This material is provided by the PLUS Journal (www.plusworld.org) - the most competent specialized multiregional periodical on Eurasian market (Russia, FSU countries etc.).

Russian market of payments and innovations: Right time for new opportunities

Notwithstanding the continuing global economic crisis, Russia is still one of the most innovative and fast developing markets of payments

To get more detailed information about the Russian and CIS payment card market and its infrastructure please contact:

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Contents:

Part 1: Issuing
Part 2: Acquiring Infrastructure
Part 3: Russian payment card market in comparison
Part 4: Trends and Prospects

 Part 4:

Trends and Prospects

One of most significant and worthy to mention events in the Russian card market in 2009 - first half of 2010 is an active introduction of the international payment system China UnionPay (co-branded cards China UnionPay and Union Card have been first issued by Eurofinance MosNarBank), to the Russian payment space and the implementation of CUP acquiring and servicing projects by a number of banks (VTB24, TransCreditBank, UBRiR, the Bank of Moscow, AVTOVAZBANK, MosComPrivateBank and others), and a launch of a China UnionPay ATM-acquiring project jointly by United Settlement System and CUP.

The financial crisis resulted in modifications of certain key trends in the Russian card market. In order to increase profitability of their card businesses, Russian banks enter new markets and implement new card products.

For example, business payment cards started to appear in Russia. This direction for business development has huge growth potential in Russia: currently the level of market penetration of business payment cards is only 4%, meanwhile over 70% of European companies use business payment cards. Visa and MasterCard payment systems stimulate banks to issue business payment cards. In its turn, American Express has recently announced upcoming introduction of corporate cards in Russia.

Another up-to-date direction for market development is the extension of premium segment offers. In 2009-2010 the number of banks offering premium card products Visa Platinum and MasterCard Platinum increased greatly. Class products like Visa Infinite, World MasterCard and MasterCard World Signia are also successfully working up the Russian market. In 2010 the first elite cards made of precious metals and stones were issued in Russia: the Rosan Diamond company issued Visa Infinite cards incrusted with diamonds and platinum for Moscow Kreditny Bank; PetroCommerz bank jointly with the INPAS company issued Visa Infinite card with diamonds and incrusted with gold.

VIP services for outstanding clients are also gaining popularity. For example, Russian banks started to pay more attention to VIP servicing that justifies the 20/80 principle statistically rendering some 70% of the retail profit. Along with general reduction of bank retail branches, especially in regions of Russia (according to the Central Bank of Russia, in 2009 the number of local outlets of banks in Russia had reduced almost by 2.5%, from 42,231 to 41,200), banks started to actively establish Premium class branches instead. Branches of this type belong to VTB24, Russian Standard Bank, Alfa Bank, Bank MFK (ONEXIM group), UniCredit Bank and Vostochny Express Bank.

Another remarkable trend is the development of prepaid cards. According to the Bank of Russia, the number of prepaid cards increased more than 3 times in 2009, though the share of such products in Russian market of payment cards remains insignificant (1.6% or 2 million cards). Co-branded prepaid cards - MasterCard and mobile retailers (first issued in March 2010 by Svyaznoy and Evroset), as well as virtual prepaid non-reloadable MasterCard cards by Alfa Bank are most notable among new card issue projects.

Within several past months several Russian banks announced launching the issue and acquiring of contactless cards. In August 2010, AK BARS Bank and the Company's Friend Company (the city of Kazan) announced signing of a Memorandum on Implementation of a Joint Loyalty Program the Company's Friend and issuing of co-branded cards with dual interface based on of MasterCard PayPass technology. In the nearest future AK BARS Bank plans to launch acquiring of contactless cards in the TatNefteProduct fuel stations network. This month Russian Standard Bank along with Visa Inc. payment system has launched a contactless card acquiring project in the Russian McDonald's chain of fast food restaurants.

Along with the above, leading card market players started to actively develop VIP cards programs creating incentives for prosperous clients to open and use cards of premium categories in retail and service networks. Sberbank of Russia started to issue Platinum cards of MasterCard Worldwide and Visa Inc. payment systems; VTB24 is getting started to issue Visa Platinum cards; SDM-Bank started to issue debit and credit MasterCard Platinum cards in rubles and USD; Bank24.ru announced the start of Platinum Visa Inc. cards issue; StroyCredit bank started issuing Visa Platinum; National Bank TRUST announced issuing of Visa Infinite. Alfa Bank offered its VIP clients Visa Infinite cards within the framework of A-Club services (exclusive club system of bank services). Current holders of Alfa Bank Visa Gold and Visa Platinum cards were granted with access to additional services that increase attraction and comfort of premium Visa Inc. cards. NOMOS BANK held a special promotion named 'Platinum Dream' in the course of which clients had an opportunity to receive Visa Platinum or MasterCard Platinum cards on favorable terms.

