e-CommerceAnalysis_29.11.10

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ANALYSIS ON

THE e-COMMERCE SITUATION IN

THE REPUBLIC OF MACEDONIA

November, 2010


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Contents

GLOSSARY................................................................................................................................................ 3

EXECUTIVE SUMMARY ............................................................................................................................ 4

Findings ............................................................................................................................................... 4

Recommendations .............................................................................................................................. 6

INTRODUCTION ....................................................................................................................................... 8

Methodology of work ......................................................................................................................... 8

What is electronic commerce? ......................................................................................................... 10

How does e-commerce function? ..................................................................................................... 10

What are the common problems associated with e-commerce in general? ................................... 11

RELEVANT NATIONAL AND INTERNATIONAL REGULATIONS ................................................................ 13

Law on Electronic Commerce ........................................................................................................... 13

Other relevant national regulation ................................................................................................... 14

EU Directive on e-commerce ............................................................................................................ 14

HOW DOES e-COMMERCE PRACTICALLY FUNCTION IN MACEDONIA? ................................................ 16

Establishment and operation of Internet merchant ......................................................................... 16

Purchase of software for e-commerce ............................................................................................. 17

Online payment ................................................................................................................................ 18

a) Issuing payment cards and creating an online merchant account ........................................... 18

b) Payments Processor .................................................................................................................. 20

c) Commissions in e-commerce .................................................................................................... 21

d) Other problems associated with using the cards ..................................................................... 22

e) Fiscalisation, invoice issuance and turnover evidence by the online merchants ..................... 22

Shipping (delivery) ............................................................................................................................ 23

ELECTRONIC TRADE WITH INTERNATIONAL DIMENSION ..................................................................... 25

Delivery of goods abroad ordered from an online merchant from the Republic of Macedonia ...... 25

Order of products through foreign online merchants and their import in Macedonia.................... 26

OTHER IDENTIFIED PROBLEMS OF THE ONLINE MERCHANTS OR CONSUMERS IN MACEDONIA ........ 28

RECOMMENDATIONS ........................................................................................................................... 30


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GLOSSARY

Given the fact that in the electronic commerce quite a new terminology is used that not always has

an appropriate and above all unified translation in Macedonian language, the explanations of key

concepts and commonly used terms in this analysis is given below. Terms used in the analysis do not

mean that they are the most appropriate.

Internet merchant - natural or legal person who deals with electronic commerce, or through an

electronic store offers available online and sell products and services (eg, Amazon.com). In the

analysis the term online trader is used as well.

Bank - commercial bank that handles multiple operations that are essential to electronic commerce,

such as opening and serving the account of the Internet merchant and issuing of payment cards for

which it has been licensed from international payment card organizations (eg, UNI Bank).

Payments Processor - a company that provides technical support to banks for payment via the

Internet and is the link between bank of the internet merchant and the bank of the consumer (for

example, CaSys). In the analysis the terms payment gateway and payment processing center are

used as well.

Payment card - an instrument that allows non-cash payment, including online payment. Usually,

payment cards are credit and debit.

International cards organization - a company that offers solutions for non-cash payment at a global

level, which creates a network of banks through which credit cards are issued to end users - holders

of cards (eg, Master Card).

Consumer - natural or legal person that uses the shopping cart of the online merchant to order and

purchase products and services. In the analysis the terms buyer and client are used as well.


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EXECUTIVE SUMMARY

Findings

The existing legislation is not a problem for establishment and initial operation of an Internet

merchant, because it does not imply specific requirements and conditions for this

activity. Moreover, certain conditions which an offline store must meet do not imply to online store,

such as minimum technical requirements and standards of the premises, certain number of

employees and fiscal bills and equipment. The mandatory adoption and publishing of privacy policy,

shipping policy and refund policy which guarantee the security of the consumers is imposed by

banks and international card organizations.

The procurement of software for e-commerce (shopping cart) is one of the larger initial investments

for online merchants, which unofficially costs from 3,000 EUR to 20,000 EUR. Many Internetmerchants in Macedonia minimize this amount by customizing existing software or the online

merchant itself is a software developer. It is not common for the online merchants to connect their

software with the software for financial and material operations of the traders they work with (and

often there are no such systems), which may be a problem when transactions will become more

frequent. Related problem is the lack of products data in digital form. So far there were no practical

problems in establishing interoperability between e-commerce software and the payment gateway.

Financial and administrative costs and problems that the potential Internet merchants may have

related to the purchase, installation and maintenance of software, as well as with the logistics,

payments and marketing are overcome with the concept of Internet shopping mall.

The number of payment cards in circulation in the RoM is around 1.4 million. The e-commerce

turnover (buying from Macedonian online merchants) in the first 10 months of this year is around

4.000.000 denars (~65.000 EUR), while the e-commerce turnover when buying from foreign online

merchants with payment cards issued in Macedonia is 20 times higher. Whether a card can be used

for online payment depends on the bank's policy and whether the bank obtained a license from the

international payment card organization. The bank does not open a separate account for the

Internet merchant to perform e-commerce, but to allow the trader to conduct e-commerce (to gain

revenues through Internet transactions) it requires fulfillment of number of conditions. Most

important of all is the bank's assessment whether the potential internet merchant has a serious and

professional attitude. A large number of interested traders have given up on opening e-store, after

the bank has introduced them with all aspects of e-commerce, which traders themselves had not

taken into account in the elaboration of the idea.

Payment processors are technical support to the banks in payment card operations and link to the

systems of international card organizations, which network all bank-members in order to realize

banks payment card transactions, including payments over the Internet. In RM only CaSys works as

payment processor. NLB Tutunska banka has a specific role, i.e. it is not a payment processor, but it

is uses the services from First Data, well know international payment processor, with the aim to

enable its clients online merchants an adapted web based system for online payments. To

become payment processor, the system of the payment processor has to be validated by an


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international card organization. RM does not have regulations governing the operation of the

payment processors. Five commercial banks use CaSys as a payment processor, while three use the

services of foreign payment processors. Payment processors pay great attention to security of

transactions, such as 128 bit SSL encryption and 3D secure code, or security standards as required by

international card organizations.

The commissions in e-commerce fall on the online merchant, with an average amounted to 3-5% of

the value of the transaction. Through the commission that the bank charges the online merchant,

the payment processor and the international card organization are paid as well. At the moment,

commissions are high and raise the cost of electronic trading, but the increased volume and amount

of transactions should contribute to reducing commissions.

Commercial banks in Macedonia have not yet adopted national closing of transactions with payment

cards (using the services of a home switching center). Due to that, they are currently subject to

various bank commissions and fees of international banks members of payment card networks. The

only exception is the recently formed national closing of the payment card transactions between the

banks licensed by Visa. If domestic institution becomes a switching center, then it is likely to

significantly reduce the commissions in payment card operations nationwide.

The essence of e-commerce is a non-cash payment which is conducted through bank transfer and via

the Internet and therefore it is not required for online merchants to be fiscalized. The exception to

this rule is if the trader allows and the buyer decides to pay in cash on delivery of the products,

which is the case with some online merchants in RoM. PRO requires from those online merchants

who only accept payment by card over the Internet to get fiscal equipment and issue fiscal bills,

which is not in line with the Law on Registration of Cash Payments. The basis for making the

payment in e-commerce is the invoice which is issued to the buyer after the payment is made, that

is, when receiving the products. Current legislation does not prescribe electronic form of an invoice

and only the printed form can be used for accounting and tax purposes. PRO currently has no

technical and human capacity to accept and control the electronic invoices, causing the adoption of

Law on e-Invoice to be delayed.

