The Russian ecommerce market is growing ten times faster than the real economy and traditional retail. In the first half of 2019, the market grew 26 percent year-on-year to $11 billion. In fact, statistics show that the number of online shoppers that engage in more than 15 purchases annually increased by 25 percent. That said, online sales represented 4.5 percent of the country’s total retail turnover—and is leading to achieve 8 percent of turnover by 2021.
The rise in numbers, however, makes the country’s booming ecommerce market challenging to new entrants. Against this background, Ingenico has cut through the barriers and opened up Russia to international merchants with its unique solution.
Mike Goodenough, general manager for Ingenico ePayments, EMEA, in an exclusive interview with International Finance explains the Russian ecommerce and payment markets dynamics and how the company is effectively establishing its local presence.
What is the potential growth of the Russian ecommerce market?
Russia is one of the world’s largest and most dynamic ecommerce markets. When we first launched our Russia Payments Solution it was growing by 17 percent a year and has clearly continued to expand as the solution is now one of our fastest growing payments offerings. The online sales of physical goods were expected to reach 19.74 billion euros at the end of last year and this number is predicted to reach 45 billion euros in 2023.
Although it has traditionally been a difficult market to crack for western businesses, many consumers in the country have a taste for western goods and services—making this market ripe for growth. This is applicable for many sectors from retail and travel to digital goods—so businesses that penetrate this market early on will significantly benefit from its growth.
How is the Russian ecommerce market different from Europe?
The Russian ecommerce market differs from the European market due to its unique domestic financial system and preferred local payment methods. These normally act as a barrier to entry. For businesses without a Russian legal entity, payments are usually processed as cross-border transactions which can be hugely detrimental to authorisation rates. Even international merchants that have a Russian legal entity face issues surrounding VAT and repatriation of funds remitted locally.
As a result, consumers in the market often prefer domestic payment methods that allow them to shop for their favourite goods, with the greatest chance of authorisation. This includes Mir cards which accounted for nearly 25 percent of total payments in Russia at the end of last year—and more than 70 million of these cards have been issued since they were introduced in late 2015.
What is the value proposition of Ingenico ePayments that will distinguish it from other offerings in the Russian market?
Our Russia Payments Solution provides unique local acquiring and payment capabilities for international businesses selling online to Russian consumers in sectors such as digital goods, retail, travel and much more. We have broken down barriers to entry into the market by partnering with Russia’s leading financial institutions, including the largest acquirer in Europe, Sberbank.
This gives online businesses access to the Russian financial system so they can provide services to Russian consumers using their preferred payment methods, including Mir cards and Russian ewallets such as Qiwi and Yandex. Money. Using the solution, online businesses can offer payments that are fully compliant with Russian regulations to improve authorisation rates and in different currencies such as the Rouble, EUR and USD.
What are the challenges faced by Russian consumers on the payments front? How is Ingenico addressing the issue with its solutions?
Prior to the launch of our solution, Russian consumers had limited options when it came to buying from western businesses. Now they are able to easily make payments to international ecommerce businesses using their preferred payment methods and in the currency of their choice.
As a result, the solution has opened up a whole new market for Russian consumers, with products and services that otherwise would not be available in their country.
Ingenico has recorded an impressive $1 billion transaction in the first 18 months. What do you credit the firm’s success to?
The growth and success of our solution can be accredited to Ingenico’s in-depth understanding of the Russian financial system and the partnerships we have established within it. These partnerships have formed the basis of the solution and have granted us access into a market that has been extremely difficult to enter in the past.
In addition, the partnerships have allowed us to provide a diverse range of preferred local payment methods to Russian shoppers, such as Mir cards. In turn, this has improved conversion and authorisation rates for our customers—making these businesses an attractive option for consumers.
China’s Singles Day also largely contributed to the success of the solution and acted as a proving ground for its effectiveness. On that day we experienced record breaking transaction volumes and payment authorisation rates, which saw many of our customers making a profit by servicing the growing market.
To common knowledge, Russia is a tough ecommerce market to crack. What is Ingenico’s strategic approach to build its local market presence in the country?
The Russia Payments Solution was built as part of our ongoing strategic approach of helping businesses penetrate high growth markets, such as Brazil, Russia, India and China. The most integral part of entering these markets is ensuring that we offer payment methods that are relevant to the general population, enabling them to make payments swiftly and easily.
That is how we are going to continue servicing the Russian ecommerce market, with locally relevant solutions that reduce shopping cart abandonment and create returning customers.
We are continuously adding new capabilities to the solution, such as our billing and settlement plan (BSP) feature for airlines, which includes local acquiring, single report and single remittance. This will ensure that merchants from all industries have the tools they need to operate in the market.
What are Ingenico’s plans in the pipeline targeting European and Russian consumers in the next three to five years?
Ecommerce across Europe was rapidly evolving, even before Covid-19. This has mainly been caused by regulatory updates that are altering the way people pay for goods and these will continue to impact the market over the coming years. This is where our focus will lie.
The EU Payments Service Directive (PSD2) and Strong Customer Authentication (SCA) have forced businesses and banks to reconsider the payments services they offer across the continent. Many are looking to reach new customers using open banking and P2P payments, as many ecommerce businesses see them as a cheaper alternative to what is already being offered. As a result, we’ve seen a growth in the popularity of alternative payments.
Legislation brought in to limit card payment costs will result in international payment methods becoming more expensive. This will open up new markets and business opportunities for those using alternative payment methods.
Furthermore, transactions made on mobile will increase in value, while online payments services, such as WeChat Pay, are moving into face-to-face territory—meaning that we will experience an omnichannel orientated future in Europe. We will ensure that businesses and customers have the tools they need to offer and make payments that are fast, secure and relevant.