Russia boasts the biggest and fastest growing ecommerce market in Europe, but the international online payment companies shied away, terrified of the rampant corruption and credit card fraud - until now that is. It seems the appeal of fat profits have finally outweighed the fear of being conned, with PayPal announcing on September 17 the inclusion of the ruble among its settlement currencies. Its logo instantly appeared on a dozen of Russia's most popular online stores.
Russians are increasingly enthusiastic users of the internet. Since the end of last year, Russia's online population is bigger than that of Germany and the UK combined, making it the largest ecommerce market in Europe by far.
With credit card ownership growing exponentially, Russians have become comfortable with buying goods online. Indeed, this spring the number of parcels arriving from abroad - everyone is well aware that prices in the West are a lot less than in Russia - was so great that Russian Post's system collapsed under the weight of all the deliveries. At the same time, the number of online services and goods being offered by Russian companies is roughly doubling every year. Still, the lack of online banking has made paying for goods and services problematic.
PayPal has had its eye on the big local ecommerce players, 13 of which have already added the US online payment firm to their settlement alternatives and include: Ozon.ru, Lamoda.ru, Anywayanyday.com, Enter, Svyaznoi, tutu.ru among others.
PayPal has been operating in Russia since 2006, but only got its banking licence from the Central Bank of Russia in May. "It only took 90 days to receive the license, and we are happy with our relationship with the central bank and other state organizations," says Vladimir Malugin, PayPal's regional director for Russia.
PayPal is fairly late into the Russian market. Revenues from online retail is expected to grow from $12bn in 2012 to $36bn in 2015, reaching 4.5% of all retail sales, JP Morgan forecast in a report earlier this year, and the market is clearly in its "hockey stick" phase of growth. US companies will be playing catch-up with the more established players like Yandex, Money (17%), Qiwi (14%) and WebMoney (13%), as well as upstarts like Chronopay.ru and others that are also growing fast. In addition, many of Russia's leading banks like PromSvyazBank and Sberbank are rapidly moving online.
Currently PayPal has about 3m users in Russia, of whom 1m use it regularly. The company's biggest advantage is that it can offer settlement in international stores, something most Russian services can't (although Chronopay is the exception thanks to a tie-up with VISA). However, most of the e-commerce market remains "virgin territory" and so is up for grabs to any players who come along.
PayPal's other big advantage is that it has been owned by eBay since 2002, which is also growing fast on the Russian market.
However, the biggest challenge will be getting Russians to pay for anything. Piracy remains rampant and a recent report from VTsIOM found that while 61% of Russians are online and of those 63% download music, only 11% are prepared to pay for it.
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