With the liberalization of the market for postal services, the number of companies in Macedonia that

offer express courier services and delivery of products to the buyer's door have been increased. This

allows competition and relatively affordable prices. The deadline for delivery of a product outside

Skopje is 24 hours, while for the territory of Skopje is shorter. The cost of delivery ranges from 80-

150 denars for delivery in Skopje, while for delivery in other cities in the country the price ranges

from 120 to 250 denars. Free delivery, offered by online merchants is rare and is for short period

and has promotional character. The increased number of transactions should enable further

reductions in prices for delivery.

Customs duty on submission of export declaration has been abolished and will not be a problem to

export products ordered from Macedonian Internet traders, i.e. it is not adding cost of the order.

The obligation to file an export customs declaration must remain. Central Bank will lift the

requirement for individual notification of each foreign currency income generated through Internet

sales, which would reduce administrative procedures for local online merchants. World renowned

express delivery companies that have branches in Macedonia offer a reliable and quick, although

probably more expensive, delivery of products that local online merchants (want to) sell abroad.


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Purchase of products via foreign online shops by Macedonian citizens and companies no longer

presents a problem, because the world renowned online stores, which also offer a wide range of

attractive products, allow orders from and deliver to the Republic of Macedonia. Those online shops

that do not accept orders from persons or cards issued by banks from the Republic of Macedonia do

it because of their policy or policies of the payment processor and delivery company. The number of

cards issued by Macedonian banks that can be used for online payments is increased. The threshold

for exemption from payment of customs duties for products ordered through the Internet (postal

parcel) is set too low (45 EUR), while the tariff rate applied for purchase exceeding this amount is

high, which is increasing the cost of the internet ordered products, often including products

unavailable in the domestic market and that are from great interest of the society (i.e. educational

materials).

Recommendations

Under the coordination of MIS, and with the involvement of all stakeholders in e-commerce in RoM,

to undertake a comprehensive campaign on raising the awareness among citizens as potential

buyers and among the traders as potential Internet merchants that would lead to increased supply

side on the Internet market. Banks that issue credit cards with possibility for online payment need to

inform their customers: a) on the possibility to use cards for online payment and b) about all the

internet stores that operate in Macedonia, especially those who have accounts at that specific

bank. All stakeholders, under the coordination of MIS, should be engaged in developing promotional

material, which in user-friendly, attractive and effective way will provide basic information and

explain the advantages of the e-commerce. The opportunities offered by the media should be used

and through a series of articles in certain journals, participation in informative, debate and radio-TV

shows to contribute in wider promotion of e-commerce. The campaign should be targeted to the

civil and public servants as persons who possess payment cards and stable income. The campaign

should not be incidental, but intense and continuous.

Government institutions, public enterprises and state-owned companies should provide the

possibility the services they offer to be sold and paid online and thus be a good example that the

e-commerce they advocate for is realistic and easily achievable in the RoM. The government

institutions are not traders, but for the services they provide charge fees. The rise of e-banking,

through which clients make payments, among other things, taxes and monthly bills delivered by

public utility companies, indicates that the process should end up with an online service and

payment of the service. Pilot institution which could first start charging for online services is the

Central Registry, because it is one of the most advanced in the use of IT, it is providing the services

(documents) quickly, and soon it will begin issuing documents in electronic form.

It is necessary to amend several laws aimed at completing the legal framework for e-commerce,

which will allow its greater attractiveness to consumers and facilitate the work of online merchants.

In that respect the following should be done: 1) adopt a special law or provisions in existing law to

regulate e-invoice, 2) adopt rules for the establishment and operation of payment processors, 3)

amend the e-commerce provisions in order to oblige online merchants to adopt and publish privacy


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policy, shipping policy and refund policy, 4) amend the Regulation on on criteria for excluding from

paying import duties and the value, quantity and type or purpose of goods that can be excluded

from paying import duties in order to increase the amount of duty exemption for postal items

(products ordered from abroad via the Internet) and to reduce the tariff rate for products whose

amount is above the threshold. Proposed amendments to the Law on e-Commerce in connection

with the establishment of contact centers should not have delayed implementation. PRO should

align its internal acts and operations with the Law on Registration of Cash Payments, i.e. not to

require fiscalisation from those online merchants who accept payment exclusively via the Internet.

In order to prevent possible damaging consequences for consumers and for the development of e-

commerce in RoM, a control mechanism over the work of the online merchants should be applied,

i.e. to check whether they meet the requirements contained in the Law on e-Commerce. This will be

reached by training the employees in the Ministry of Economy and above all the inspectors from the

State Market Inspectorate. Ministry of Economy should maintain a record with basic data on the

online merchants, which could be used for statistical and control purposes.

Ministry of Information Society, in cooperation with the Ministry of Finance, Central Bank and the

Bank Association, should take the initiative to simplify the operations with payment cards, thus

make them cheaper. This could be achieved by establishing a so-called switching center, i.e. national

closing of transactions with payment cards issued by domestic banks, which would reduce fees in

payment card operations nationwide.

Ministry of Information Society should organize an initial coordination meeting with all e-commerce

stakeholders in Macedonia, and establish a system of regular quarterly meetings. At the meetings

ongoing issues will be discussed and follow up activities and measures aimed at the development of

e-commerce in Macedonia will be agreed. MIS should appoint a person from its employees to work

on e-commerce issues.


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INTRODUCTION

Reasons for conducting the analysis

The electronic (internet) commerce on a world level appeared in the mid 90s of the last century,

and in the last decade experienced a real boom. Moreover, the number of transactions and turnover

made through the online sales in developed countries are seriously getting close to the one derived

from traditional sales. Republic of Macedonia (RoM) lagged behind the developed countries in this

respect for several reasons: low internet penetration for many years; unavailability and later on low

use of payment cards; lack of choice where to buy, since there were no Macedonian online stores;

the huge number of foreign online stores that were not allowing orders made by persons from RM,

etc. The development of e-commerce in Macedonia began several years ago, main reasons for that

being the following: commercial banks started to issue cards with authorized online payment and to

open accounts of the domestic online merchants; the legal framework for e-commerce has been

adopted; because of the reduced number of frauds (transactions made with fake or forged cards)

the number of foreign online stores that allow sales in RM has increased, etc.

After being established in 2008, the Ministry of Information Society (MIS) undertook activities aimed

at identifying possible problems in the area of e-commerce and initiated measures to resolve them.

During 2008 and 2009, several coordination meetings were held with the e-commerce stakeholders,

where the problems faced primarily by the online merchants, as well as the ways to resolve them

were discussed. As a result of these meetings, the Government of RoM, during 2010, adopted

conclusions which requested from certain institutions to undertake corrective measures and thus

encourage the development of e-commerce in Macedonia.

However, there was a lack of a more comprehensive analysis that will examine all possible aspects of

the e-commerce, particularly the work of the online traders, while not ignoring the aspect of the

international e-commerce, which includes either the Macedonian online traders or the Macedonian

consumers. For this reason, the USAID funded e-Gov Project through its consultant, Darko Janevski

from the Consultancy Services ACT! Ltd. Skopje, conducted the analysis on the e-commerce status in

RoM. The analysis contains findings on the conditions identified in certain segments, which not

always indicate problems, recommendations on how to overcome certain problems and measures

that can be taken to influence the development of the e-commerce.

