Press
07 May 2007
International Payment Systems Lose Positions on CIS Money Transfer Market: Expert
By various estimates, 10-15 million foreign citizens (mainly from the CIS countries) work on the territory of Russia. The lion’s share of their salaries is sent to their families to their country of residence. Earlier, the money was physically imported from Russia, but today former socialist countries benefit from more civilized means of remittance, such as money transfers.
Transfers to emerging countries have experienced a sustainable growth for the latest 30 years and today amount to over U.S.$289 billion annually. For many emerging markets money transfers are the only large source of foreign currency and exceed export proceeds, foreign direct investment and other private capital flows. The growth rates of the Russian money transfer market outpace the world’s average indicators. For instance, according to the Central Bank of the Russian Federation, the past year saw the increase in the volume of transfers from Russia from U.S.3.5 to U.S.$6 billion. In accordance with the unofficial data of the market players, these figures should be at least three times higher.
Today, the main areas of competition on the domestic money transfer market consist in increasing the range of services and cutting fees. As for the services, corporate payments may be distinguished among the most promising areas of development of the money transfer systems on the market. The use of new technologies allows to pay for mobile communication, Internet, satellite TV, repay loans and make utility payments. The cooperation between the money transfer systems and various Internet systems has also become possible. It allows to make purchases and payments through the so-called “electronic purses”. The card-to-card money transfers are also being actively developed in Russia. They allow to receive and send the money at any place, where an ATM is available. Banks are not required to enter into agreements between each other in order to participate in the transfer system – it is enough to become members of the same payment system offering the card-to-card service. To perform such transaction, the transferor should only know the transferee’s card number. The competitive market situation makes even the most experienced market players cut down the premiums partially. The money transfer market has historically been divided between two major international payment systems – Western Union and MoneyGram. A large international network enabled them to conquer a significant part of the Russian market. quickly. However, they did not take into account the fact that the CIS users are often ready to prefer lower fees to convenience.
Being aware that competition with international brands is only possible at the fee level, Russian money transfer systems took advantage of it. It made Western Union bring down ruble transfer fees on the Russian market as well as ruble transfers to Belarus and Tajikistan. Overall, the fees of the systems became cheaper by 20-50%. So far, Western Union expects the discount to increase the profitability of the system in Russia by 10-12%. Meanwhile, after yet another decrease, the fees of Western Union remain quite high. For example, RUR 350 is charged for the transfer from RUR 5,000 to RUR 10,000, i.e. 7%-14% of the transferred amount. At the same time, Russian systems charge approximately 2% for such transfer.
BLIZKO, Blitz, Contact, Leader, Unistream may be called the leaders on the Russian transfer market. The systems approached the domestic market via the CIS countries by focusing on servicing the working migrants. The latter were not generally confused by the fact that low fees often resulted in significant inconveniences for the transferor. This policy allowed Russian market players to expand the turnover to 70% and use the proceeds to develop the retail network as well as to invest the money into designing principally new services. For example, the Leader system (owned by Incredbank) , together with InterProgressBank and Electron-Service, Ltd, and GIBDD (Traffic Police) decided to set up a new system of On-line GIBDD Payments. It will allow to pay fines, registration fees, driver’s licence fees and technical inspection duties through payment terminals. Another event deserving attention became the creation by Russian transferors of the International Union of Money Transfer Systems. The idea is to attract as many banks as possible, which will enable all members to expand their geographical presence without opening new outlets. The Union was founded by Incredbank (Russia), owner of the Leader system, and Finance and Credit Bank (Ukraine), owner of the Avers system, expect that many payment systems of the banks from the CIS and foreign countries will join the Union this year.
It should be noted that the plans of the transfer systems are quite plausible as the income share of the bank becoming a member of the union is up to 45% of the fee, while, in accordance with the market players, the agency fee of the large systems is 17-25% in average. Russian banks will certainly not refuse to work with Western union and MoneyGram as the majority of banks offering money transfer services work with several systems simultaneously. But if the services of several systems are offered at a particular bank office, the majority clients will choose the cheapest. According to the experts, today, investments into the acquisition and development of money transfer systems is one of the most profitable activities bringing return of about 50%. The domestic money transfer systems have strengthened their positions in the market niche and continue to explore this market, but their foreign competitors, such as Western Union and MoneyGram, will have to either continue decreasing fees and adjust to the market environment, where the number of working migrants is constantly going up, or forget about windfall profits on the Russian market for good.
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International Payment Systems Lose Positions on CIS Money Transfer Market: Expert // Russian News – IA REGNUM (Moscow) – 07.05.2007
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