29 Oct 2019
Russia Emerges as Europe's Unlikely Card Transaction Frontrunner
Despite being almost card-free 30 years ago, Russians are now among the world's keenest users of payment cards.
Despite long-engrained expectations to the contrary, Russia has emerged as the, admittedly unlikely, European frontrunner in terms of both growth and volume of debit / credit card transactions over the past 12 months. A report by the Boston Consulting Group (BCG), a Massachusetts-headquartered global management consultancy, showed that the average annual number of card transactions in Russia had soared by 3,000% from 2010 to 2018. Indeed, while back at the end of the previous decade, the average Russian would be expected to initiate just 5.8 card-based transactions a year, now anything less than 172 would be viewed as somewhat laggard.
It's all a far cry from the Russia of just 30 years ago, a time when credit cards were strictly synonymous with foreigners and an expat lifestyle that revolved around hard currency stores, bars, nightclubs, international travel and premium hotels. For most Russians, it would have been the late '90s at the earliest when their name first appeared on a Visa card, while many of the country's residents were still being paid in cash well into the first few years of the 21st century. Even as late as 2003, it was not unusual to see an unimpressed employee swiftly decant the whole of their monthly salary from the nearest ATM at the earliest opportunity, content only when their pockets were stuffed with roubles.
Against such a backdrop then – without even taking into account the country's recent economic difficulties and adverse currency-exchange regime – it's quite an achievement for Russia to be singled out as a world leader in protected tokenised transactions and the overall European number one for the use of digital wallets. Beyond that, BCG's data also indicates that the rate of card payment growth in Eastern Europe as a whole puts it on course to overtake Western Europe in the not too distant future. Within the Eastern Europe pack, Russia is also tipped to retain its standard-bearing role, even as its domestic rate of card transaction growth slows from its current mammoth 22% per annum to a more moderate 11% over the next 10 years.
The factors driving this phenomenon – which is already only half-jokingly referred to as the Russian Miracle within the financial-services sector – are actually not that hard to discern. Indeed, cheap retail loans, high retail market consolidation and a massive domestic investment into technological development and implementation are all seen as having played key roles.
Then there is the fact that Russian consumers are not weighed down by the negative perceptions of credit instruments and transaction processing that afflict many of their counterparts in the west. This clean-slate approach – similar in sentiment to the psychology that saw many Central Asian nations prove highly receptive to the possibilities opened-up by digital payments – has seen many Russians keenly embrace these new transaction gateways. In light of that, it's no real surprise that the uptake of the contactless mobile-phone payments solutions on offer from the likes of Apple Pay and Samsung Pay has been more enthusiastic in Russia than in almost any other world market.
In terms of the opportunities this opens up for Hong Kong-based manufacturers and distributors, the country's demand for a range of electronic payment processing devices is soaring and is set to continue to do so for some time yet. In particular, market requirements are still outstripping supply when it comes to such items as basic home-use card readers, point-of-sales acquisition devices and wearable gadgets compatible with digital wallets and smartphones. There is also a perceived need for processing devices capable of handling overseas remittances on behalf of the increasing number of Russia-resident migrant workers.
On top of all that are the wider implications for Russia's banking sector. There are already signs that a major transformation is underway, with Sberbank – Russia largest and oldest lender – having recently declared itself to be, in essence, an IT company rather than a financial-services provider. In addition, Alfa, the country's largest private bank, has announced plans to close much of its conventional branch network as it migrates, almost wholly, online. Similarly, Bank Tinkoff, the financial institution of choice for many of the country's SMEs, has no physical offices and confidently pitches itself as the world's foremost "no bricks, no mortar bank."
Such fundamental changes need to be borne in mind by Hong Kong businesses as they represent fresh challenges when it comes to interacting with their Russian client base. Indeed, many will be obliged to update and upgrade their own transactional systems if they are to have a chance of staying in step with this latest Russian revolution.
Leonid Orlov, Moscow Consultant