Methodology of work

The analysis of the status of the electronic commerce in RoM was conducted in the period from

August to October 2010. During the preparation of the analysis the following tools have been used:

- Meetings with individuals involved in the e-commerce as a whole or in certain aspects- Analysis of materials such as reports, minutes, researches, presentations and publications

related to e-commerce in Macedonia and worldwide


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- Analysis of relevant international and national regulation for e-commerceMeetings were held with the following persons and institutions:

- State authorities: Snezana Nikolovska (Ministry of Economy), Borche Smilevski (Ministry ofFinance), Dejan Rajchanovski (Customs Administration)

- Commercial banks and payment processors: Igor Davchevski (Tutunska Banka), SandraTomanovic (Casys), Biljana Doneva Gechevska (Uni Banka)

- Internet traders: Alexander Tasev (TC), Natasha Muratovska (Exquisite) Nicolas Kuemmerle(Skopski Pazar)

- Companies for Transport and courier service (express delivery): Sasko Nedelkov (DHL) andGlobko Logistic

- Software companies: Marta Tomovska (UNET) and Victor Sotirovski (Seavus)- Associations: Sonja McGurk (AmCham)

The following regulations have been considered and taken into account:

- National legislation: Law on Electronic Commerce, Law on Electronic Data and ElectronicSignature, Electronic Communications Law, Law on Value Added Tax, Law on Consumer

Protection, Trade Law, Law on Payment System, Law on Registration of Cash Payments,

Regulation on Exemption from Customs Duties.

- Regulations of the EU: Directive 2000/31/EC on electronic commerce and communication bythe European Commission: European Initiative in Electronic Commerce [COM (97) 157]

The following materials have been reviewed and considered:

- Reports, minutes, letters: Minutes of coordination meetings organized by MIS, as well asreports and information prepared for the Government by MIS, letters sent by the Central

Bank of the Republic of Macedonia and the Union of Chambers of Commerce;

- Presentations: presentations of the speakers during the conferences on e-commerce held inMay 2009 and May 2010, organized by the American Chamber of Commerce in Macedonia

(AmCham); presentation of research on e-commerce conducted by the advertising agency

New Moment New Ideas;

- Publications: "Emerging Macedonia - Magazine of the AmCham" no. 2 of 2009 dedicated toe-commerce and "e-Commerce Law" book of the author Paul Todd published by Cavendish

Publishing Ltd. in 2005.


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What is electronic commerce?

Electronic commerce is an expression that contains two words, which are explained below in order

to understand what this analysis is focused on.

The first term "electronic" refers to the means (medium) through which the transaction is

executed. There are many publications, regulations and views under which this term means any

manner (form) of communication that excludes physical contact between participants in the trade,

and involves any sort of electronic means. According to this concept e-commerce covers trading

through any of the following means (media): telephone, fax, telex, internet, intranet ... In difference

to this wide understanding of the term "electronic", the second, narrower understanding and

definition of this expression includes only transactions which are conducted online or using the

Internet as a medium.

The second term "commerce" refers to the type of action (transaction) that is implemented throughcertain electronic means. There are different understandings of this term as well. According to one,

indirect electronic commerce involves electronic ordering (buying) of goods that have a tangible

form, must be physically delivered and that depends on many external factors such as transportation

system and postal services. Under the second, direct e-commerce involves electronic ordering,

payment and delivery of intangible (immaterial, digital) goods and services, such as computer

programs or entertainment content (music, movie, book).

For the purposes of this analysis, the term electronic commerce means transactions that are

conducted online, and only through web-based applications (e-mail transactions are excluded),

covering goods and services in tangible and intangible form.

Also, this analysis does not cover the operation of Internet Service Providers (ISPs), although a vast

portion of the Law on Electronic Commerce relates to their obligations. The reason for this is that

the functioning of the ISPs has been previously regulated by the Law on Electronic Communications

and is a subject of control by the Agency for Electronic Communications, as well as the fact that ISPs

have very small role in the development of e-commerce.

How does e-commerce function?

The essence of e-commerce is based on using the Internet as a means through which the seller and

the buyer communicate, make the order and conclude the contract for sale of products and services,

as well as to make the payment. In order to process the order, web-based software applications are

used, known as shopping cart, while for processing the payment a special payment portal is

used. Main means of payment are credit and debit cards issued by various international card

organizations and electronic money as an electronic surrogate of the banknotes that are used for

payments in electronic form. The transaction itself is realized through specific payment gateways -

payment processors.

Username and password are mostly used to identify the buyer, while more sophisticated forms ofidentification such as digital certificates are very rarely used. However, for security of the transaction


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it is necessary for the web site of the seller to use system for data encryption (Secure Socket Layer-

SSL). Recently, the security of the overall transaction has been additionally increased by using the

secure code of the credit cards.

The e-commerce involves few parties:

vendor (online merchant) buyer (consumer, client) banks (the bank issuer of customer card and bank where the merchant has an account), and payment processor as an institution that serves the payment portal.In short, electronic commerce functions as follows:

Registered consumer searches the online store, selects the products or services, the terms of

shipping and payment and after clicking appropriate button confirms the order. The web site of the

merchant re-directs the order information to the payment processor. Payments processorcommunicates with the banks as follows: a) the bank that issued the credit card through which

payment is made and b) the bank which holds the account of the merchant. Bank that issued the

credit card allows or refuses the payment of the order, depending whether the client has the funds

on the card. Once the payment is allowed, the money is transferred from the customer's account to

the merchants account through the payment processor, and the seller delivers the goods or

services.

Unlike the number of online merchants that can be huge, the number of payment processors is

smaller. In fact, online merchant cannot receive orders and collect payments without concluding a

prior agreement with a bank to open an account over which the online transactions will be charged,

and on the other hand, the bank must have a contract with a payment processor. Such "back-office"

functioning of e-commerce increases the security of payments as the most sensitive part of e-

commerce. Customers feel more secure when they know that internet merchant has been

previously reviewed by institutions such as banks and payment processors, where the latter do not

allow for the data from the card to be visible and available to the online merchants.

What are the common problems associated with e-commerce in general?

Buyer uses a card issued by an international card organization (eg, Visa), and the seller acceptspayments with cards issued by other international card organizations (eg, American Express and

MasterCard). Thus, the buyer is unable to place orders.

Payment processor does not communicate or does not cooperate with certain international cardorganizations and banks that issue the cards.

When a merchant opens a bank account, it does not automatically mean that the account can beused to receive income from transactions conducted via Internet. The reason for this is that

Internet transactions are still being treated as riskier than the classic offline sales. Therefore,banks and international card networks reduce risks by evaluating potential Internet merchant


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through established rules and policies, and by charging the fees, but on the other hand they

reduce the prospect for huge number of internet merchants.

Internet merchant does not accept an order, payment or delivery in certain countries. The largenumber of internet traders which limit the sales only in certain countries is due to large number

of fraudulent transactions made from certain countries, using forged credit cards, and also due

to the problem of transport and delivery of products to other countries.


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RELEVANT NATIONAL AND INTERNATIONAL REGULATIONS

Law on Electronic Commerce

Macedonia adopted the Law on Electronic Commerce relatively late, in 2007 (Official Gazette of RoM

133/07). This given the fact that RoM commenced to harmonize its national legislation with EU

regulations long time ago, and the EU Directive on e-Commerce was adopted back in 2000. Partially,

the reason for this delay lies in the fact that there was so called a negative conflict of competence,

i.e. which ministry is responsible to draft the law. The need to adopt this law was huge, taking into

consideration that back then there was already in practice e-commerce on small-scale which

included several Macedonian companies, banks, ISPs, and also consumers whose number was

increasing on a daily basis. All of them operated in an insufficiently regulated market, which could

have easily led to negative consequences to those who participated in e-commerce, as well as to the

potential beneficiaries and to the development of e-commerce in Macedonia in general.

