The

Russian regime for E-money

Newly adopted Na,onal Payment System Law in respect of electronic money regula,on

Jane Zavalishina, CEO Yandex.Money

Russian payment landscape

Cash-based economy

SberBank, early 90s

Retail cash transac,ons: regulatory perspec,ve

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 regula,on, only Civil Code and banking seMlement terms

Postal Law money transfer (postal remiMances) via post oces without opening an account Federal Law #5215-I from June 18, 1993 cash acceptance for rms using cer,ed cash registers with built-in control unit

Basically, a company can accept payments in its oce if using scal cash registers, and receive funds sent by customers via bank or post transfer.

Banks issued a lot of cards

Cards issued (millions)
140

120

100

80

60

40

20

0 2001 2002 2003 2004 Debit Cards 2005 2006 2007 Prepaid Cards 2008 2009

Credit Cards

And developed acquiring infrastructure

Card acquiring terminals installed
(thousands of units)
600

500

400

300

200

100

0 2001 2002 2003 2004 2005 POS terminals 2006 ATMs 2007 2008 2009

But we s,ll arent there

The three big BUTs: 1. On average, each ci,zen has a couple of bank accounts.

But what kind of accounts?

2. Almost everyone has a plas,c card.

But how do they use them?

3. Impressive growth rate.

But is it enough?

 Keep your savings in the bank

More than 70% of individual bank accounts were savings accounts.

Payment system of Russian FederaCon, 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 nearly 10% of plasCc card transacCons volume were payments, the other 90% being cash-outs.
Payment system of Russian FederaCon, Bank of Russia

Workers queuing to withdraw money from ATM on payday

 S,ll not enough

Card acquiring terminals installed (units per million inhabitants)
22490 21469 21178 19179 18855 18226 17838

17020

11669

7221

2497

Source: The Central Bank of the Russian FederaCon, www.cbr.ru

Re-inven,ng cash payments

The Terminals story (cash-in kiosks)

 Late 90s: scratch-cards

Retail stores sell piles of top-up cards

Early 2000s: Internet helps

Internet-based service for real-time payments in convenience stores

Why employ a cashier?

1. Choose merchant 2. Input client info

3. Insert cash

2005-2008: Terminals Boom

Payments Operator

Merchants:
mostly telecoms

Agents:
Thousands of small businesses

Kiosks now are vital for MNOs

(and vise versa)

Kiosks payments
For MNOs Other

MNOs Income Collec[on

Through kiosks Other

11%

17%

89%

83%

83% of kiosks payments = 89% of MNOs income

Source: Json & Partners ConsulCng , 2010

In 5+ years, most of ATMs oer mobile top-up

But people s,ll prefer

at least twice a month, withdraw cash from and put it into .

No, Im not making it up:

Collec,ng payments: regulatory arbitrage

Regulated by Civil Code: No special requirements for ofce/equipment/procedures Authoriza,on to pay on customers behalf No customer identication needed

Agent company Bank Regulated by Banking Law: Certied ofce & equipment AML Law compliance Full customer identication for every payment Authoriza,on to collect payments on Merchants behalf (Agent Services Agreement)

Terminals: regulatory nightmare

Legal perspec,ve:
Civil Codes agent regula,ons, Banking Law is avoided Even cer,ed cash registers requirement doesnt apply anymore Banks have huge disadvantage in cash payments

By 2009, there are ~200 000 kiosks, that:

have huge amounts of cash inside carry out payments for billions of Rubles are used by millions of people every day are the major payments collec[on channel for biggest telecoms are not regulated whatsoever

Closing the regulatory gap

Payment Agents Law, from January 1, 2010:

Allows non-banks to accept cash payments Requires AML compliance (supervised by Rosnmonitoring) Requires to use cer,ed equipment (scal memory) for cash acceptance

Banking Law changes: allows banks to use agents to accept cash payments AML Law changes: no iden,ca,on for payments under 15 000 Rubles (approx. 350 Euros)

Non-cash, but non-banking

Story of E-money in Russia

Late-90s: need for e-payments in the cash country

Problem: You cant take cash from your customer via internet!

Solu[on: prepaid e-wallets

Very easy to use 24/7 Fast, cheap and reliable

How it works

E-money isnt just for online needs

Q: Using e-money, what did you pay for (in last year)
Mobile top-up Internet usage (ISP) Online shops Peer-to-peer payments E-,ckets U,lity bills Social networks Online games Digital content (music, video, ebooks) Fines and taxes 6% 28% 25% 24% 19% 18% 16% 53% 48% 44%

* TNS survey February 2011, Moscow popula,on, aged 18-45

Popularity of E-money in Russia

E-Money is almost as popular as bank cards:
Terminals 14% 55% 79% 7% 29% Used in last 6 month 16% 24% Aware of, but didnt use 63% 13% 19% Not aware 54% 27% Card payments E-money SMS-payment

* TNS survey February 2011, Moscow popula,on, aged 18-45

Market shares: virtual goods

electronic loMery ,ckets sales

Gosloto

Kiosks 21% Bank cards 32%

Mobile payments 2% Yandex.Money 37% WebMoney 8%

Source: Gosloto, 2010

Market shares: small e-shops

Small e-shops payments
Other 1% Money transfer 2% Mobile payments 2% Kiosks 6%

Yandex.Money 44%

Bank cards 16%

WebMoney 29%

Source: RoboKassa, 2010

by default

other methods

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Yandex.Money Daily Payments

And coun,ng

E-money: regulatory view

E-wallets
store customers money used for payments, not savings mostly for low- value transac,ons focused on remote payments (internet, mobile)
Payment Agents Law doesnt apply

Banking Law would over-regulate the market

AML Law changes are needed

Na,onal Payment System Law

Discussions started in Feb 2010 Law is adopted Jun 2011 In force from Sept 2011 Transi,onal grace period for already exis,ng e-money issuers ,ll Oct 2012

NPS on E-money: key deni,ons

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 par,es issued on receipt of funds (prepaid)

E-money payments:

special type of wire transfers made by electronic means of payment (e-wallet, prepaid card etc)

Can be operated by

banks; non-bank credit organiza,ons.

No waivers!

NPS on E-money: Bank Lite

New form of non-bank credit organiza,on (NCO):
Authoriza,on and pruden,al oversight by Central Bank Ini,al capital ~430 000 EUR (18MM RUR) Limits on ac,vi,es: just payments, no credit, no interest on funds received Not included in na,onal deposit insurance scheme Ongoing own funds > 2% of outstanding e-money 100% of outstanding e-money in liquid assets

Physical Person (anonymous) Open e-wallet No. of e-wallets per person No limits

Physical Person (identified) No limits

Legal entity Only entities registered with Russian Tax Authorities No limits bank payment from own account

No limits bank payment from any personal account; money transfer; card payment; cash (+through agents) Only physical persons Anybody To any personal bank account

No limits bank payment from own account; money transfer; card payment; cash (+through agents) Anybody Anybody To any personal bank account; by money transfer; by cash (+through agents) 100,000 RUR (~2400 EUR) No limits

Top-up

Receive e-money from Pay e-money to

Only physical persons Only identified physical persons To own bank account

Withdrawals

E-wallet balance limit E-wallet turnover limit

15,000 RUR (~360 EUR) 40,000 RUR (~960 EUR) monthly

100,000 RUR at the end of the day No limits

Jane Zavalishina, CEO Yandex.Money

jane@yamoney.ru +7 (495) 739 23 25