For many international businesses, navigating the unique complexities of the Russian payments market can seem daunting. The Russian card system is like no other, regulations are complex, the business culture seems foreign and data privacy laws require special attention.
However, the benefits of the Russian marketplace cannot be denied: the large population, their taste for increasingly high-quality consumer goods, the lack of significant currency control on cross-border funds repatriation and eCommerce growth that is outstripping the rest of Europe.
This is why we spent years researching the market and hiring many native Russians, such as myself, to provide insight. In this article I will dive into why I think Russia is a great opportunity for international online businesses.
The Russian payments ecosystem
Over the past few decades, the Russian economy has been experiencing uneven but still very positive economic growth. This is causing Russians to demand better quality, often imported, consumer goods. As a result, Russian ecommerce is growing at a significant rate, with digital and businesses like Google, Apple and Spotify being the main driver.
Since 2013 the entire ecommerce market has grown an average of 17%, compared to 7% across Europe. Last year, due to the pandemic, this trend accelerated significantly, seeing an enormous 51% increase and this year looks promising as well. The boom in ecommerce benefitted Russian ecommerce giants and online retailer Wildberries performed exceptionally well last year. By 2024, online retail is expected to reach 19% of all retail and there is ample opportunity for foreign companies to be part of this growth.
To do well in Russia you need to understand the uniqueness of the payment infrastructure, legislative environment and technology. There are around 210 million active payment cards in Russia, and while an estimated 60% are issued by Visa and Mastercard, local payment methods are a strong player in the market. One example of this is Mir, a fast-growing domestic credit card provider, which has issued over 95.7 million cards since its launch in 2015 and is looking to expand beyond Russian borders. Much of this growth has been driven by the government, which requires anyone on the civil service payroll to have their salaries paid into an account with a Mir card attached to it.
Another trend that should not be ignored is mobile payments. According to Gfk there are 56 million online mobile users over the age of 16 in Russia and the majority use their phones for online purchases. Nearly 60% of online payments are made on mobile devices, compared to 20% worldwide. A local payment option with a large following is Sberpay. This is a real time banking payment method that allows customers of the biggest Russian bank (Sberbank) to pay instantly. Local eWallets including YooMoney, Qiwi and WebMoney are losing their market share because the Central Bank of Russia is restricting anonymous payments more and more. As an alternative the Russian Central Bank is driving the initiative to join all retail banks into one real time banking payment method called “System of Fast Payments” (SFP).
Shopping from foreign online stores has seen a significant growth when retailers adapt their websites to the Russian market, translating the content into Russian.
Doing things their own way
The Russian government and Central Bank are fiercely protective of its autonomy and that of its citizens. Online businesses looking to enter the Russian market can often face substantial cost implications due to the complexity of the business environment and legal requirements.
Unless a company is a legal entity in Russia, its payments will typically be processed as cross-border transactions by acquiring banks outside of Russia. This has a significant impact on authorization rates, which could be up to 20% lower compared to local processing. The ability to process transactions locally is paramount – not only will this increase authorization rates to 93-97%, it will also reduce average credit card processing fees cutting very expensive cross-border card scheme fees by ~1% +10 cents.
In areas such as personal data regulation, local rules will likely differ from other markets. Although legislation requires, for example, that personal consumer data must be stored on Russian servers, customer payment card data is not considered as personal if it is not used for identifying the person. Online businesses must ensure their data collection is legally compliant irrespective of whether a transaction is processed domestically or internationally.
One misconception though is that sanctions against Russian companies and banks imposed by the US and EU may seem as a strong argument against entering the Russian market. The reality however is, that it does not directly impact online businesses or payments because financial services are exempt from sectoral sanctions. Otherwise international card schemes would have left the Russian market immediately after such strict sanction imposed.
The Russian ruble (RUB) is a highly volatile currency. Accepting RUB requires a proper operational office in Russia and proficiency with managing exposure.
Accepting payments in Russia does not have to be difficult
Doing business in Russia requires a deep understanding of the Russian financial system and strong local relationships. Over the years we have managed to gain a deep understanding of the Russian financial system and have built strong partnerships within the Russian banking ecosystem. In 2018 we launched the Russian Payments Solution as part of our strategic approach to help businesses target high growth markets including Brazil, Russia, India and China.
Since its inception it has outperformed our expectations with impressive payment volumes and customer adoption. It is now one of our fastest growing payments offerings, providing unique local acquiring and payment capabilities for international businesses selling online to Russian consumers in digital goods, retail, travel and more.
Launching products and services for the Russian marketplace does not have to be a difficult process. While there are a few potential stumbling blocks, the country as a whole is on an upswing, with greater prosperity on the way and a corresponding increase in consumer spending.
Moscow is leading the fintech surge in Russia.