The goal set with this law was to introduce a legal framework for development of electronic

commerce by providing legal certainty in business relations. Simultaneously, the law was to enable

conditions for security and safety in performing information society services (including e-commerce)

and consumer protection when using such services. The law regulates the basic principles for

providing information society services, particularly related to electronic commerce, the

responsibilities of providers of information society, commercial communication and rules related to

conclusion of contracts in electronic form.

It was written in the rational for this Law, that it is fully compliant with EU Directive on e-

commerce. If a comparative analysis is performed, this would be confirmed. The law does not

contain provisions out of those contained in the Directive. This law did not impose an obligation to

adopt bylaws that would closely define this matter. This means that e-commerce in Macedonia is

regulated by a single legal act which does not mean that other regulations do not determine the

work of online merchants.

So far, the Ministry of Economy, as a body that drafted this law and supervises its implementation,

has not analyzed the implementation of this law, nor has any other state authority carried out such

an analysis. The amendments to this law have been already prepared and it is expected to beadopted by the end of this year. They are few and relate to the precision of certain terms,

restrictions on freedom to provide services of information society through judicial proceedings, the

manner of judicial protection of consumer rights and establishment of competent bodies to perform

the function of contact centers. All amendments are anticipated to be applied upon accession of

RoM in the EU.


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Other relevant national regulation

There are other national laws and regulations which exist and are relevant for electronic commerce

in Macedonia. These regulations complement or overlap with the provisions of the Law on Electronic

Commerce.

Law on Electronic Data and Electronic Signature - provides legal validity and power of evidence of

the data in electronic form and electronic signature in payment operations. The existence and

application of the provisions of this law provided, from a legal point of view, electronic commerce

even before the adoption of the Law on e-Commerce.

Law on Electronic Communications - this law, among other things, sets rules for electronic

communication and operation of the ISPs as a segment of electronic commerce. The provisions from

the Law on Electronic Commerce which refer to unsolicited commercial communications (spam) and

responsibilities of providers of information society services are part of the Law on ElectronicCommunications.

Law on Trade - sets out the conditions and manner of conducting trade on internal and external

market, as well as basis for conducting electronic commerce. This law defines electronic commerce

in a very general and insufficient way, leaving other regulations to precise the details.

Law on Consumer Protection - regulates in detail the rights and obligations of the parties - the

merchant and the consumer of the agreement concluded at a distance. This group of agreements

includes all agreements where means for distance communication are used (no physical presence of

the parties at conclusion of the contract).

LawonPayment Operations - this law, among other things, regulates the manner and conditions for

issuing electronic money as a legal tender used for payments over the Internet, including the

requirements for establishing the electronic money issuer and the rights and obligations of the

issuer and owner of the electronic money.

Penal Code - several articles from this law relate to cyber crime and its various forms of

appearance. These crimes can be committed in the framework of electronic commerce, especially by

the seller and buyer.

EU Directive on e-commerce

Key provision of the EU in the area of e-commerce is the Directive 2000/31/EC of the European

Parliament and of the Council from 8 June 2000 on certain legal aspects of information society

services, in particular for electronic commerce, in the Internal Market (hereinafter: Directive on e-

commerce). Directive applies and covers all information society services: services between

companies (legal entities), services between enterprises and consumers, services provided free to

consumers and which are funded through revenues generated from advertising and marketing andservices that allow online electronic transactions (especially interactive tele-shopping of goods and


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services and online sales centers). The Directive in particular covers the following online sectors and

activities: newspapers, databases, financial services, professional services (agents, doctors,

accountants, real estate agents), entertainment services (eg. video on demand), direct marketing

and advertising and internet access services. The Directive applies only to service providers

established in EU.

The Directive defines the key terms that help facilitate the understanding, transposition and

application of the Directive. The following terms are particularly important: service provider, a

registered provider of services, recipient of services, information society services, commercial

communications, opt-out, opt-in and spam (junk) e-mail.

The European Commission report from 21 November 2003 on the application of the e-commerce

contains the first evaluation of the transposition, application and impact of the

Directive. Transposition of the Directive was satisfactory and its use had a positive effect. All

member states, except the Netherlands, have transposed the Directive into separate law on e-commerce. Some states have decided to supplement the national law on e-commerce with

provisions which are not contained in the Directive, such as: responsibilities of the providers of

Internet links and search tools on the Internet, the procedures for notification and withdrawal of

illegal content, conditions and requirements for registration of service providers, filtering,

encryption and retention (storage) of data. Thanks to the Directive, the number of court cases is

reduced, and the legal certainty is increased, especially for ISPs.


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HOW DOES e-COMMERCE PRACTICALLY FUNCTION IN MACEDONIA?

Establishment and operation of Internet merchant

What is necessary from a legal point of view to establish and register an Internet merchant? In

order to start functioning and perform electronic commerce, internet merchant (legal entity) must

first be registered as a company in the Central Registry. Those companies that are already registered

in the Central Registry and act as "offline" traders, but want to expand the manner of selling goods

and services do not need to re-register or amend the registration. There are two reasons for this: a)

almost every newly founded company when getting registered chooses the "general business

clause" for business activity which enables performance of all activities that do not require special

permission and b) the Law on e-Commerce strictly prohibits special license or permission to be

issued to the merchant that wants to perform this activity.

Spatial and staff conditions for the online merchant. Unlike the physical stores that according to

regulations must meet certain minimum technical requirements and standards of the space so that

the trader can operate through it, the online store does not require physical premises for

operating. Also, Internet merchant does not need to have its own offline store, but can operate

through online sales only. According to the regulations, it is required that a minimum number of

employees in a physical store are registered depending on the working hours of the store (one or

two shifts). Theoretically, the online store, can work with only one employee and hence comply with

the legal requirements, regardless of the 24 / 7 working time, since most of the processes are

automated and do not require people to work in shifts . Internet merchants do not need to issue

fiscal bills, if payments are made via the Internet.

Establishing, publishing and implementation of Privacy Policy, Shipping Policy and Refund

Policy. Adopting clear privacy policy, shipping policy and refund policy, which is key aspect of

electronic commerce, is not an obligation that derives from the Law on e-Commerce, although it is

partially contained in the Law on Consumer Protection. However, such an obligation has been

requested by the banks directly, i.e. indirectly from international card organizations. Namely, among

many requirements that a bank sets as a condition to open an account for online merchant is the

requirement for the merchant to establish and implement privacy policy, shipping policy and refund

policy. Those arise from the license the bank receives from the international card

organizations. These policies actually ensure the security of consumers.

The main formalities and major investment for start-up of an online merchant is the authorization

obtained from the bank where the account is opened for doing online trading, as well as

procurement of software for shopping cart, which are explained in more details below.

Finding: The existing legislation is not a problem for establishment and initial operation of an

Internet merchant, because it does not imply specific requirements and conditions for this

activity. Moreover, certain conditions which an offline store must meet do not imply to online store,

such as minimum technical requirements and standards of the premises, certain number of


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employees and fiscal bills and equipment. The mandatory adoption and publishing of privacy policy,

shipping policy and refund policy which guarantee the security of the consumers is imposed by

banks and international card organizations.

