A recent study by Sberbank, Russia’s largest state-run lender, shows the country has experienced a cashless payment boom over the past decade.
Bankers say the trend is set to continue, fuelled by advanced technology adopted in the finance sector.
According to Sberbank’s study, in 2017, the share of cashless payments in Russians’ total spending on goods and services climbed to 39%, from a tiny 4% in 2008.
The growth continued into 2018, and in the first quarter of this year, cashless accounted for 45% of all payments, Sberbank said 2.3 million point of sale (POS) terminals currently accept cards at 1.6 million retail outlets.
While in the late 2000s, cashless payments were confined to the country’s biggest cities, now there is almost no disparity in availability of cashless payment across Russia’s far-flung regions.
“The level of card payment penetration always depends upon the relevant infrastructure at point of sale,” says Alexei Okhorzin, director of the retail product department at Credit Bank of Moscow. “Unfortunately, even in Moscow, there are still retail outlets where you can’t pay with a plastic card, and in the regions, the penetration level of POS terminals is even lower.”
“But we have to admit that over the last two to three years, in the biggest cities, the proportion of cashless transactions has substantially increased, and the dynamics of growth has been impressive,” he added. “We see clients’ behaviour change. The government and payment systems have played an enormous role in that, facilitating the development of the infrastructure, new technologies and services.”
Card payment system
According to Okhorzin, the launch of the national card payment system Mir also helped boost cashless transactions.
Vasily Voronov, managing director at Rosbank’s department for introducing innovations and changes, said: “Over the past four years, Russia has made a major leap in the number of POS terminals, while consumer behaviour has also evolved.
“In bigger cities, payment with a contactless card or with a smartphone at points of sale has become a widely spread pattern for a number of customer segments.”
Among other factors that incentivised people to use cashless payments are various cashback programmes, offered by banks, and the growing number of arrangements between banks and companies, under which plastic cards for employees’ salaries are issued, said Alexei Kirichek, vice-president and head of the acquiring department at VTB.
Still, some obstacles in the way of further growth of the cashless payment segment are yet to be overcome.
“Insufficient financial literacy and people’s concerns about fraudulent card transactions are having a negative impact on the spread of card payments,” according to Alexander Petrov, director for card technologies at Promsvyazbank. “In addition, people are still have the habit of using cash for day-to-day payments.”
But the arrival of cutting-edge solutions, such as mobile payment systems, helps to boost cashless transactions.
“The advent of ApplePay and GooglePay substantially increased the number of card transactions thanks to their ease of use,” says Voronov at Rosbank. “The phone is always with you, and there is no need to also carry plastic cards. You can also pay for purchases at online stores supporting this means of payment, and the number of such stores in growing.”
Other banks agree that digital wallets give a boost to cashless transactions.
“Moscow Bank of Credit supports the idea of various digital representations of cards in various channels for our clients’ convenience,” said Okhorzin. “Currently, we support Apple Pay, Samsung Pay and Google Pay.”
Meanwhile, the spread of mobile payment solutions and introduction of other advanced digital technologies are set to make cashless payments even more popular. “In the short term, alternative payment options will develop and partially replace card payments,” said VTB’s Kirichek.
“We expect the arrival and expansion of functionality from new tokenised payment systems,” he added. “A good example is the money transfer service based on the tokenisation technology in Samsung Pay app.”
Filipp Petrov, head of the business development department at Binbank said: “The main trend in the segment of cashless card transfers is facilitating instant card transfers between clients of different banks, using mobile phone numbers.”
“We expect that within two years, this service will be implemented by all major Russian banks and will become as habitual as contactless payment services.”
Plastic cards here to stay for now
Meanwhile, as alternative payment systems gain popularity, bankers believe that traditional plastic cards are here to stay at least for a while.
“Contemporary digital banks are currently testing various alternative ways of running payments, such as identification by capillary picture of the hand or by face,” said Okhorzin. “[But] we believe that cards will remain the dominant means of cashless payments for private individuals in the next few years.”
According to Promsvyazbank’s Petrov, among technologies that are likely to be adopted in the cashless payment segment in the short term are biometric identification, instant card-to-card payments by a phone number or an email address and issuance of cards without a plastic physical form directly into a smartphone.
Rosbank’s Voronov said: “We believe that one of the potentially important tech products that could enter the market on a mass scale are smartphone-based POS terminals that require no additional devices for card reading.
“Solutions of that kind have already been emerging from time to time in various markets, and it is quite possible that they will help improve penetration of offline acquiring in those categories of companies that are currently under-served by existing POS solutions.”