As the “R” in BRIC – or Brazil, Russia, India, and China – Russia is recognised across the globe as one of the countries to watch in terms of advancing economic development. The Russian payments market is fast becoming one of the more attractive, with growth comparable to countries leading international payments development in segments such as payment card issuing, bank branch and ATM deployment, POS terminal rollouts and ecommerce. After the US government imposed sanctions against certain Russian banks in March 2014 and the country’s announcement of its new national payments system, rolled out to prevent any future external influences on the payments market, other countries are looking to Russia to see if they should follow suit.
The formation of the Mir payment system is, without a doubt, one of the main factors affecting the development of payment technology in the region over the past two years, and this will continue to be a major contributing force for the foreseeable future. Whilst it may only be in its infancy, the establishment of the National Payment Cards System (NPCS) is having a huge influence on the payments ecosystem; from ground merchants and contactless acquiring to ecommerce and mobile payments. The company currently estimates that over 120 million Mir cards will be in circulation by 2019, which will certainly impact Visa and MasterCard who, in 2015, held approximately 50 per cent and 35 per cent of the card market respectively.
Whilst Russia has always had a more modern payments infrastructure than other global giants, in reference to their economy the market has historically remained relatively small, held back by the population’s preference towards more traditional payment behaviours. There has always been a steady and continued growth in card issuance and ecommerce activity, however this has started to gain momentum with the government initiatives implemented for Mir cards. The rate of financial inclusion has rocketed, and card payments are becoming more popular year on year. A good indication of a healthier card market is the increase in the number of PoS terminals; according to a report by Cards International (CI), this number has grown from just over half a million in 2011 to 1.5 million in 2015; with projected growth at 2.7 million in 2020.
The Russian market is also seeing a much more substantial growth in ecommerce. The same report by CI notes growth in activity at a rate of over 9 per cent year on year since 2011. The increase in internet users, subsequent online shopping and the availability of online merchants has only furthered the trend for shopping from the comfort of home. Whilst at first consumers had a tendency to shop online yet pay with traditional methods such as cash on delivery, with internet shopping becoming more ingrained as an everyday habit, alternative payment providers such as Yandex.Money, QIWI and, to a lesser extent, PayPal, are becoming far more prolific. In fact, according to Datamonitor, Russia has the most active number of e-wallet users of any country in the world.
When it comes to shopping online, global payment leaders have struggled to change the behaviour of Russian consumers who steadfastly stick to local services. According to Yandex.Money, 47 per cent of stores accept Yandex.Money e-wallets, 44 per cent accept WebMoney and 39 per cent accept Qiwi. PayPal currently only covers 8 per cent of online stores in the region.
Another key factor with an active influence on the current payments landscape and ecommerce is the use of the smartphone – brought on by both the increasing number of mobile phone users and the growth of mobile internet penetration. This, of course, has a direct impact on the development of payment technologies as a whole. With giants like Apple and Samsung introducing their proprietary payment services, there can be no doubt that this activity will affect the market head-on and will have a positive influence on the definitive movement away from cash transactions as the national preference.
With Russia’s ongoing migration to electronic payments, it comes as no surprise that cash is declining in popularity in terms of both the number of transactions and their value. According to the Central Bank of Russia, non-cash transactions from payment cards are gaining traction, with this type of transaction exceeding the two-thirds share mark in 2015.
The steep uptake of payment cards and heavy promotion by the government towards contactless technologies make Russia a prime candidate for NFC. According to estimates from Gemalto, NFC-enabled PoS terminals tripled in number in 2015, hitting the 100,000 mark. Contactless has been around in the region for approximately five years, evolving from simple contactless stickers to fully-fledged cards. Currently, the technology is most notably used for transport, with financial institutions (FIs) like Bank Saint Petersburg who worked with Saint Petersburg Metro to pioneer the launch of contactless payment turnstiles at metro stations in 2015. FIs are keen to promote contactless and, as such, are offering more and more compelling products and services as a means to encourage consumer uptake. According to MasterCard, the number of contactless transactions increased four-fold in 2015.
With FIs’ continued investment into innovation and enhancing the quality of products and services on offer in order to remain competitive, Russia is a certainly a country to watch. In spite of economic challenges, when it comes to the payment landscape, the country is primed with a young, tech savvy population moving determinedly away from traditional payment methods. FIs and government initiatives are in full flow to encourage consumers into the electronic payments space, and as such, it will be interesting to see what the future holds.
By Alexey Parshin, VP and Chief Payments Technology Officer, Compass Plus