Purchase of software for e-commerce

For an e-commerce to exist it is necessary to use Web-based software application which will enable

user registration, browsing and ordering of products and connection with the portal where the

payment is made. Some online merchants in RoM worked on their own to develop such software, as

they had experience in or the companys main business is software development. Others have

decided to make an adjustment of the already existing solutions from reputable manufacturers or

open source solutions which required a small investment. Finally, some online merchants contracted

software company to develop the software solution. In Macedonia there are several companies thatmake and sell specialized software for e-commerce. Unofficially, the cost of making such software

ranges from 3,000 EUR for a simple solution up to 20,000 EUR for a solution that offers a complete

set of functionalities.

The software solution is always tested before its release for official use, which is actually a condition

set by the banks and payment processors. Usually online merchants themselves administer the

software and update the data. This option for online merchants means more expensive

development (initial investment), but do not require additional cost for its administration by the

developer. Very often the software developer is engaged again when there is a need to upgrade the

software with new functionalities.

Most Internet merchants, especially those that have no offline store, stated that so far they had no

need to make connection between the e-commerce software and the software for financial and

material operations of the traders they cooperate with, or the traders have no such system.

Connection of software systems will become a necessity when transactions will become more

frequent, otherwise online merchants will face problems (delay due to lack of accurate data on the

products in stock). In this regard, a large initial investment, in terms of effort and time, that part of

online merchants faced is digitization of products data, which most traders they cooperate with do

not have in electronic form or in a proper electronic format.

All parties involved (online merchants, payment processors and software developers) confirmed that

establishing interoperability of software for e-commerce and the payment gateway is not a problem.

The payment processor gives a special piece of software to which the shopping cart software should

be connected and adjusted. The usual time required for software solution to adjust for data

exchange and connection to the payment portal is 3 to 15 days. None of the parties involved have

yet faced a practical problem of incompatibility, failure or other problem in communication between

these two systems.

Financial and administrative issues related to the buying, installation and maintenance of the

software that the potential Internet merchants might face with are overcome with the concept ofInternet shopping mall. Company that serves the shopping center cares not only about the software


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aspects, but also offers many other services to merchants who have their own store in the center

such as logistics, payments and marketing which creates a complete B2B2C system. This concept

does not require any initial investment from the trader, and also the monthly fee is quite low in

terms of services and opportunities that are available.

Finding: The procurement of software for e-commerce (shopping cart) is one of the larger initial

investments for online merchants, which unofficially costs from 3,000 EUR to 20,000 EUR. Many

Internet merchants in Macedonia minimize this amount by customizing existing software or the

online merchant itself is a software developer. It is not common for the online merchants to connect

their software with the software for financial and material operations of the traders they work with

(and often there are no such systems), which may be a problem when transactions will become

more frequent. Related problem is the lack of products data in digital form. So far there were no

practical problems in establishing interoperability between e-commerce software and the payment

gateway. Financial and administrative costs and problems that the potential Internet merchants may

have related to the purchase, installation and maintenance of software, as well as with the logistics,

payments and marketing are overcome with the concept of Internet shopping mall.

Online payment

Payment is perhaps the key element of e-commerce, which can most affect the development of e-

commerce. The most common method of payment in e-commerce, worldwide and in RM is with

payment cards. Increasingly, worldwide, people are using electronic money, but in our country there

is no company which deals with issuance of electronic money. Some Internet merchants in the RM

provide possibility of cash payment at the delivery of the products (this is allowed by those online

traders who have their own delivery service and thus can easily implement this method of payment).

a) Issuing payment cards and creating an online merchant account

Data on the number of issued credit cards and online transactions. In the recent years, the number

of issued credit cards considerably increased. This is largely due to a measure that the Government

has taken, that every payment from the state budget to certain categories of persons (civil andpublic servants and pensioners) to be carried out to a payment cards. Currently, the number of cards

in circulation is about 1.4 million, while the number of merchants that accept payment cards is over

22,000. 8-10% of the total turnover in the country (buying from Macedonian traders) is realized

through payment cards, whereas e-commerce turnover (buying from Macedonian online traders) in

the first 10 months in 2010 is around 4.000.000 denars (~65.000 EUR). On the other hand,

the total e-commerce turnover realized through payment cards issued by Macedonian banks (buying

from foreign online traders) is 20 times higher! In terms of transactions, around 1% is the share of

the online transactions in the total number of transactions realized with payment cards. The

increased number of issued payment cards and their increased usage is certainly a necessary pre-

condition for the e-commerce development.


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Ability to use payment cards for online payment. Whether a card can be used for payments over

the Internet mostly depends on the policy of the bank, and whether the bank has been licensed from

the international payment card organization. For this purpose, the bank goes through a complex and

long process that is required by the international cards organization to issue a license. Also, the bank

after obtaining the license, must follow the rules prescribed by the international payment card

network. On the other hand, which payment cards will be accepted by the online merchants depend

on the bank that he/she cooperates with, i.e. the licenses the bank has received from international

cards networks.

Opening and servicing the transaction account of the online merchant. In order for the bank to

allow its client - a trader - to conduct electronic commerce, it requires the fulfillment of certain

conditions including the submission of a business plan, which does not need to be written by an

expert and go into many details but should contain clear idea of the traders goals, then privacy

policy, shipping policy and refund policy. But, the most important thing is whether the potential

online merchant was assessed by the bank as a serious and reliable business partner. Making the

assessment and evaluation is a requirement that is imposed by the international cards organization

which prevents potential frauds. International cards organization can make an audit in the bank and

if it concludes that the bank had allowed opening of an account of an online merchant who does not

meet or fails to comply with conditions, may revoke the license of the bank.

The bank does not open a separate account for the online merchant to perform e-commerce. If

he/she has already been a client of the bank, then it will be allowed to use this account to receive

online payments. If he/she is not a client of that bank, then a single transaction account will be

opened. For that purpose the client goes through certain procedure that the bank imposes. Bank

and the online merchant sign an agreement, in which they precisely regulate the rights and

obligations. One of the obligations of that agreement is that the Internet merchant has to keep logs

(electronic records) for the completed order as proof mechanism to protect against abuses. The

request for keeping database (detailed information about the order and the person who conducted

the order) by the online merchant, are also imposed by the international payment card organization,

which in this way deal with possible situations of later dispute of transaction.

Experience of the banks is that there are good ideas, but merchants do not always know how to

develop them further. Potential online merchants do not know the rules and functioning of e-

commerce well enough, that is, they do not take into account all possible aspects in presentation

and elaboration of their plan. A large number of potential online traders have given up the idea of

opening an e-store, after the bank presented to them the "rules of the game".

Finding: The number of payment cards in circulation in the RoM is around 1.4 million. The e-

commerce turnover (buying from Macedonian online merchants) in the first 10 months of this year

is around 4.000.000 denars (~65.000 EUR), while the e-commerce turnover when buying from

foreign online merchants with payment cards issued in Macedonia is 20 times higher. Whether a

card can be used for online payment depends on the bank's policy and whether the bank obtained a

license from the international payment card organization. The bank does not open a separate

account for the Internet merchant to perform e-commerce, but to allow the trader to conduct e-


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commerce (to gain revenues through Internet transactions) it requires fulfillment of number of

conditions. Most important of all is the bank's assessment whether the potential internet merchant

has a serious and professional attitude. A large number of interested traders have given up on

opening e-store, after the bank has introduced them with all aspects of e-commerce, which traders

themselves had not taken into account in the elaboration of the idea.

b) Payments Processor

Payment processors (payment gateways) are technical tool and assistance to the banks in payment

card operations and link with the systems of international payment card organizations that network

all bank-members so that they could realize the bank transactions (through all payment channels,

including internet). In Macedonia there is already one company that works as a payment processor

CaSys, which deals with issues relating to non-cash payment since 2002. Its services related topayment cards operations are used by 14 out of 17 Macedonian commercial banks. Only 3 banks do

not cooperate with them at all. 5 of the 14 banks they cooperate with use it as a payment processor

for online payments.

