Online Payment Big Business in Russia

Published: March 5, 2014 (Issue # 1800)

The number of Internet users making payments online is rapidly growing in Russia. Sixty-three percent of Internet users, 35 million bankcard holders and 22 million Russians, have all tried online banking services, according to PriceFree, a discount, loyalty, payment and personal finance management services company founded in Palo Alto, California in 2013.

“We believe the growth of this segment will increase over the next few years. It makes the market more attractive to both Russian and foreign investors, and for those looking for new channels of investment,” said Suren Airiyan, president and co-founder of PriceFree.

With the rapid development of IT technologies, the quality of customer and payment management has risen to new levels, with payments becoming more secure as a result. Both smartphone usage and applications requiring e-money for payments lead the development of the market. The amount of clients using online payment systems increased from 28 to 35 percent during 2013, according to data from PriceFree.

Although 60 percent of online payments in Russia are currently made through payment terminals, this figure is expected to decrease by 30 percent within three years.

At the end of January, the Central Bank of Russia warned citizens away from using digital currencies, including bitcoin, since they regarded them as high-risk despite differing attitudes towards their legitimacy as a form of currency. Mt. Gox, once the world’s largest Bitcoin exchange, filed for bankruptcy protection on Feb. 28, after losing an estimated $480 million.

Russians generally shy away from paying large sums of money over the Internet, usually only spending between $30 to $150 per transaction. Larger sums are usually paid in cash to a courier service at the time goods are the delivered. Courier transactions account for 67 percent of payments — compared to 15 percent of customers who use bankcards or electronic money.

About 7.2 million users pay with the use of e-wallets with Yandex Money, Qiwi and Webmoney being the largest players on the market. PriceFree predicts the volume of the e-money market will double by the beginning of 2015.

Online purchases in Russia amounted to $13 billion in 2013, a 35 percent increase from 2012, according to PriceFree. More than 46 percent of online purchases were for electronic goods while clothes and shoes were the second most bought item on the Internet. Car products came third in overall sales. The average amount of money spent per person on the Internet ranges from $75 to $4,500 per year with more than 500 million discount cards being used in Russia.

With such high figures, the task of making the service easier and more comfortable for users has become a priority for providers. PriceFree plans to launch a new payment card by April 2014 in Russia. The new smart debit card will create a unified system that is both a payment method and a discount card. One more function includes personal online finance management. In the next three years, PriceFree hopes to reach $10 billion in turnover and service 500,000 cardholders.

Such cards have the potential to replace retailers’ own discount cards but larger retailers are inundated with offers from banks and payment companies, reports RBK Daily. In addition, many of the new payment systems offer partner discounts without obliging users to purchase the discount cards, unlike many brick and mortar establishments which usually charge a fee for the cards.

“Russia is set to converge with the global trends in e-commerce,” Oskar Hartmann, the CEO of KupiVIP, an online fashion retailer founded in 2008 to help fashion brands unload excess inventory, told Bloomberg News in 2013. “In five years, half of [Russia’s] 143 million population will be buying goods online,” Hartmann said.

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