Russian online giant Yandex mulls financial ecosystem investments

Russian online giant Yandex mulls financial ecosystem investments
Now Russia's Yandex has divorced Sberbank it is planning to use Yandex.Market to build up its financial services ecosystem
By Vladimir Kozlov in Moscow September 22, 2020

The Russian online giant Yandex is considering venturing onto the financial services terrain, while also restructuring its marketplace business in the wake of a divorce with the state-run lender Sberbank.

Last month, Yandex applied for trademarks in the banking, insurance and investment business in a move that many believe signifies the internet behemoth's plans to step up its activities in the financial sector.

Currently, the company runs Yandex.Money, an online payment system, which is registered as a non-banking financial organisation. However, Yandex's ambitions in the finance industry go far beyond just providing payment services, Russian business daily Vedomosti has reported.

"Almost all major IT companies are trying to develop services related to payments or crediting at least because they already have sufficient information on users to be able to correctly and efficiently understand their financial needs and possibilities," Sergei Khestanov, a counsel to the general director of Otkrytie brokerage, was quoted as saying by Vedomosti.

If Yandex just wanted to own a bank, it would simply buy an existing one, as there are offerings of that kind in the market, added Leonid Delitsyn, an analyst at Finam brokerage.

"Theoretically, Yandex could buy an existing solution," he explained. "But the company apparently has other goals. All major companies, such as mobile operators, large lenders and IT companies, are building ecosystems around themselves, creating a group of partner companies, with which they will proceed into the future."

Yandex could start off by building a service similar to Apple Pay, Google Pay and Samsung Pay, predicted Khestanov, adding that creating a marketplace on the Amazon model could be the following step.

"We will soon see a large-scale process of building a hybrid between IT and a financial infrastructure aimed at replicating [the success of] existing payment services and marketplaces," he explained. "The consumer will only benefit from that."

According to Delitsyn, under another scenario, state-run lender, VTB, could possibly become Yandex' partner in developing financial services.

Meanwhile, just weeks ago, Yandex finalised its divorce from another major Russian lender, Sberbank, buying out a 45% stake in its e-commerce marketplace Yandex.Market for RUB42bn ($559mn) and selling a stake in Yandex.Money to the lender for RUB2.4bn.

The parting of ways was widely expected, as in recent years Sberbank has been pivoting away from Yandex, while strengthening co-operation with its rival Mail.ru Group in the food tech and transportation segments.

Analysts say that one of the reasons for the divorce was Yandex' unwillingness to be a "junior partner" in the joint venture, as that scenario would imply the priority of Sberbank's interests.

"Now Yandex' hands are free, and the company cannot afford to ignore the fintech industry," Delitsyn observed, adding that e-commerce and fintech are likely to be the main areas for the online giant's activities, as they are most lucrative.

Sberbank's share in the Yandex.Market corresponded to its specific division, Beru, which will now be integrated in the digital giant's main marketplace.

Beru was one of the fastest-growing e-commerce platforms in Russia in 2019, jumping from 52nd place to 9th, with RUB28bn sales soaring by 849%. However, it still remained loss-making on the Ebitda level in 1Q20.

With the addition of Beru, Yandex.Market will cater for the entire purchase process, from warehousing to communicating with customers, as well as provide a price comparison service.

According to Yandex, its enlarged e-commerce marketplace now has more than 7,000 suppliers, while the Yandex.Market price comparison platform, which works on the CPC model, services about 25,000 clients.

"The company can use Yandex.Market Yandex.Plus [a subscription service that provides discounts on Yandex' other services] to support Beru and cross-sell to its clients while saving on marketing and customer acquisition expenses," Sberbank CIB brokerage said in a research note.

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