Russians are increasingly using mobile wallets to pay for groceries and bills as cashless technologies disrupt the financial services industry, extending their reach across the world’s largest country.
The number of purchases made with smartphones has jumped nearly threefold over the past year, according to Yandex.Money, the largest online payment service in the country. Russia is one of the top global markets for contactless payments, such as ApplePay and GooglePay.
“The change we have seen is staggering,” Victor Dostov, president of the Russian Electronic Money Association, told Karma. “We basically went cashless in the past few years and it’s not just a trend among geeks or upper-middle class. Grandmas are using bank cards, they are using smartphones and are capable to do basic transactions with ease.”
Once available only in Russia’s biggest cities, cashless payments are increasingly becoming the norm across regions, accounting for 50% in Russians’ total spending on goods and services compared to 4% in 2008. Mobile payments account for 15% of all payments compared to 1% in 2017.
Changing technologies are attracting new demographics, says Dostov. The number of internet users who are 55 years old and older grew last year, with the majority using mobile devices to connect to the network. Internet penetration exceeds 75% in Russia, while the majority of the population, or 97%, own a mobile phone.
Fueled by global fintech innovations and availability of highly-skilled IT specialists, the trend is likely to continue in the near-term, says Dostov. Major Russian banks do not carry the IT legacy of their Western counterparts and are often able to adopt emerging technologies fast.
Earlier this month, Russia’s biggest bank Sberbank launched a pilot mobile app, which allows shoppers to pay by scanning codes with their smartphone cameras. Sberbank is also testing fingerprint payments, already available in several stores in Moscow.
The state-run bank, which retains 45% of deposits, servicing more than 150 million customers worldwide, has been shifting its focus to tech innovations. Last year, the bank partnered with the San Francisco-based accelerator 500 Startups to help uncover IT startups.
Meanwhile, Russia’s central bank is rolling out a faster payments system, which helps make instant money transfers using only a mobile phone number. The project was developed in collaboration with a dozen of banks and payment service providers, including Alfa Bank, VTB, Qiwi and Rosbank. The system will soon be available for retail purchases.
Among the earlier adopters is Tinkoff Bank, a branchless neobank, which last year won an award for the best mobile app among global peers.
“Our experience with our own ecosystem has shown that payment using mobile numbers is highly popular and a successful addition to the overall development of the payment services infrastructure,” said Anatoly Makeshin, head of payment systems and vice president of Tinkoff Bank. “We are continuously working to offer quicker and easier payments to our customers while maintaining our usual highest level of security.”
Russia’s fintech scene has also attracted Tencent’s WeChat and Alibaba’s Alipay amid growing tourism demand from China. Last year, Yandex.Checkout integrated WeChat Pay into its services, allowing Chinese tourists to pay with the popular messaging app in Russian stores.
Sanctions and banking
Russia ranks among the top five digital banking leaders in Europe, with payments, money transfers and online lending among the most popular fintech solutions, according to a Deloitte industry report, published last year.
Despite that, the situation in the fintech market is mixed due to a stagnating economy, lack of competition in the market and the closed nature of financial institutions, the consulting company said.
State companies often buy and integrate fintech startups instead of helping them to develop. Startups also have a hard time accessing global capital markets from Russia to monetize digital products and services.
“The fintech community does exist and tries to develop in Russia but the external factors are likely to have a negative impact on the market preventing Russian companies from full-scale competition with Western fintech communities in the mid-term,” Alexey Minin, the head of the Institute for Applied Data Analysis at Deloitte CIS, wrote in the report.
Russia has been hit by U.S. and European sanctions over the annexation of Crimea in 2014. Seeking to safeguard against restrictions that could block Mastercard and Visa transactions, Russia launched its own national payment card system.
Called Mir, which means peace in Russian, the system accounts for more than 20% of the bank card market and comes with its own smartphone application Mir Pay, actively used in grocery stories, gas stations and restaurants.
“Today practically every bank cardholder in Russia has made an attempt to pay with a smartphone at least once,” said Maria Tochilova, the director of product development and digital services at Mir. “This technology is developing fast, wе аre keeping up with global trends.”