To become a payment processor, it is necessary to be licensed by the international payment card

organization, including for online transactions. The processor goes through the technical validation

of the system which is conducted by the international cards organization. CaSys system is validated

to serve transactions with payment cards of MasterCard and Visa, which are also the largest

international card organizations. Unlike the rules imposed by international card organizations, the

competent authorities in Macedonia have not yet adopted regulations that will govern the operationof the payment processors. Although this gap has not yet caused practical problems, still, because of

the sensitivity of the area (transactions involving cash and personal data) it is necessary to establish

basic rules and conditions for establishment, operation and method of controlling the operation of

the payment processors.

Three commercial banks in Macedonia, which issue cards that can be used to pay online, are using

services of foreign payment processors. Also, the scope of work of CaSys is limited to transactions

involving only national online merchants. This means that payments carried out by Macedonian

citizens for orders from online stores from other countries are processed through the payment

processors from other countries (for example, cards issued by NLB Tutunska Banka use the servicesof payment processor Slovakia). Specific role in e-commerce in RoM has NLB Tutunska Banka, which

is not a payment processor, but uses the services of the Slovakian branch office of First Data, well

known international payment processor, with the aim to allow its clients domestic online

merchants a system (software, web portal linked to the First Data system) for online payment

transactions. Using the services of foreign payment processors, i.e. the fact that almost entire

domestic payment card operations is in international mode of operations, contributes to increasing

the price of the transaction.

Payment processors pay great attention to the security of transactions. Casys and NLB Tutunska

banka use 128 bit SSL encryption. Casys applies 3D secure code (MasterCard Secure Code andVerified by Visa), while NLB Tutunska Banka applies this code to its clients online merchants and not


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yet to its clients credit card holders, though it is expected to be implemented very soon. Also,

payment processors must follow security and safety standards of the international card

organizations (eg, Payment Card Industry Standard) which are not only a prerequisite for getting a

license, but also to keep it. This means that the work of payment processors, especially in the

security aspects, is controlled by international card organizations. Finally, in establishing

interoperability between the shopping cart software of the online trader and payment software of

the payment processor attention has to be paid on preserving the standards for data exchange and

data safety and security (online merchant does not have access to the data from the payment card

used to make the payment). The security aspects are not well known to potential Internet merchants

and consumers.

Finding: Payment processors are technical support to the banks in payment card operations and link

to the systems of international card organizations, which network all bank-members in order to

realize banks payment card transactions, including payments over the Internet. In RM only CaSys

works as payment processor. NLB Tutunska banka has a specific role, i.e. it is not a payment

processor, but it is uses the services from First Data, well know international payment processor,

with the aim to enable its clients online merchants an adapted web based system for online

payments. To become payment processor, the system of the payment processor has to be validated

by an international card organization. RM does not have regulations governing the operation of the

payment processors. Five commercial banks use CaSys as a payment processor, while three use the

services of foreign payment processors. Payment processors pay great attention to security of

transactions, such as 128 bit SSL encryption and 3D secure code, or security standards as required by

international card organizations.

c) Commissions in e-commerce

In principle, all fees in e-commerce related to the use of the payment cards fall on the online

merchant, never on the buyer. The bank where the online merchant has an account, charges the

merchant a fee which is 3-5% of the value of the transaction. Part of that fee goes to the

international card organization, part to the payment processor and part to bank issuer of the card.

The amount of the commission is determined by the policies and tariffs of all parties involved, first of

all of the international card organization, but also of the payment processor and banks. In this way,

through the commissions, the cost of e-commerce increases, at least for online merchants. In RM,

usually, the commission charged for transactions made through POS terminal is lower than the

commission for online payment. However, CaSys decided in this initial period of development of e-

commerce in Macedonia to charge the same amount as the commission for transactions made

through POS terminals, which is a kind of stimulus measure. Some banks charge a monthly lump sum

which is very low or not charged at all if the trader has higher turnover.

Finding: The commissions in e-commerce fall on the online merchant, with an average amounted to

3-5% of the value of the transaction. Through the commission that the bank charges the online

merchant, the payment processor and the international card organization are paid as well. At the


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moment, commissions are high and raise the cost of electronic trading, but the increased volume

and amount of transactions should contribute to reducing commissions.

d) Other problems associated with using the cards

Payment card operations in Macedonia and especially withdrawing money from a cash machine

(ATM) of a bank that is not the issuer of the card is still expensive, that is, high commissions are

charged. The main reason for this is that the banks have not agreed to create a nationwide closing of

transactions with payment cards. If they have done so, then they will not be subject to various bank

fees and commissions of the international card networks, and will create an opportunity to the

national banks to agree on the amount of these commissions. Thus, the probability to reduce the

amount of the commissions is great and they would range between 1-3%. Recently, domestic banks

licensed to issue Visa payment cards formed national closing of transactions, i.e. these banks have

agreed and unified the commissions among themselves.

In that respect, an institution such as CaSys should be a so called switching center, that is, should

manage and administer such a system. Thus, the commissions of the payment card operations

nationwide will be reduced, especially in withdrawing money from ATM. Estimates are that total

savings for the Macedonian citizens annually would be 7-8 million denars.

Finding: Commercial banks in Macedonia have not yet adopted national closing of transactions with

payment cards (using the services of a home switching center). Due to that, they are currently

subject to various bank commissions and fees of international banks members of payment cardnetworks. The only exception is the recently formed national closing of the payment card

transactions between the banks licensed by Visa. If domestic institution becomes a switching center,

then it is likely to significantly reduce the commissions in payment card operations nationwide.

e) Fiscalisation, invoice issuance and turnover evidence by the online merchants

Until recently there was doubt whether Internet merchants should be fiscalized and should

possess fiscal equipment to issue receipts. The essence of e-commerce is a non-cash payment which

is conducted through bank transfer via the Internet and therefore it is not required for onlinemerchants to be fiscalized. On the other hand, it does not mean that the internet merchant is not a

taxpayer. He must be registered in the Public Revenue Office (PRO) as a taxpayer and as a VAT payer

(if it has an annual turnover over 1.3 million denars). The exception to the rule that the online

merchants do not have to issue fiscal receipt is when the Internet merchant allows and the buyer

chooses to make payment in cash on the delivery of the products. Some online merchants in RoM

offer and apply an option for a cash payment on delivery of products and then they issue fiscal

receipt. Some of them also issue fiscal receipt, even when the payment is made by card over the

Internet. As a reason for such practice they state the PRO who imposed such requirement. This

requirement is not in accordance to the Law on Registration of Cash Payments, according to which

the fiscal receipt should not be issued if payment is made by bank transfer.


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The basis for making the payments in e-commerce and also proof that a transaction is realized is the

invoice. That means that every trader must issue an invoice for completed orders and payments.

Unlike traditional offline sale where the seller first issues an invoice and then the delivery and the

payment is realized, in e-commerce the payment comes first, and even upon delivery of the

products the invoice is issued. This inconsistency, online merchants overcome by sending an

electronic invoice to the e-mail of the buyer as soon as the order is made.

