Internet retailers, we accept both credit and debit cards on our site. It’s a fairly well trodden path this, so I won’t bang on for ages, but the important point here, is we have an ‘Internet Merchant Account’ with our bank. So, our customers come to us each day and checkout orders, the transactional side of this process (credit card numbers, order amount, etc) is then sent to our ‘Internet Merchant Account’, via our partner protx. All good.

‘Internet Merchant Accounts’ exist for one main reason, they process what is known as CNP transactions. This stands for ‘Cardholder Not Present’. To put this into context, if you run a shop, petrol station, resteraunt or any other enterprise where customers are actually present, they enter their PIN and make the transaction. These transactions are obviously more secure as the customer is present and uses their PIN, hence the need for seperate merchant accounts. We, in fact, have 2 accounts, one for our web site and one for our shop.

The perceived risk to the banks, for CNP transactions, is mainly default by the retailer. Now, imagine Dodgy Ltd has an Internet site. They sell widgets. As soon as their customers complete checkout, Dodgy Ltd charge their customers card. They then don’t ship the widgets. They carry on like this for as long as they can, before they go bust. Now, at this point, Dodgy Ltd have a raft of angry customers who complain to their bank. The banks then go to Dodgy Ltd and find there is no company or money left. So the banks fork out. (by the way, I made Dodgy Ltd up, if you have a company called this, please (a) understand my dodgy ltd is entirely fictional and (b) consider a name change!)

Now, if you’re still with me, kudos. The net result of all this, is the banks perceive Internet transactions to be risky. Very risky, as it turns out.

So, what do they do about it? Well, here in lies the rub. They either ‘defer’ the retailers credits by up to a month (meaning the customer pays on day 1, the bank then sit on the cash for 30 days and then credit the retailer 3 days after that) or, more commonly, they require security. The method of calculating the required amount of security (read cash cover), varies between banks, but it tends to be between 2 weeks and one months gross billings.

To illustrate, if you run an e-commerce site and you turn over £100 per month in gross sales, the bank will require you to deposit between £50 and £100 into a separate bank account. This separate bank account cannot be directly accessed by the retailer, and doesn’t appear on the retailers balance sheet*. The final cherry on the cake, is this ‘special account’ pays no interest!

Now, we began life with our bank on 30 day deferred settlement. This was painful in cash flow terms, but we could cope. The business then grew and grew, and it got to the point where we simply couldn’t make it work. After negotiating with our bank, we agreed to post a £10,000.00 bond. This was back in Q2 2008. Happily we moved forwards and continued to grow. One fine day in January, our bank called. They now wanted £100,000.00. Yup, that’s right, One Hundred Thousand Pounds. Why? We were growing too fast and our monthly billings had multiplied by a factor of 20.

Don’t think for a second this is just our bank, it’s not. I’ve spoken with 2 other major high street banks and their attitude is identical. We are currently negotiating with a third, and that’s going well, thankfully.

Now, unchecked or irresponsible rapid growth is actually a danger sign. However, to put this into context, at this point (and today, actually), we had NO debt. No overdraft, no loans. We had cash in the bank, quite a bit of it. We were profitable and cash flow positive.

As a result of this, we naturally entered into negotiations with the bank. We explained that, as a result of our business model, there simply wasn’t any default risk to the bank. You see, we don’t ever charge our customers until the goods have been shipped. So unless Royal Mail steal all of our parcels, we’re fairly clear on this one. We also hold 100% of our stock, in our own warehouse (this is actually very rare for an e-retailer).

Several weeks, meetings, phone calls and frustrated rants later, we had got nowhere. The bank simply didn’t understand our business model and couldn’t see that we didn’t present a risk. They consistently argued that whilst our model may be risk free now, we could change it on a whim and start to charge our customers before dispatch, or even fraudulently (thanks for that, by the way!). This simply isn’t the case, it would be horribly expensive to change the many procedures that control our stock management, checkout, billing integration, logistics and end of day procedures. As for fraudulent charging of our customers cards (putting to one side the moral aspects of this), we don’t store our customers card details, so this would be almost impossible.

Anyway, this is on going as I write. We will, no doubt, move banks at some point, but for now, it seems to be put up or get lost. Now, thankfully, we’ve got enough cash to cover this, but I’d hate to think what would happen to a similar business who didn’t. We’re a growing, new economy business. We’re employing new people, providing revenue to all our partners, and generally a nice bunch of people (OK, granted, that’s not an economic positive, but we are, really!). The irony in all this, is that the banks are creating what they fear the most, in issuing punitive demands for cash cover or delaying payment of revenue for long periods of time, they are creating very default risk these policies are designed to prevent. But, i guess, as long as the banks don’t have to pay, it’s all OK.

