Over the weekend I was shopping at my local Auchan hypermarket and noticed the sign at left (rough translation: “YES! We’ve started taking Visa!”).
Auchan has been a notable holdout from accepting plastic in their stores. Russian grocery retailers such as X5, Alie Parusa and Bakhetle have long accepted bank cards and, as a shopper, I’ve observed this to be an increasingly popular payment method. While I don’t know the exact impetus for Auchan to start accepting Visa, consumer demand is likely to have played a large part.
According to a study by MasterCard, 74% of Russians possessed bank cards as of 2011, with the figure growing at double digits annually. While most of the bank card transactions in Russia represent withdrawals of cash from ATMs, the same study found that 40% of Russians had used their bank card for a retail purchase (vs. 27% in the prior year).
Turning to the online retail sector, one of the principal frictions in Russian e-commerce is the persistence of multiple payment methods. Depending on the sector, up to 80% of online sales are made on a cash-on-delivery (“COD”) basis. This is the case, for instance, with Ozon.ru, the “Amazon” of Russia.
This not only creates inefficiencies in the online checkout and delivery processes, but also creates complications in the critically important area of online analytics, e.g. the ability of online sellers to attribute sales to specific online marketing initiatives.
In the fashion / soft goods sector, COD represents a form of in-home shopping and introduces some offsetting benefits in the ability of a company’s representative to meet customers face to face. Returns are also notably lower. Moreover, since most companies charge a delivery fee, cash payments mean companies can bypass paying credit card transaction fees. In all, COD seems destined to persist in this sector, but in other areas bank cards are increasingly becoming the norm.
Russian Railways, one of the country’s biggest online sellers, introduced e-commerce in 2010 and only accepts bank cards for online bookings. In a study made by our media partner East-West Digital News, in the overall travel sector bank card payments range from 50-90% of online sales, depending on the individual retailer.
In our own e-commerce projects, there’s been a notable movement towards bank card payments. In a recent month, about 70% of our sales were via bank cards compared to about 24% year ago. Part of this dramatic shift can be attributed to increasing consumer awareness of our brands. Mistrust of new online sellers prompts many Russian buyers to default to COD, as there is little confidence that their issuing bank will protect them in the case of loss due to online fraud.
However, in general, questionable online security and mistrust of financial institutions as influencing factors are becoming less of a concern to Russian consumers, particularly younger ones, as the overall financial system has been stable since 1988 and, importantly, there were no major disruptions in consumer financial systems during the 2008 global financial crisis. Other initiatives, such as a portal dedicated to educating consumers about online payments jointly developed by MasterCard and Yandex are playing a role in improving consumer awareness and confidence.
In summary, there are multiple factors leading to the increasing popularity of bank card payments for online purchases. While it’s feasible to establish an e-business in Russia restricted to payment by bank cards, new businesses will definitely suffer.
Russia is steadily marching towards a day when online payments will become the norm, but I’m not yet ready to declare that the tipping point is at hand.