E-Money in Russia Legislation and practice Jane Zavalishina, CEO Yandex.Money
Regulation of payments in Russia The beginning. Early 90s 1990 year - Banking Law - money transfer via bank accounts - remittance without bank accounts (added in 1998) 1992 year Statute about cheques 1994 year - Civil Code - deposit accounts - settlement accounts 1995 year - Postal Law - money transfer (postal remittance) via post office without opening an account
Retail cash transactions: regulatory perspective Banking Law money transfer via bank accounts Money transfer/payment without opening an account added in 1998 Checks are possible, although never used. No separate regulation, only Civil Code and banking settlement terms Postal Law money transfer (postal remittance) via post office without opening an account Federal Law #5215-I of June 18, 1993 cash acceptance for firms using certified cash registers with built-in control unit
The regulation of payments in Russia The beginning. Early 90s Basically, a company can accept payments in its office if using fiscal cash registers, and receive funds sent by customers via bank or post transfer.
Scratch-cards Late 90s Retail stores sell piles of top-up cards
Internet helps Early 00s Internet-based service for real-time payments in convenience stores
Payment agents Why employ a cashier? 1. Choose merchant 2. Enter payment info 3. Insert cash
Kiosks are now vital for MNOs (and the other way around) Kiosk payments MNOs Income Collection For MNOs Other Through kiosks Other 11% 17% 89% 83% 83% of kiosk payments = 89% of MNO s income Source: J son & Partners Consulting, 2010
Banks issued a lot of cards Cards issued (millions) 180 160 140 120 100 80 60 40 20 0 2003 2004 2005 2006 2007 2008 2009 2010 2011 Debit Cards Credit Cards
Banks are for savings, not for payments More than 70% of individual bank accounts were savings accounts. «Payment system of Russian Federation», Bank of Russia Soviet-times poster recommends putting savings in a bank instead of keeping them in a lockbox.
The unconsciously banked clients For many years payments were nearly 10% of plastic card transactions by value, the other 90% were withdrawals. Payment system of Russian Federation, Bank of Russia, 2008 Withdrawals 85,40% «Payment system statistics», Bank of Russia, Jul 2012 Payments 14,60% Workers queuing to withdraw money from ATM on payday
Cards & Internet: Transaction declined Key reasons: Cheapest, simplest payroll cards cannot be used for internet payments Issuers tend to block transactions because of high fraud rates Russia-issued cards are often declined by foreign merchants Worst of all the user has no idea what is happening
E-money the way it works
Modern Payment Methods Awareness and Usage by Russian Federation residents aged 18 to 45 living in cities with population 800,000+ Awareness 85% 88% 78% 93% 79% Usage (1+ payments within 6 months) 35% 27% 17% 78% 22% Bank Cards E-Money Online Banking Cash-in machines SMS payments TNS, Electronic Payment Systems in Russia survey, Feb-Mar 2012
by default other methods
by default
Awareness of E-money services Calculated in millions of people and in percentage terms for Russian Federation residents aged 18 to 45 living in cities with population 800,000+ Yandex.Money 11,0 MM 78% WebMoney 9,2 MM 65% Money@Mail.ru 6,5 MM 46% QIWI Wallet 4,9 MM 35% PayPal 3,7 MM 27% TNS, Electronic Payment Systems in Russia survey, Feb-Mar 2012
Use of E-money services: 1+ payment every 6 months Calculated in millions of people and in percentage termsfor Russian Federation residents aged 18 to 45 living in cities with population 800,000+ Yandex.Money 2,1 MM 15% Qiwi Wallet 1,5 MM 10% WebMoney 1,4 MM 10% PayPal 0,8 MM 6% Money@Mail.ru 0,3 MM 2% TNS, Electronic Payment Systems in Russia survey, Feb-Mar 2012
Market shares: virtual goods
Market shares: software
Market shares: small e-shops
E-money isn t just for online needs Q: What did you pay for using e-money in the past 12 months? Mobile top-up Internet usage (ISP) Online shops 44% 48% 53% Peer-to-peer payments E-tickets Utility bills Social networks Online games Digital content (music, video, ebooks) 28% 25% 24% 19% 18% 16% Fines and taxes 6% * TNS survey February 2011, Moscow population, aged 18-45
What users pay for: key segments Withdrawal 22% P2P 22% Yandex services 14% Other 10% Goods 2% Social networks 1% MNOs 7% Bill payment 2% Tickets 1% Software 1% Other e-money 2% Online ads 4% Internet services 5% Games 7% * Yandex.Money statistics, 2012
Alternative payment system? Late 00s Regulated by Civil Code: Authorization to pay on customer s behalf No special requirements for office/equipment/procedures No customer identification needed Regulated by Banking Law: Certified office & equipment Authorization to collect payments on Merchant s behalf (Agent Services Agreement) AML Law compliance Full customer identification for every payment
New regulation of the payment system Legislation 2010 Payment agents law - Allows non-banks to accept cash payments - Requires AML compliance - Requires to use certified equipment (fiscal memory) for cash acceptance 2010 Banking Law changes: allows banks to use agents to accept cash payments 2010 AML Law changes: no identification for payments under 15 000 Rubles (approx. 370 Euros) 2011 National payment system law (the first special law regulating e-money)
E-money 2012 Key definitions Electronic money: one of electronic (non-cash) forms of money, just like money on a bank account requires no bank account accepted as means of payment by third parties issued on receipt of funds (prepaid) E-money payments: special type of wire transfers made by electronic payment instrument (e-wallet, prepaid card etc) Can be operated by: banks; non-bank credit organizations.