The problem is that the current legislation does not prescribe the form of electronic invoice and only

the printed form can be used for accounting and tax purposes. Although, by the Law on Data in

Electronic Form and Electronic Signature, data in electronic form and electronic documents

(including invoices) cannot be deemed as not valid proof simply because they are in electronic form,

still it is difficult to assume, at this point, that the tax authorities could accept the existence of an

invoice in electronic form without the appropriate equivalent in printed form. For this reason all

online merchants must submit printed invoices to the buyer, as well as for their own payment

record. Establishing a Law on Electronic Invoice or amending the Law on VAT with provisions that

will regulate the electronic form of the invoice is postponed. The reason for this is lack of technical

and human capacities in the PRO to perform admission and control of invoices in electronic form as

a basis for payment and verification of turnover in e-commerce.

Finding: The essence of e-commerce is a non-cash payment which is conducted through bank

transfer and via the Internet and therefore it is not required for online merchants to be fiscalized.

The exception to this rule is if the trader allows and the buyer decides to pay in cash on delivery of

the products, which is the case with some online merchants in RoM. PRO requires from those online

merchants who only accept payment by card over the Internet to get fiscal equipment and issue

fiscal bills, which is not in line with the Law on Registration of Cash Payments. The basis for making

the payment in e-commerce is the invoice which is issued to the buyer after the payment is made,

that is, when receiving the products. Current legislation does not prescribe electronic form of an

invoice and only the printed form can be used for accounting and tax purposes. PRO currently has no

technical and human capacity to accept and control the electronic invoices, causing the adoption of

Law on e-Invoice to be delayed.

Shipping (delivery)

The speed, reliability and cost of the shipping (delivery) of products ordered through local Internet

merchant may be a key segment in the development of e-commerce in Macedonia. Internet

merchants typically use the services of specialized companies for courier and transport, because it is

a type of trade where fast delivery of the products is expected. The number of companies providing

such delivery in Macedonia is about twenty and their work is controlled by a regulatory body - the

Postal Agency. This makes an order in this sphere and security for the participants in e-commerce.

Some online merchants who have their own network of online stores use their network for transport

and distribution, which is a benefit both in terms of speed and reliability of delivery, and in terms ofprice.


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Many express delivery companies offer delivery service to any spot in the country, with 24-hour

delivery time for places outside Skopje. While for the territory of Skopje this time is shorter. The

advantage of EMS, service within the Public Enterprise "Macedonian Postal Services", in comparison

to other companies that deal with express delivery, is having the most developed network (branches

and transport vehicles) in the country. On the other hand, they are less flexible in agreeing with

online merchants, who receive treatment as any other client. Smaller companies are prepared to

offer lower prices for shipment as well as other favorable conditions. From interviews with online

merchants and delivery companies, as well as an overview of several web sites for e-commerce, it

can be concluded that the cost of delivery ranges from 80-150 denars for delivery in the territory of

City of Skopje, while for delivery in other cities in the country the price ranges from 120 to 250

denars.

Often, traders choose not to charge the customers for the shipping costs, in the initial period.

However, this refers to a short period of time. On the other hand, online merchants do not provide

free delivery if the buyer is from the same city where the products are sent from and if the value of

the purchased products exceeds a certain threshold, which is a regular practice of world renowned

online merchants. But given the small volume of transactions, the relatively high bank fees that

online merchants pay, and the compensation paid to the delivery company, it is understandable why

they have not yet decided to take this step.

Finding: With the liberalization of the market for postal services, the number of companies in

Macedonia that offer express courier services and delivery of products to the buyer's door have

been increased. This allows competition and relatively affordable prices. The deadline for delivery of

a product outside Skopje is 24 hours, while for the territory of Skopje is shorter. The cost of delivery

ranges from 80-150 denars for delivery in Skopje, while for delivery in other cities in the country the

price ranges from 120 to 250 denars. Free delivery, offered by online merchants is rare and is for

short period and has promotional character. The increased number of transactions should enable

further reductions in prices for delivery.


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ELECTRONIC TRADE WITH INTERNATIONAL DIMENSION

Delivery of goods abroad ordered from an online merchant from the

Republic of Macedonia

Submission of export customs declaration. Until few years ago, for postal parcels, which include

products that persons from abroad are ordering from Macedonian Internet merchant export

customs declaration had to be filled and customs duties had to be paid. Payment of customs charges

was increasing the order value. Few years ago this duty has been abolished, but the export customs

declaration, which is required for any product being exported, must be submitted. This declaration

does not have to be completed by a freight forwarder, but the online merchant can do it itself. The

form is not complicated to be completed and the procedure does not require time. Some of the

renowned foreign express delivery companies offer the option of completing and submitting thedeclaration within the cost of delivery.

Notification of the foreign currency income to the Central Bank. According to the rules prescribed

by the National Bank of the Republic of Macedonia (Central Bank) for each foreign currency income

generated by selling and exporting of goods or services abroad it is necessary to fill in and submit an

individual notice of the transaction. This request is primarily for statistical purposes, but increases

the costs and administrative procedures for the Internet merchant. The problem is that transactions

in e-commerce can be numerous and the amounts in each of them pretty low. For that reason, this

obligation of reporting any transaction realized by online merchants that already have or want toexport abroad is unnecessary burden.

As a result of the conclusion of the 153-th session of the Government of the Republic of Macedonia,

the Central Bank sent a letter to the Ministry of Information Society where they state that it would

review the Instructions for payment operations in order to meet the demand of online merchants.

Namely, the changes should allow summarized reporting of foreign currency income arising on the

basis of transactions of a small amount. Thus, it will reduce the administrative procedures and costs

faced by online merchants.

Delivery of products from the Internet trader of Republic of Macedonia to a buyer from another

state. All large international companies that deal with express delivery such as DHL, FedEx and UPS

operate in the country. These companies have a widespread network and communicate shipments

from Macedonia to other countries on daily basis. For certain products that the Macedonian Internet

merchant would ship through them, they would be charging about 20 EUR per shipment of products

whose value is around 50-60 EUR. This price is no different from the price these companies charge

when they ship and import products ordered over the Internet from another state by Macedonian

consumer.

The problem with using the services of local courier companies for shipments abroad is that the local

companies do not have branches abroad or business relations with similar companies in another

state, which would have made the delivery of products faster and less expensive.


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Finding: Customs duty on submission of export declaration has been abolished and will not be a

problem to export products ordered from Macedonian Internet traders, i.e. it is not adding cost of

the order. The obligation to file an export customs declaration must remain. Central Bank will lift the

requirement for individual notification of each foreign currency income generated through Internet

sales, which would reduce administrative procedures for local online merchants. World renowned

express delivery companies that have branches in Macedonia offer a reliable and quick, although

probably more expensive, delivery of products that local online merchants (want to) sell abroad.

Order of products through foreign online merchants and their import in

Macedonia

The policy of the Macedonian commercial banks. It was already stated that once a licensed

commercial bank issues a particular brand of payment cards, then it all depends on the bank what

restrictions will impose in respect of the use of the cards, including the possibility of online

payments. One of the largest commercial banks in Macedonia, Stopanska Banka, does not allow

online payment with standard payment card. For the purpose of online payment they are issuing a

special card for which the conditions to get it are tighter. This example is mentioned because a large

number of cards in the country are issued by this bank. However, an increasing number of

commercial banks are issuing cards that can be used for online payment.

