After a week of rumors, PayPal confirmed last Friday that the Central Bank of Russia has approved its application to register as a full-fledged payment operator in Russia.
Although PayPal considers Russia to offer “one of the biggest growth opportunities” for its development, it has taken no less than three years for the international payment giant to achieve only the first stage of what it calls its “journey” to Russia.
Not only has PayPal held discussions with a diverse group of Russian players, including mobile operators and the Russian Post, it has also had to apply for “Non-Credit Banking Institution” (NCBI) status to comply with Russia’s new law on payments, which was enacted in 2011.
In an announcement which briefly appeared last week on one of the corporate blogs of eBay, PayPal’s parent company, before being removed, Russia’s bureaucratic procedures were described rather openly. “The journey … involved [PayPal’s] Government Relations arranging for and directly meeting with several departments in the CBR [Central Bank of Russia] over many months, and educating and training CBR officials on how PayPal and electronic payments systems operate successfully around the world.”
Surely the Central Bank’s greenlight last week has been a major step, but as PayPal stated in its final announcement, it is just “the beginning of the journey.”
From international transactions to domestic e-commerce
Although Russian Internet users may open PayPal accounts and use them for international payments and transfers, there have been a number of restrictions with using the virtual currency locally, chief among them the fact that the PayPal currency was not accepted on Russian sites while PayPal lacked its license.
In late 2011, Russian PayPal users were allowed to receive money in their virtual wallets, opening the way to their participation on eBay. However, Russian users still could not withdraw funds from their PayPal account to a Russian bank account.
As it becomes fully operational for Russian users, PayPal will benefit from the invaluable advantage of allowing payments on virtually any site on the planet – which seems out of reach for Russian electronic currencies.
Yet, this does not necessarily mean that the Western payment operator can assert its domination on the Russian market easily.
“Unlike its Russian competitors, PayPal has so far allowed account replenishment only from bank cards. With Russians still very reluctant to use bank cards online, that option may not be enough,” said Viktor Dostov of the Russian Electronic Money Association in an exchange with East-West Digital News.
In addition, PayPal’s commission fees might be too high for the Russian market. “PayPal is undeniably convenient for customers, but Russian merchants could be repelled by its commission fees,” Alexander Kulebyakin of PayU, an international payment service company, told EWDN.
PayPal will also have to compete with well established local electronic currency operators.
Among them is Yandex.Money – in Russian: Yandex.Dengi – a joint venture of Yandex, the NASDAQ-listed Russian search giant, and Sberbank, the national savings bank. The company claims to have more than 13 million accounts, with approximately 9,000 new accounts being opened every day.
Another particularly strong player is Qiwi, an offline and online payment operator that is developing internationally. The company has formed a strategic alliance with Visa and intends to go public on the NASDAQ before summer.
At the time of publication, PayPal had not responded to East-West Digital News’ request for an interview.
- RUSSIAN E-COMMERCE AND E-PAYMENTS – EWDN has published an in-depth research on Russian e-commerce, including a detailed analysis of Russian payment systems and their implications for e-retailers. To receive free insights or to order the full version, please contact us at [email protected].
