Andrew Morozov, CEO RBK Money, «In Russia, electronic money is leaving. Long live the payment cards!»

According to various analysts, the cards share in the total volume of online payments has reached 60-70% in Russia. For your reference, the respective share in RBK Money amounts to around 90% already. What does this mean for the market?

1. Those who foresaw this situation a few years ago are now riding high, the rest are trying to jump on a passing train feverishly. This applies to the systems that were so "powerful" at no distant date, electronic money systems and payment integrators traditionally oriented to the terminals and other "alternative stuff".
2. Further "commoditization" of payments as a service. A bank card being in everyone’s pocket today, a whole epoch is passing away with its online businesses having to integrate multiple types of electronic money or other means of payment in order to cover the needs of their audience. This means that many of the major players are watching the way their main competitive tool is disappearing, especially coupled with what was said in paragraph 1.
3. Hopes for direct bank payments such as Direct Debit, as an alternative to bank cards, have not been realized so far, and this will not happen in the near future. This means that the major cost factor of online payment services is interchange set by Visa and MasterCard.

Relying on the theses presented above, one would assume that now traditional IPSPs (Internet Payment Service Providers) and acquiring banks will be ridding high. However, this is not quite the case, at least relative to the first of them, because of the following:

1. The IPSPs’ cost of services is almost the only instrument of competitive struggle they have. Service is approximately the same everywhere, while the quality has been recently relying to the more extent on the acquiring banks’ problems rather than on those of IPSPs. Therefore ...
2. The online businesses (merchants) representatives are making their choice almost exclusively based on comparing the tariff rates, which means a price war. And since...
3. IPSP’s business profitability is low, with the exception of high-risk segments, so we get a really grim situation, particularly in the light of the fact that after seeing a growing demand for Internet acquiring, all those who were in any way associated with online payments, have vigorously rushed into the business (see above).

IPSP is now working on a margin of 0.1-0.2% of the total value of payments and is watching every single day the competitors knocking at the door of their customers to offer lower and lower rates.
Online market is an almost perfect market, which is almost impossible to manipulate. Thousands of small and medium-sized online businesses will anyway choose the solution that will be cheaper, easier, and will not cause any problems allowing them to deal with their actual business. I would venture to declare that neither IPSP, nor the acquiring banks could become that kind of solution by definition. The large merchants is their cup of tea, which constitutes completely different nature and methods of doing business. However, even such merchants in Russia are numbered no more than few dozens; moreover, they require almost immediately to work with them at a break even level and offer to classify this opportunity as a great piece of luck.

RBK Money has been conducting business in the EU and the U.S. for several years, and we know in practice what occurs in older markets of online payments, where bank cards were originally the main payment instrument. So what happens here? Let’s see…

1. There are a small number of very large IPSPs, which are mainly created and work over decades under the wing of the largest banks. Some examples could include WorldPay, Barclaycard, Chaise Paymentech, and others. These IPSPs cover almost all the major merchants: traditional online retail, airlines and so on. Russia still doesn’t have its own analogue to that player, but it will inevitably show up under the one of the major banks.
2. There also exist the second and third tier IPSPs, a huge number of them. When someone says that Russia has too much of IPSPs, it sounds ridiculous, since the developed markets have tens and hundreds of them. How do they survive? They pick up what the “giants” disdain. Nevertheless, the main item of their income — high-risk. Those who didn’t manage to get the high-risk are closing up their business gradually. What are the reasons for this? Still the same: commoditization of business, price war and ...
3. PayPal and its analogues – a choice of an overwhelming number of companies from small and medium-size business sector. The reasons are simple: quick registration without paper chase, competitive tariff rates, anti-fraud protection.

It means that in an environment where Russia does not have an official high-risk segment, the second category companies will be hard enough to survive while, in fact, representing all of today's IPSPs. The same, incidentally, applies to traditional "e-wallets": throughout the world, except Russia, the "wallets" market represent a high-risk segment basically, and namely — a gambling. This is the only field where such factors as the anonymity and the ability to withdraw funds are so important that the users and merchants are ready to pay a high commission for that.

For more information:

• www.rbkmoney.ru/en