Policies of foreign online merchants, payment processors and shipping companies . A second

limiting factor is the foreign policy of the online merchants, payment processors and shipping

companies. Certain foreign online merchants do not accept orders or do not perform the delivery of

products on the territory of Macedonia. Their number is smaller, compared with the period of just

few years ago when Macedonia was placed on the blacklists of many reputable online stores. A

positive point is that the big online stores such as Amazon, Barnes & Noble or Victoria's Secret

Catalogue all offering a wide selection of products, do accept orders and provide timely delivery to

Macedonia. Related to this question is the policy of shipping companies which have their own

international distribution networks. Some of them do not make delivery to Macedonia. The reasons

for such policies are related to their interest in the market. However, the most famous express

delivery companies such as DHL, FedEx and UPS are present in the Macedonian market and perform

transport and delivery of products from other countries to the territory of Macedonia.

One of the most famous and most popular online shops eBay and its PayPal payment service is not

allowing people from the country to participate in the capacity of sellers and use their services. The

only way that domestic legal entity or individual can use the services of eBay and PayPal is through

their office in another country, but then traders would be faced with other legal, administrative and

financial problems. In the past, MIS had business talks with PayPal for their entry into the

Macedonian market, but according to some announcements that could be achieved in 2-3 years

from now. Their entry or entry of other similar issuers of electronic money (eg, Money Bookers) will

mean a partial liberalization of the market, because they are a great competition to the payment

cards, and also should cause an increase in the number of Internet transactions from RoM.


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Customs duties on products imported into the country as a result of Internet sales. Products

ordered through the internet that are imported into the country, according to customs regulations,

are categorized into products that are imported in form of a small consignments or postal parcels.

According to the Regulation on criteria for excluding from paying import duties and the value,

quantity and type or purpose of goods that can be excluded from paying import duties, mail (postal)

items to a specific value are exempted from customs duties, while items above determined value are

subject to import duties. Currently that threshold is 45 EUR, which includes the price of the product

and postal services fee. On the other hand, the threshold for exemption from paying duties on goods

that fall into the category of personal baggage of passengers coming from abroad was increased

several times, from 45 EUR through 175 EUR until the current 350 EUR. Below this amount, citizens

do not pay duties on goods provided that the products are not for further commercial use.

The threshold for exemption from duties on goods imported as postal parcel is set too low. Many

products, such as education materials (textbooks and professional literature), especially the recent

releases, that people are ordering online are getting more expensive at the end. The amount

includes the cost of product price and delivery plus payment of customs duties, VAT and freight

forwarding services. The cost of such imported products is too expensive and unaffordable,

especially for the student population. For example, for a book sold in an online store for 70 EUR, one

needs to pay additional 15 EUR delivery fee, but this is not the final amount for the buyer, because

after the completion of import customs clearance approximately additional 30 EUR need to be paid.

Another paradox is the difference in the order of product in material from its equivalent in digital

form. So, to download music in digital format from the Internet through some online stores (iTunes,

eMusic) one does not need to pay any import duty, although such downloading can cost over 100

EUR. While if the price for the same musical content in a materialized form (CD or vinyl) exceeds 45

EUR with delivery costs included, will be subject to import duties.

Finding: Purchase of products via foreign online shops by Macedonian citizens and companies no

longer presents a problem, because the world renowned online stores, which also offer a wide range

of attractive products, allow orders from and deliver to the Republic of Macedonia. Those online

shops that do not accept orders from persons or cards issued by banks from the Republic of

Macedonia do it because of their policy or policies of the payment processor and delivery company.

The number of cards issued by Macedonian banks that can be used for online payments is increased.

The threshold for exemption from payment of customs duties for products ordered through the

Internet (postal parcel) is set too low (45 EUR), while the tariff rate applied for purchase exceeding

this amount is high, which is increasing the cost of the internet ordered products, often including

products unavailable in the domestic market and that are from great interest of the society (i.e.

educational materials).


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OTHER IDENTIFIED PROBLEMS OF THE ONLINE MERCHANTS OR

CONSUMERS IN MACEDONIA

Except for the stated problems that are of legal-administrative and financial character, there are

other issues and obstacles that online merchants or consumers face with and thus affect the

development of e-commerce in Macedonia.

Currently, around 30 online stores operate in Macedonia. More specifically:

a) most of those online merchants are fully oriented and work online as a standalone brand without

having the equivalent store in the physical world, while cooperating with and offer products at

online stores;

b) some are "extended arm" and additional manner of selling to an already established offline shops;

and

c) some work as a sort of shopping malls, which means that their web portals have separate e-stores

for well-known offline merchants.

Internet merchants that operate on the principle of internet shopping malls emphasize that the

number of online traders, who besides possessing an informative website for the company, have no

desire to expand sales through e-commerce, is still large.

There are multiple reasons for this attitude, such as: a) ignorance of the whole concept of e-

commerce, and in particular the advantages it offers, b) mistrust and skepticism towards anything

new that is different from developed and routine way of working, c) the philosophy and mentality of

the trader that "customers need to physically step into the shop and so on.

Parties involved in e-commerce, and especially the Macedonian consumers say that the number of

offered products and services for sale over the Internet is still modest. Many online merchants: a)

work with a limited choice of goods and services and rarely extend the offer, b) work with a small

number of brands or c) sell products that are not subject to daily or frequent purchases. For these

reasons, a good part of the Macedonian consumers rarely browse online stores, while registered

Internet users rarely make orders.

The Marketing Agency NEW MOMENT NEW IDEAS conducted a survey on a sample of 330

respondents from different ethnic background from Skopje, who regularly use the Internet and are

aged 18-45 years, on their habits and use of e-commerce, and came the following key findings:

- 43% of the respondents visit online stores less than once a month, while 17% do so 2-3 times per

week;

- 87% of the respondents would shop online if the safety is guaranteed or if they provide a wide

selection of products;


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- 43% of the respondents would decide to order online only if they get guaranteed protection of

personal data, but most of those who shop online do not know whether the Macedonian online

stores offer safe shopping;

- 60% of the respondents do not know that there are Macedonian Internet stores;

- 71% of the respondents prefer to make direct payment through bank account;

- The Internet users are most clearly stated their rights in case of dissatisfaction with the service, and

data for Internet merchants to be published;

- Internet users mostly want to buy electronic and computer equipment, clothing, footwear and

gifts, and less food and beverages.

A practical example as an illustration and confirmation of the findings.

My mother is 60 years old, with salary close to national average rate, she is a debit card holder and a

typical Macedonian consumer who shops in physical stores, primarily supermarkets. Usually, she

uses the card to raise money from ATM. She thinks that buying online is expensive and only

wealthier people can afford it. When I received the shipment of the products I have ordered from

Macedonian online store, she discovered that the price of the products is the same as in the offline

store and delivery to my door coasted only 80 denars. Then, for the first time she calculated that

ordering products online is actually even cheaper, considering that the traditional shopping includes

the costs for transport (cost of bus fare or petrol / parking) or if you do not use any vehicle, then

physical effort and time required are far greater.


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RECOMMENDATIONS

I. Under the coordination of MIS, and with the involvement of all stakeholders in e-commerce in

RoM, to undertake a comprehensive campaign on raising the awareness among citizens as

potential buyers and among the traders as potential Internet merchants that would lead to

increased supply side on the Internet market.

Banks and payment processors pointed out that in principle, for them is not essential to increase the

number of Internet merchants, but to increase the number and amount of transactions. However,

the presence on more internet traders will affect the frequent visits of potential consumers and thus

increase the number of transactions. Some traders believe that opening an e-store is an investment

that from the financial aspect they cannot afford or it requires additional time, effort and

knowledge. But if they are presented with and realize the advantages of the e-commerce, and the

concept of internet shopping malls through which they themselves have no investment and very low

monthly cost, the ori

Documents

e-CommerceAnalysis_29.11.10