Russia’s CBR shuts down major e-payment player Qiwi

Russia’s CBR shuts down major e-payment player Qiwi
Russia's central bank has closed down Russia's top fintech player and NASDAQ- listde bank Qiwi that will affect one in ten Russians who have accounts there. / bne IntelliNews
By bne IntelliNews February 22, 2024

The Central Bank of Russia (CBR) has revoked the banking licence of Qiwi Bank, operated by the e-payment system Qiwi, the regulator announced.

Qiwi, is one of Russia's most popular payment systems (operated under a banking licence), and was founded in 2007 by Sergei Solonin, Boris Kim and Andrei Romanenko. The latter left QIWI in 2017.

The regulator closed the bank, claiming it carried out settlements between individuals and shadow businesses and generally worked on a high-risk model, “including transfers of funds in favour of crypto exchangers, illegal online casinos, and bookmakers.”

The shuttering of Qiwi is the first bank that the CBR has closed in over a year and half. Following her appointment in 2013, CBR governor Elvia Nabiullina closed hundreds of banks, about three a week, as part of her comprehensive clean up of the sector that nearly caused a banking crisis in 2018 when she shuttered several of the so-called Garden Ring banks, amongst the largest privately-owned banks in Russia.

The bank was set up in 2007 and that same year, Qiwi launched its most popular service, e-wallets. In 2010, the group acquired its bank (later branded Qiwi), and in 2013 it held an IPO on Nasdaq. By 2010, the number of electronic wallets registered in the Qiwi system reached 40mn, and the market share of electronic payments was 45%.

The speed and ease of enrolment, and most importantly, anonymity, have made Qiwi the most popular payment system for participants in semi-legal and illegal markets.

The CBR said the bank opened virtual wallets for individuals without their knowledge and carried out transactions using them, the CBR claimed. It said that the bank made transactions “that have signs of committing criminal offences” in comments to law enforcement agencies.

The group’s first serious problems began at the end of 2020 and were related to servicing “grey” bookmakers and online casinos. Then the Central Bank prohibited Qiwi Bank from making payments to foreign trading companies and transferring money to prepaid cards of corporate clients for six months.

In July 2023, Qiwi Bank limited the withdrawal of funds by individuals from wallets to bank accounts and cash withdrawals due to the instructions of the Central Bank, due to “procedural problems,” the CBR said at the time, The Bell reports. Shortly before this, the QIWI group announced plans to divide its business into Russian and international parts.

As previously reported by bne IntelliNews, Qiwi sold its Russian assets to Hong Kong Fusion Factor Fintech Limited, which belongs to the CEO of the group Andrey Protopopov. The transaction price for the restructuring of the company was RUB23.75bn. Protopopov has stepped down from the board of directors and as a CEO of Qiwi, but will continue to lead the business in Russia.

And the group’s international business in Kazakhstan, the UAE and other countries will continue to develop within the framework of the US-listed Qiwi PLC.

In terms of assets, Qiwi Bank ranked 89th largest bank in Russia, with about 15mn virtual wallets. The CBR noted that Qiwi has violated federal laws, as well as regulations of the CBR itself. "The bank systematically violated legal requirements in the field of anti-money laundering and countering the financing of terrorism," CBR wrote.

With only RUB8bn in assets, as the bank was not affected by the SWIFT sanctions that were imposed only days after Russia’s invasion of Ukraine in February, as it could transfer money abroad using cryptocurrency, it saw a whopping RUB1.5 trillion ($16.2bn) of transactions pass through its accounts in between January and September last year.

The Central Bank deliberately delayed revoking the licence, say analysts interviewed by Forbes, trying to reduce the number of payment transactions with regulations and restrictions. The revocation of the licence affected a disproportionately large number of people - the bank has 14mn active Qiwi wallets, or about 10% of the population.

Qiwi’s activities “were characterised by involvement in high-risk operations aimed at providing settlements between individuals and shadow businesses, including money transfers in favour of crypto exchanges, illegal online casinos, bookmakers, etc., as well as searching for new ways to circumvent restrictions imposed by the regulator," the CBR claims.

Analysts surveyed by RBC believe that CBR shutting down Qiwi Bank ahead of the planned asset split could be related to the regulator's fight against illegal online casinos, bookmakers, forex dealers and other grey market players (as they could hide behind transfers to online shops).

Legal experts told Kommersant daily that while in theory Qiwi could try to challenge the CBR’s decision in court, the courts are very likely to side with the regulator.

Notably, the funds in electronic wallets are not insured under the deposit insurance system, the CBR commented, adding that Qiwi has enough funds to repay the holders of electronic wallets in full.

The state Deposit Insurance Agency reported that its insurance liability to Qiwi Bank depositors is estimated at RUB4.6bn ($49.7mn), with payments starting no later than 6 March 2024, according to Tass.

In 2020 and 2021, the capitalisation of the company dropped as the CBR limited the foreign operations of Qiwi Bank as part of the regulator's crackdown on online gambling. The state's decision to form a single betting operator also undercut Qiwi's main revenue from online betting.

But in 2022 following the sanctions on the Russian financial system for the military invasion of Ukraine, Qiwi emerged as a specialist in payments and money transfers, including cross-border.

Despite the record-high 2022 revenues Qiwi’s board recommended not paying dividends, citing the impossibility of currently arranging a payout or share buyback with an equal opportunity for all shareholders.

Qiwi is registered in Cyprus and cannot settle securities through the sanctioned National Securities Depository. NASDAQ Stock Exchange said it would delist Qiwi along with Russian internet major Yandex, classifieds portal Cian, top three e-commerce major Ozon Holdings, and online recruitment platform HeadHunter (HHR).

Qiwi boosted its net IFRS revenue in 2022 by 48% year on year to a record-high RUB34bn ($0.4bn), while adjusted net profit was still down 22% y/y at RUB14bn. Corporate services segment was the main driver behind the top line expansion.