Rosbank offered a payment card with a tailor-made design by Valentin Yudashkin - Visa Platinum by V. Yudashkin. In its turn Barclay's Bank became first in Russia to issue World MasterCard. The principle feature of World MasterCard that distinguishes it from other premium payment products is global uniformity and obligations to provide its holder with certain privileges notwithstanding strategies or policies of the issuing bank - all is guaranteed by the MasterCard.

Leading international payment systems as well initiated promotions to stimulate Russian premium card holders to pay for goods and services more actively. Visa Inc. held a promotion campaign called 'Discover taste of a new life with VISA' for Visa Gold and Visa Platinum card holders. Participation in the quest for the main prize requested nothing but paying for purchases for the sum of more than 1 thousand rubles with Visa card between May 1 and July 31, 2009.

MasterCard Europe and REMA (Russian Europay Members' Association) announced the launch of MasterCard Izbrannoye Program for Russian holders of MasterCard Gold, MasterCard Platinum, MasterCard World Signia MasterCard. Privileges under MasterCard Izbrannoye created to please Russian cardholders is an addition to international MasterCard Global Premium Collection program.

The most remarkable event of 2009 in terms of legal regulation of payment card market was the development and wide discussion of the new law on the National Payment System drafted by the Russian Ministry of Finance and the Bank of Russia. This proposed law encompasses the list of cashless payment market players in Russia, determines their status and defines their mutual relations within this market. The suggestion to create a National payment cards system became one of the most disputable and controversial items in this law.

Before this issue is finally settled by law, banks and payment systems have started to actively offer their own social card projects which include finance, transit, discount, pension, insurance and other applications facilitating electronic access to public services. For example, Sberbank of Russia has launched a Social Card project in Bashkortostan, Astrakhan and Saratov Regions, Krasnoyarsk and Krasnodar Krai, Chuvash Republic and other regions of Russia. URALSIB Bank launched similar social projects in Ivanovo and Smolensk Regions. Russian payment system Zolotaya Korona has also launched several social projects in cooperation with other banks. Zolotaya Korona transit cards are introduced in Yekaterinburg, Novosibirsk, Samara, etc. One of the latest initiatives started by this payment system is contactless cards for junior students - Pupil's card to pay for lunches in one of Novosibirsk schools. cards.

In late June 2010, Sberbank of Russia, URALSIB Bank and AK BARS Bank formed a joint venture OJSC Universal Electronic Card. This initiative has already started to develop - in the middle of August the Government of Russia appointed this company to be a Federal Authorized Institution to issue, distribute and acquire Universal electronic cards.

Remote channels for bank services are advancing in a very high pace: it is very uncommon for a Russian bank, that actively issues cards, not to have an Internet banking system. Banks once started with SMS reports and now support full-fledged SMS payments. To master existing remote banking systems, banks started to program special applications for certain mobile platforms: in summer 2010 Alfa Bank and AVANGARD Bank issued applications for iPhone. Applications for other mobile operating systems are as well on the way.

Russian banks recently have expanded the range of services provided by ATMs and information terminals. Sberbank of Russia and Wincor Nixdorf demonstrated one of the most interesting innovations in this sphere: during Saint Petersburg International Economic Forum in June 2010 they demonstrated a multifunction self-service terminal capable to replace a branch office - it performs any possible kind of unmanned banking operations.

Another remarkable tendency is the general trend preferred by banks: to create areas and unattended offices of self-banking for their clients and cardholders.

Besides the traditional card business advancement efforts, the Russian banking community, IT companies, largeretailers and their representatives are rather interested in mobile and Internet commerce, as well as in implementation of contactless payment technologies in municipal and regional public transportation projects. In summer 2010, Moscow and Saint Petersburg Metro declared the intention to implement NFC technology for payment of the public transport fares. Russian Railways also intends to effect NFC-based technologies for fee payments in local Moscow region trains.

Leading card market experts say that all the above events are reflections of an emerging tendency towards majorstructural shifts in the Russian card market expected to happen within the next year. In particular it's possible that the substantial share of the market can be occupied by non-banking structures - operators of electronic money (e.g., Internet payment systems), networks of payment terminals and major mobile operators. These structures have well-grounded intention to become the biggest national operators of retail payments. Card issuing banks only recently started treating these companies as real competitors. This category of market players is characterized by faster and more flexible responses to market conditions, as well as by real knowledge of clients and their needs.

Anyhow, today the Russian market is expecting radical changes.