What if your business discovered a new market with 142 million consumers, an appetite for travel, gaming, and retail goods and 17% growth per year in online retail sales? And then, imagine these consumers were located in a country that had improved its ‘ease of doing business' ranking from 124th in 2012 to 28th in 2020.
This is the scale of the potential prize that awaits global merchants who can successfully do business in Russia. However, navigating the unique complexities of the Russian payments market can seem daunting and unfamiliar, even to merchants already familiar with norms, customs, and regulations in multiple markets.
This article provides an overview of the key challenges the Russian market presents and how merchants can build a strategy for success.
Russian consumers are split between global and local payment providers
There are approximately 200 million active cards in Russia. While Visa and Mastercard issue an estimated 60%, local payment methods also have a strong impact on the market. One example of this is Mir, a fast-growing domestic credit card provider, which has issued over 95.7 million cards since its launch in 2015. Much of this growth has been driven by the government, which requires anyone on the civil service payroll to have their salaries paid into an account with a Mir card attached to it.
Success in this market context requires merchants to offer a mix of local and global payment products. This extends far beyond simply developing a Russian language version of your website. A localised checkout, social media pages, and customer support offering are all critical. It can be challenging for international merchants to easily integrate or offer some of these services. However, merchants that can achieve this, alongside the convenience of one-click payments and tokenisation to protect sensitive cardholder data (e.g. via WhatsApp messaging), offer a strong value proposition.
A cross-border transaction structure will impact authorisation rates
Merchants looking to enter the Russian market face substantial cost implications due to the complexity of the business environment and legal requirements. Without a Russian legal entity, payments are typically processed as cross-border transactions by acquiring banks outside of Russia. This has a significant impact on authorisation rates, which could be as low as 60%.
The ability to process transactions locally is paramount. Not only will this increase authorisation rates to 93-97%, but it will also reduce average credit card processing fees from an average of around 5%* to 2%. Doing business in Russia requires strong local relationships and building trust with relevant officials can take months.
*This fee is calculated based on the average ticket value of 10 EUR; depending on the actual ticket value, the final commission can be between 3.8% and 15.8%
The Russian ruble is a highly volatile currency
Currency conversion timing might not sound business-critical, but in an unpredictable currency market, understanding when funds will be converted is essential for developing effective international pricing. In 2018, the ruble declined by 7% in a single day, which brought significant losses to many global players targeting the Russian market. This was the same story in 2020.
A decline in a single day in 2018 and 2020
brought losses to many
international players targeting
the Russian market.
Accepting ruble payments requires a local, operational office and proficiency with managing exposure. Doing business in Russia without local support will require you to identify someone who can convert rubles for you to regularly mitigate foreign exchange risk.
Operating in Russia requires compliance with local rules and regulations
In areas such as personal data regulation, local rules will likely differ from other markets. Legislation requires, for example, that personal consumer data must be stored on Russian servers. Regardless of whether a transaction is processed domestically or internationally, merchants must ensure their data collection is compliant. Setting up a local entity will also require value-added tax (VAT) payments on revenue, ranging from 10 to 20%.
It’s important to emphasise that sanctions against some Russian companies and banks imposed by the United States and European Union may not be the roadblock they first seem. Sanctions do not, for example, impact consumer payments services. It is always advisable to check the details before making business investment decisions.
Four key challenges: One solution
By working with Worldline, and adopting a ‘best of both worlds’ strategy that includes cross-border and domestic approaches, global merchants can:
Offer local payment options
Our solution can accept a range of local options, including Mir card and
Improve authorisation rates
Through our partnerships with Russia’s leading acquiring banks and by routing transactions back to the card-issuing bank, we can process payments for more than 80% of the local acquiring market.
Accept payments in rubles
Worldline’s local bank account helps reduce possible risks and foreign exchange fees, meaning we’re able to compliantly send funds on behalf of our clients to Europe or wherever the merchant is domiciled.
Ensure compliance with local regulation
Worldline works with a local integrator gateway, which allows us to route traffic dynamically and store data compliantly. Reporting is also integrated into our solution, which makes it easy for merchants to handle Russian VAT.