On a final note, I was chatting with someone (a junior someone to be fair) from one of the major banks about moving our account over and was talking about what we did as a business. After explaining our model and market in some detail, he replied “Is there much call for outdoor gear in Gillingham?”….

*We’re actually looking into this right now, so don’t quote me on that!

The Oscar for best outdoor video goes to…….

Gareth    eCommerce, Gareth, General Outdoor     Gareth, gear, video, webtogs, woods

This week has been a mental one as we have been out and about shooting video for the website and for a video noobie such as myself, it has been a really interesting experience. I’ve long been a big fan of videos on websites when selling stuff as people get a much better idea how things work and what it looks like in the flesh. Shooting the video has also been a great deal of fun with James and Matt acting as the crew and myself somehow ending up in front of the camera. I’m fairly sure this is down to the beard, but I’ll leave you to make up your own minds if this was a good idea when you see them on the site! James did us all proud with his shooting soup (Beef consomee, Tabasco & vodka) which was totally lush along with some old fashioned scooby snacks.

The product videos were relatively easy but the real toughy so far has been the gear guides we are starting to shoot on helping peole to choose Jackets / Boots etc, they took more than a few takes so every time I see those blooper reels, I have a certain amount of sympathy. Whats going to be interesting is to see what everyone thinks of them, do they help people come to a decision or is there anything we could do better? Stay tuned to Webtogs TV

eCommerce will thrive in 2009

Gareth    eCommerce    

So despite the economic downturn, eCommerce projections estimate that online retail will continue to thrive as budget constrained customers turn to the internet for their product research and to get a good deal.

Our old friends at eMarketer has some good tats showing how US online retail grew 6% in 2008 compared with 2% for the high street, and we all know Amazon’s grew 31%. ASOS, who focus on the internet clothing fashion space also saw strong revenue growth and profits in 2008.

In fact, US eCommerce sales are expected to grow 12.5% in 2009, 11.1% in 2010, and 9.9% in 2011. The majority of this growth will be in categories such as online fashion, groceries, and household goods.

With better presentation, more information, reviews, advice, better security, and fast broadband systems – there is plenty of rationale behind these figures.

As that famous pop group once sang (I forget their name!) – “things – can only get better”.

Twitter Icebreaker Giveaway

Gareth    eCommerce     competition, draw, icebreaker, men, merino, prize, retweet, rock, rockzip, twitter, webtogs, women, zip

UPDATE: Competition entry closed at end of Jan and we have a winner! Congratulations to Ian Moore who is on twitter as @idmoore. We’ll launch a new competition in the last week of Feb.

Right, so it’s time to start our first Twitter contest and we’d like to start with one of the coolest brands right now “Icebreaker”. The aim is to do a competition every single month from now on and we’ll also be offering some exclusive ones just for existing followers.

We’re giving away one of the following this month (draw ends Friday 30th Jan 2009):

An Icebreaker Rock Zip Fleece Top – Women
OR
An Icebreaker Rock Zip Fleece Top – Men

Want to win one? All you have to do is the following:

• Follow @webtogs on twitter
• Simply tweet “Just entered to win a cool Icebreaker Rock Zip Fleece Top for Fri 30th Jan. Just follow @webtogs and retweet. http://bit.ly/togsjan09 “

Here is the current (updated every minute) of all entries, showing your odds to win.

The contest is open to anywhere in the UK and Europe and is completely free to enter.

Good luck!

Here are some pictures of the Icebreaker tops:

Icebreaker Rock Women

Icebreaker Rock Zip Mens

P.S. Thanks to @simonianson for helping out with some inspiration for this.

Icebreaker launches itunes competitor – Ewetunes.

Gareth    Clothing, eCommerce     breaker, ewetunes, ice, icebreaker, itunes

You have to give credit to the Icebreaker team for this one – Ewetunes is a neat little site that let’s you drag and drop sheep in a field to create a series of christmas related tunes and send them to your friends. It’s hilarious!

When you’ve finished your masterpiece, revel in the glory and get yourself an icebreaker t-shirt or base layer to celebrate

UK Online Shoppers set to spend a record £13.16bn

Gareth    eCommerce     bbc news, eCommerce, festive, increase, online, shoppers

BBC News has released some figures from a survey of 60 online retailers which shows that the average christmas shopper in the UK will spend around £215 each, for a total of £13.16 billion online!

That’s 15% up from this time last year! 42% of sales will also take place before 9am or after 6pm as people turn to online for convenience and price. As we thought – offline retail will suffer as online ecommerce channels continue their push towards dominance…