Souren Hayriyan of Unistream -

Russia has become a core market in Eastern Europe, driving the development of the region and the economies of many of its neighbours. Remittances from workers in Russia now make up a major share of the neighbouring countries' income; in the case of Tajikistan, half of its GDP is from money sent home by migrant workers. But remittances are not the only source of cash flowing around the region: electronic payments are one of the fastest growing sectors of the Russian economy and the economic lifeblood of the region.

One of the most important factors driving this growth is incredible progress made in IT systems over the last year, which made it possible for the market players to quickly and efficiently complete integration projects, introduce and increasing number of new types of services. This inevitably leads to an increase in the customer portfolio and growth in volume of the market.

Services have become far more reliable and secure than they used to be some years ago. But at the same time the main players have actively been introducing new products, trying to widen their product range and attract more clients. Unistream's experts estimate that the number of people who use electronic payments on a regular basis was up by 25-30% over the last year alone.

Another important driver has been the rapid growth of internet penetration in Russia and the Commonwealth of Independent States (CIS): up to 45% of Unistream's clients use the Internet on daily basis and the company has introduced a range of web-based products like e-wallets, card-to-card, card-to cash transactions via internet etc.

The rapid growth of the business has also attracted the interest of the local banks, which are boosting their online and e-payment services in addition to their traditional banking products. These include paying utility bills, Internet, and mobile bills, money transfers, repaying loans, bank account depositing etc. online.

Business and the functions of the state in general are moving online in Russia and the CIS. For example, at the beginning of 2013, Unistream completed a joint project with Russia's National Credit History Agency and clients can now order and obtain their credit histories via Unistream. This was just one of thousands of projects designed to increase transparency and improve customer services that have been implemented in the Russian market.

There has been progress on the legislative front too. In 2012, the National Payment System Law was finally introduced. The law provides a legal basis to the business, identified the supervising government body (the Central Bank of Russia) and defined the rules of the game. The law was a big improvement and will improve the transparency and efficiency of e-payments.

Convergence

The steady growth of the money transfer market is bringing it closer to the related business of electronic payment. Most remittances service providers have already introduced electronic payment options or launched electronic wallets. The line between the two business lines is becoming blurry.

The e-payment market volume in Russia already reached $58bn to $64bn in 2012, and is growing by about 26% a year (not including remittances), according to Unistream. The three to five largest players still control some 75% of the e-payments market. However, given the rapid growth of the regional e-payments market, conditions favour smaller local players, so this could change in the future.

The largest part of this amount - nearly 60% of the total - was processed by terminals, where turnover was up 12% in the last year, growing fastest in the regions. In some regions of Russia, such as the Far East and Northern Administrative District, the amounts of transactions via terminals have increased by up to 20%. The number of terminals has been mushrooming in small towns and settlements where setting up a fully functioning bank branch is not economically feasible. Some 250,000 non-e-banking terminals were in use in Russia in 2012 and this has risen to 290,000 over the last six months alone.

The average amount sent through these terminals has also been growing, up by more than 10% in the last year to reach RUB6,700 ($216) per person. Payment of communal bills remains the most popular product at terminals, but the biggest volume of payments in total is financial instruments, which make up 55% of the total. The second largest group is payment of mobile bills (15%), then online games, lotteries and social networks (13%), with internet shopping (5%) bring up the rear. The smallest part the payment of government and public bills, which accounts for 1.5% of the total.

Retailers are also getting into the game, hosting terminals and already account for 35% of the total volume of transactions. Mobile phone retailers, for example, have very well-developed branch networks that already cover the whole of Russia's territory as do supermarkets and even pharmacies - all of which have seen the volume of transactions double over the last year.

In the midst of all this frenetic activity, competition has been growing, which is driving down fees: the red line for transfers in the CIS is 1.5-2.0%, and 1.0-1.5% for transactions within Russia. The growth in average amount of transaction took place throughout the year. In 2012, it grew up from about RUB21,000 ($656) to RUB28,000 ($875) in the classic money transfer channel.

As the appeal of the Russian e-payment market is starting to become obvious to all the first international players have also decided to enter. The US' PayPal has already started working in Russia and more companies will follow.

Going forward, e-payment volumes are likely to continue to grow by between 25% and 30%. Growth will be driven by higher demand in the regions, as well as introduction of new products. There will be increase in payments through electronic wallets. In 2013, this amount may reach RUB200bn, compared to about RUB160bn in 2012.

Souren Hayriyan is Chief Executive Officer and President of the "UNISTREAM" BANK and money transfer system UNISTREAM, one of the leading service providers in the CIS. He personally made a significant contribution to the establishment of a civilized, transparent and efficient money transfer segment in the region.