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The Russian payment revolution: Visa and MasterCard cut by a national system

Economia Digitale
SMART MONEY
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The Russian payment revolution: Visa and MasterCard cut by a national system

Recently, Visa and MasterCard blocked Russian credit card transactions in reaction to their political activities. And it was estimated that, worried about the blockage, Russian citizens withdrew a total of 111 million dollars in just 3 days. In response to this, Moscow declared that a national payment circuit could be fully operative within a few… Read more »

Recently, Visa and MasterCard blocked Russian credit card transactions in reaction to their political activities. And it was estimated that, worried about the blockage, Russian citizens withdrew a total of 111 million dollars in just 3 days. In response to this, Moscow declared that a national payment circuit could be fully operative within a few… Read more »

Economia Digitale

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Recently, Visa and MasterCard blocked Russian credit card transactions in reaction to their political activities. And it was estimated that, worried about the blockage, Russian citizens withdrew a total of 111 million dollars in just 3 days.

In response to this, Moscow declared that a national payment circuit could be fully operative within a few months. Thus, after years of rhetoric, the launch of the “Made in Russia” domestic payment system could finally become reality.

The circuit already exists. It is called PRO 100 and 40% of Russian banks are already connected and integrated. The pilot was launched in 2010 for the Russian Universal Electronic Card project to be used by commercial, municipal, and government services via internet, in stores, and at ATMs.

Sberbank, Uralsib, AK BARS and Moscow Industrial Bank are the four biggest Russian banks for client base and they have already implemented all of the scenarios of integration to cross over to the new system. The goal of this maneuver is to be liberated from the restrictions imposed by international circuits and to have greater space for innovation and to remain competitive in the payment sector, an area that is in constant evolution. Over the past two decades, credit and debit cards have become the simplest way to transfer money. For the past couple of years it seems that  the preferred tool (for both banks and clients) could be the mobile phone. Russian banks are looking with interest at the mobile phenomenon as the linchpin in the battle against hard cash, whose use still reigns supreme in Russia in terms of percentage of use.

It is not a coincidence that one of the first mobile payment projects was the Russian MOBI.Money, a remote payment service that simply used SMS to send and confirm payments of goods and digital services. After three years of activity MOBI.Money already registered 13 million users, offering the possibility of acquiring over 4000 products and services – a testimony to the attractiveness of the Russian market. Today, it is possible to pay bills and do other types of accounting with MOBI.Money by withdrawing directly from one’s bank account. The choice of using SMS was strategic because, according to a 2010 Nielsen study, 51% of Russians possessed a mobile phone (not a smart phone). This is the main reason why NFC pilots have arrived so late on the Russian market. Now, however, the Synerga group, supported by iFree Group has not only commercialized terminals to accept NFC payments, but is also able to do (with the PayPal model) facial recognition, integration with social medial (social commerce) and with added value services that allow retailers to engage in more innovative ways. If the use of these POS takes hold among retailers (who are interested in equipping themselves with the tools needed to accept electronic payment) then services like MOBI.Money will be forced to unite with NFC technology, also to confront an increasing number of Russian smart phone owners.

A full NFC explosion could take time. One of the main obstructions (a true “business issue”) was the wall between banks and phone operators who wanted the advantageous business model for themselves. Also, and above all, in order to overcome this impassedevice producers were deeply involved in the project. An agreement was signed between Sberbank and Samsung to test and use during the Sochi Olympics the NFC mode with secure element included in the device, thus bypassing phone operators.

But the NFC victory is still not close. Startups that are capable of offering technological solutions analogous to Square and alternatives to NFC like Life-Pay, Pay-me, iPay e 2can have all appeared on the Russian market. Naturally, there is the possibility that all of the different solutions (SMS, QRCode, Square-Type, NFC) could coexist if supported by different banks and that the consumer could choose which to use according to the types of solutions accepted by the retailers both online and in the physical world. At this point, though, banks feel a strong need to be independent and autonomous even regarding the types of technological services to be used. Sberbank, for example, has accelerated its plans to render PRO 100 the true Russian circuit independent from international circuits and a solution that is capable of launching itself as a mobile service as well. The plan shared by Sberbank and other Russian institutions is to connect 95% of Russian account holders to mobile banking services. The banks have already launched an application for iOS, Android, and Windows Phone 7.

The target for potential users has been estimated to reach 28 million clients in the first year alone. Banks already have a test of the interest of Russian clients in innovative payment forms thanks to a partnership with different service suppliers like Aeroexpress used to pay, for example, for transport in Moscow. The procedure and the user experience for acquiring tickets is simple: passengers who have connected their card or their Sberbank account to the Mobile Bank just have to send an SMS to the 900 number with, for example, the text “AE MSh” for a trip from Belorussky Rail Terminal to Sheremetyevo Airport, that is, from the airport to the city center. The passenger who requests a reply to their SMS receives a code (number or in QR format), a confirmation of their electronic ticket. This is similar to what has already happened in many Italian and European cities (like London), making transportation a leading sector in mobile payment services. This is testimony of a convergence of experiences and use cases at a continental level that, apart from the specifics of each country, could make a mobile commerce explosion possible in the near future.