Financial Inclusion and Innovation in Russian Payment Systems
The payments sector in Russia has over recent years been at the forefront of innovation. When I first visited the country with CGAP colleagues in 2007, the main innovations in the payment arena were unmanned payment terminals (only providing cash-in services) and web-based e-money operators (see the diagnostic report from 2008 as updated in 2010) with the formers’ presence being very visible (at least in Moscow), while the latter were only operating in the virtual reality of the internet and without an enabling legal environment (one of them had to go back as a far as to a 1929 Russian decree as the legal basis for its operations).
Photo Credit: Stefan Staschen
Much has changed since. When I came back in 2012, the number of terminals had grown almost threefold (according to some estimates there are now 300,000 of them). While these terminals and a smaller number of cashier-based services at agent outlets still play an important role in providing basic cash-in services, the focus of attention has been shifting elsewhere. The most important innovations originate from new products and channels breaking down the walls between the virtual world of e-money and the physical world of card-based services. For example:
- E-money operators have linked their e-wallets to plastic cards so that they can also be used in the physical world for paying at merchants or transacting at ATMs;
- Companies like QIWI best known for their wide network of terminals have launched their own e-wallets;
- Mobile network operators have started collaborating with money remittance operators and now also offer domestic (mostly) and international (in at least one case) remittances directly sent from mobile wallets. At the same time, they work with banks offering contactless plastic cards and virtual prepaid cards.
The hope is that these and similar developments will ultimately lead to an easily accessible and interoperable payment system that combines the advantages of various channels. That there is still a long way to go can be seen using the example of many users still using ATMs to withdraw cash only to deposit it at cash-in terminal located right next to them (pictured above).
Another major difference to 2007 is that the legal environment has radically changed with the introduction of the National Payment System Law in 2011 (which has only recently become fully operational as of the end of 2012). This law not only recognizes various types of operators offering money transfer services (including those involved in the booming business of international remittances), but also defines for the first time specialized e-money operators and provides a legal framework for mobile network operators offering financial services on the mobile phone. It is still too early to say what the impact of this law on the sector will be, but what is already clear is that the Central Bank of Russia has substantially widened its supervisory reach by bringing all money transfer operators and e-money operators under its purview.
What does all this mean for financial inclusion? Innovations in the payment sector have certainly brought important benefits to their users in the form of low commissions and efficient and easily accessible services even in more remote, sparsely populated areas. But does our proverbial babushka in a remote community in eastern Siberia really benefit? As my colleague Olga Tomilova described in an earlier blog, there are still substantial gaps in the reach of formal financial services. Very little research has been conducted on the issue of customer adoption of these new products and channels. There is some evidence (referred to in more detail in the report) that, as far as e-money is concerned, the typical customer tends to be young, male, an advanced internet user and either a student or professional. Our babushka certainly does not fall into any of these categories.
Another way to assess the likely impact of innovations in the payment sector on financial inclusion is to look at the composition of payments. While agents (terminals and cashier-based services) are still in the majority used for mobile top ups and payments for other communication services, the share of such payments has been coming down (from 95 percent of all transactions in 2011 down to 86 percent in 2012). At the same time, the number of other transactions conducted at agents with a higher financial inclusion potential such as deposits into personal bank accounts, loan repayments, and person-to-person transfers has been experiencing strong growth rates. It is hoped that this trend continues and will eventually lead to a more compelling value proposition for our Siberian babushka.
For more on financial inclusion in Russia, see CGAP's 2013 Landscaping Report.
The author is a government and policy advisory consultant with CGAP.