E-money 2012 New form of non-banking credit organization (NCO) Authorization and prudential oversight by Central Bank Initial capital of 18 000 000 rubles (approx. 440 000 Euros) Limits on activities: just payments, no credit, no interest on funds received Not included in national deposit insurance scheme Ongoing own funds > 2% of outstanding e-money 100% of outstanding e-money in liquid assets
Physical Person (anonymous) Physical Person (identified) Legal entity Open e-wallet No. of e-wallets per person No limits No limits Only entities registered with Russian Tax Authorities No limits No limits No limits Top-up bank payment from any personal account; money transfer; card payment; cash (+through agents) bank payment from own account; money transfer; card payment; cash (+through agents) bank payment from own account Receive e-money from Only physical persons Anybody Only physical persons Pay e-money to Anybody Anybody Only identified physical persons Withdrawals To any personal bank account To any personal bank account; by money transfer; by cash (+through agents) To own bank account E-wallet balance limit 15,000 RUR (~360 EUR) 100,000 RUR (~2400 EUR) 100,000 RUR at the end of the day E-wallet turnover limit 40,000 RUR (~960 EUR) monthly No limits No limits
E-money in Russia vs. EU Definition of e-money Russia The same E-money institutions credit organization only credit or financial organization Redeemability Initial capital 450 000 Euro 350 000 Euro Own funds Deposits or other repayable funds Limits of customer balance Limits of the total amount transacted EU Min 2% to the sum of the customer requirements Not allowed Loans Not allowed Allowed with limitations 370 Euro for nonidentified 2 500 Euro for identified per months 1000 Euro for nonidentified No limits for identified Any time on customer s request no per year 250 Euro (not possible to recharge) 2 500 Euro (possible to recharge)
AML Regulations: E-Money No specific provisions for e-money in AML legislation No Central Bank recommendations on suspicious activity detection and reporting for e-money operators have been issued yet No known AML best practices in e-money so far Implementation of AML measures in e-money is up to the e-money operator s judgment at the moment
Key AML Procedure: Customer Due Diligence The only way to perform valid KYC is to perform a face-to-face identification: Meet your customer in person Collect the necessary personal data Full name Date and place of birth Nationality Permanent address of residence Personal ID details (number, date and place of issuance, issuing body and department) Check the original documents (in some cases, a notarized copy is acceptable) to confirm the data and make copies for bank s records
Customer Due Diligence for E-Money Third party customer identification is allowed, but can be performed by credit institutions only. Russia s vast territory is covered by financial infrastructure very unevenly Customer-not-present identification doesn t exist => Paypal-like type of CIP is impossible Not a risk-based approach, no simplified customer due diligence for the cases of low risk
AML Regulations: Positive trends Risk-oriented approach is expected to be used more widely: Simplified customer due diligence for low-risk cases (and an enhanced procedure for higher risk cases) Customer identification performed by bank agents
Our Experience: Customer Identification for Online Service Through banks: (~17%): + personal data is already collected by bank, user doesn t need to come to the office for identification - requires direct agreement with each bank Through a notarized written form (~45%): + can be used anywhere (even outside the country), completed form is simply sent to YM by mail - notarizing is obligatory, which takes time and costs ~$20-30) Through money withdrawals (~15%): + doesn t require any additional actions from user, seamlessly built into the withdrawal process - most of users never withdraw money from their e-wallet Through cash top-up in money remittance offices (~23%): + country-wide network of money remittance offices, built into the top-up process - requires user to make a visit; not suitable for users who fund transactions by card
Our Experience: Pilot Project with Equifax..?..?..?
Our Experience: Mitigating Risks Most customers are not fully identified Encourage customer identification (additional features and higher transaction limits for identified customer) Use weak identification by mobile phone number (mobile operators are required to identify their customer, so mobile phone is kind of weak ID ) Promote non-cash top-up (card, bank account etc) E-Money works in real-time Sophisticated real-time transactions monitoring for suspicious activity Products and offers with more risk may entail some delay in execution Account with suspicious activity can be suspended until explanations are given Key risk-lowering factor is the size of transactions Lower limits for customers without identification Transaction limits for all products are set in accordance with the antifraud and AML considerations
Jane Zavalishina, CEO Yandex.Money jane@yamoney.ru +7 (495) 739 23 25