Want to grow your payments business? Go East – Eurasian payments are heating up

Rapid growth in card issuance and usage, a fast-expanding POS network and growing economies. The Eurasian payments market holds exciting opportunities for all kinds of payments players – so why aren’t more international companies piling in? James Wood heads East in search of some answers. 

At a time when Western Europe is seeing the diversification of its payments markets, a full-throttle shift to digital and increasing regulation, you might think intermediaries and the major payment systems would be looking for growth in areas they’re familiar with – card numbers, turnover and infrastructure such as POS terminals and ATMs.

Our survey of Western and Central Europe’s payments business (see PCM, January-February 2021) showed a card sector in robust health despite the much-hyped advent of mobile wallets and account-to-account payments. Compared to the EU, however, data from Eurasian markets – defined as Ukraine, Russia, Belarus, Moldova, Armenia, Azerbajian, Georgia, Kazakhstan, the Kyrgyz Republic and Uzbekistan – show very strong growth, verging at times on the spectacular. 

Cards: double the EU’s growth rate

Data from our Eurasian yearbooks shows card numbers across Eurasian markets growing at more than twice the rate seen across Western and Central Europe, rising 8.2 percent over the past year compared with four percent in the EU and UK.

“Eurasian markets show strong growth, verging at times on the spectacular.”

This is part of a long-term trend, as the five-year growth rate shows: what’s more, while Eurasian numbers are from a lower base, the “cards-per-capita” figure demonstrates that it’s not all about catching up. Eurasia now boasts 1.5 cards per capita, compared with 1.68 across the EU.

The number of cards per capita grew by 7.5 percent across Eurasia last year. This suggests there’s still room for further rapid growth in these markets, which are also beginning to demonstrate signs of maturity.

“There are wide variations in the maturity of these markets, with Russia comparable to Western markets by some measures.”

Card payments are growing strongly across the region, with a five-year compound growth rate of 41.9 percent. Among Eurasian markets, Kazakhstan had the highest growth rate, at 128.2 percent. There are wide variations in the maturity of Eurasian markets, with Russia in particular showing signs of full maturity and the Kyrgyz Republic at a much earlier stage of development.

POS terminals: Max headroom

Further evidence of the potential for growth in these markets comes from the region’s POS estate, which grew by 16.7 percent in the year to January 2020. Despite this strong growth, the installed POS base across Eurasia is still less than half that seen in Western and Central Europe, at 15,042 terminals per million people versus 32,759 terminals per million people across the EU27 + the UK.

Given that POS terminals in Russia account for almost 70 percent of these terminals, the potential for further growth across the region is clear.

ATMs: the withdrawal begins?

It’s widely accepted that as cash use reduces, use of ATMs also declines. For some time now, Western Europe’s ATM estate has been slowly declining. While more capable “super ATMs” might yet reverse this trend by offering access to investment and loan products outside the branch, the recent trend in most of the EU has been a slow reduction in numbers.

As might be expected given the wide disparities between Eurasian markets in terms of maturity, the situation regarding ATMs in Eurasia is highly diverse. ATM usage is declining in Russia, the region’s most mature market, and is slowing in other more mature markets like Georgia and Ukraine.

Across the region, ATM withdrawals declined as a percentage of overall card transactions from 12.1 percent last year to 9.2 percent this year, though these figures were heavily weighted by a decline in ATM use in Russia.

Banking trends: contactless, wallets and more

Despite being pegged as “emerging markets”, Eurasian markets resemble their Western counterparts in many respects, with the move to online banking and app-based services well underway. Contactless transactions, digital wallets and real-time payments are all set for growth, and many Eurasian markets are moving towards open banking environments.

Even biometric factors such as Face ID and Fingerprint ID are making inroads: Kazakhstan’s Halyk Bank and others have begun to offer biometric ID as an alternative form of authentication. 

International giants are making their presence felt in the digital wallet arena, with Mastercard’s MasterPass wallet used by banks in Ukraine, Russia and other smaller states. Meanwhile, Visa Checkout is supported by Kazakh banks and others.

Huawei and UnionPay launched a digital wallet for Russian UnionPay cards more than two years ago. However, the main story across these markets is the rapid displacement of cash, and the continued growth of a broad-based electronic payments infrastructure. 

Domestic schemes dominate

One reason for the relatively low level of international engagement in Eurasian payment markets could be the popularity many domestic payment schemes enjoy. Often supported by both local governments and banks, schemes such as BelKart (Belarus), MIR (Russia), PROSTIR (Ukraine) and UzKart (Uzbekistan) are dominant in their markets, although similar schemes in Armenia and the Kyrgyz Republic have lost ground in recent years. 

The dominance of domestic schemes in some of these markets aside, there’s no doubt that Western enthusiasm for the Eurasian payments business has waned somewhat in recent years. The wave of foreign investment seen prior to the 2008-09 credit crunch has abated somewhat, with HSBC, Barclays, BNP Paribas, Santander, Svenska and Swedbank among those to leave the region or substantially scale back.

Many investors lost money in this process; since the credit crunch, a series of high-profile fraud cases and money laundering scams such as the Danske Bank scandal of 2017-2018 will also have discouraged investors.

Most recently, however, the Eurasia Group – set up in 2004 with the specific remit to combat money laundering in the region – has signed a memorandum of understanding with the EU and begun collaborating with FATF, the international body set up to fight financial crime. Despite these positive signs, it’s understandable why foreign investors might be somewhat wary – lucrative opportunities notwithstanding.

The Russian exception

While no stranger to the plagues of corruption and organised crime, it’s hard to exaggerate the relative importance of Russia to the entire Eurasian region. 

Russia has more than twice the number of cards in issue than the rest of the region combined, and almost twice as many payments in total.

Russian card payments accounted for almost 90 percent of all spending across the region, while at the same time being one of the most sophisticated markets in Eurasia with biometric ID, faster payments and contactless transactions all at a relatively advanced stage of development.

As Mark Stannard, Chief Business Officer at international mobile payments and ID platform Boku puts it, “Russia is primed for an Asian-style “Super App” that provides payments in addition to a number of products and services, similar to WeChat, Grab or GoJek. YooMoney (formerly Yandex Money) is the dominant provider. There is a significant opportunity for foreign investment”.

Mr. Stannard’s comment applies to Russia – and yet, given the rapid growth rates PCM’s research reveals this year, it’s to be hoped investors can find value in other Eurasian markets as well. Improving governance and more stable economic prospects should also be encouraging: perhaps only widespread talk of a coming post-COVID-19 recession will deter further growth.

To access further detail from PCM’s exclusive, proprietary research into Eurasia’s payments markets.

Please visit www.paymentyearbooks.com

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