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An interview with Nicholay Zhmurenko, CEO of Smartfin company

‘World of Cards’: Tell us about the 2can project. How long has it been in the market?

Nicholay Zhmurenko: The Smartfin Company is a Russian startup, specially designed for promotion the acquiring mobile service similar to Square to the Russian market. We introduced our mobile terminal 2can to the market in September 2012. It is the first Russian mPos- service which in September 2012 was authorised by the international payment systems Visa and MasterCard to operate. The team of developers of MPos 2can managed to meet the requirements of payment systems related to security services including data encryption at the card reader’s level, not at the level of the smart phone. The end of the last year was a trial period for the 2can service, completion of the service and business processes, completion of PCI DSS audit and in January we started our commercial business.

The 2can mobile terminal is an app and a small card reader installed on your smart phone / tablet connected via an audio jack. As a result, the smart phone / tablet (iOS, Android) turns into a terminal for receiving bank cards. To connect to the service an entrepreneur (a juridical person or a private entrepreneur) should access the website and register in a client’s My Account. The application is downloaded for free in the AppStore or Google Play; the card reader is received via the courier service, still also for free, which is a bonus for subscribing to the service first. After reaching a certain number of customers, we are planning to make the distribution of card readers. For the transaction customers pay 2.75%. In the white label projects price terms are discussed with each partner bank individually.

At the moment in the 2can mobile terminal a card reader for a magnetic strip is used. In the near future, we are promoting to the market an item with a card reader reading the EMV chip, but by the fourth quarter of this year – an item supporting a PIN.

W.C.: Who do you see as your customers?

N.Zh.: Our clients are representatives of small and medium-sized businesses, i.e. companies and individual entrepreneurs who because of the small trade turnover simply do not find the standard acquiring with costly POS- terminal equipment profitable. These are taxi drivers, online stores couriers, insurance agents, freelancers, small shops that traditionally accept cash only.

Another large group of customers of Smartfin is Russian banks. The banks that have already achieved significant results in the development of acquiring based on traditional POS- terminal equipment are also interested in the 2can, as well as the banks actively working with small and medium-sized businesses. We offer them a turnkey item quickly providing their customers with acquiring mobile service.

It should be noted that as for implementation rate our proposal differs from similar offers of foreign suppliers – it is 2 or 3 months; it is also adapted for the Russian market - the service supports exactly those smart phones that are just in Russia, the cost of implementation is significantly lower too. We have already made white label projects for two banks occupying leading positions on the Russian card market, and are now working on several similar projects. Thus, starting with technological partnership in which transactions of customers of 2can service are transmitted from our system to the bank processing for authorization, we have significantly expanded the range of partner banks at the expense of business projects.

W.C.: What could be an obstacle to the widespread adoption of this type of technological solution?

N. Zh.: An obstacle that each mPos project has to overcome is a wide range of different models of smart phones from different manufacturers. The task of the developer of the service is to ensure compatibility of the application and the card reader with a possible greater number of models. In this case, compatibility with a specific version of Android is not sufficient: one and the same version of an operating system the card reader can be supported by one model, but not by the other. Besides, the range of smart phones sold in Russia and, for example, in the United States is very different. As a result, a large list of smart phones supported by western service becomes absolutely useless in Russia - from this list only 1 or 2 models can be found on sale.

In addition, in a number of Western countries mPos-projects could start relying on a large penetration of iPhones, and as for Russia, not iPhones but mostly numerous variations based on Android are in general use of representatives of small and medium-sized business.

In the 2can mobile terminal a support for all iOS devices and more than 80 models based on Android is now provided, among which the majority of HTC models, Samsung, Sony (with a few exceptions), a number of models of LG, Alcatel and Fly etc. represented in the RF. We continue to work on expanding this list.

W.C.: How secure is this type of payment transactions?

N. Zh.: Visa and MasterCard international payment systems are actively involved in the development of mPos- services worldwide, including controlling the level of security in this service. Gradually certain rules are being developed and implemented. For example, the Square Company in 2010 began from using a simple card reader transferring the card data to the smart phone not protected. But in 2011 there appeared recommendations of international payment systems concerning the data encryption at the level of a card reader and the Square began using the new card reader. In Russian from the very beginning Visa and MasterCard recommended to use mPos- services with this requirement, and the 2can mobile terminal developed by Smartfin became the first authorized mPos service.

W.C.: What is the capacity of the mobile acquiring market?

N. Zh.: In Russia there are about 3 million points accepting cash using cash register equipment, the uncountable number of points working with registered forms, and an unknown number of distance trade couriers using a cash register and drawing the check before traveling to the buyer, and only 600,000 traditional pos-terminals. In other words, acquiring is not widespread.

At the same time, in the countries with much greater using of acquiring than in the RF there is also a huge demand for mobile acquiring. Before the Square’s start in the US there were about 7 million points with traditional POS-terminals to which the Square has added more than 2 million of its mPos.


The market is ready for mPOS

Nikolay Zhmurenko, CEO of the Smartfin company, a co-founder of the 2Can startup

The world’s market has already demonstrated serious intentions concerning the development of mPOS decisions. Almost all card business experts know about the success of the American Square project launched in 2010. For only three years it has obtained about 3 million mPOS devices, and it is distributed not only in the U.S. market but also in Canada.

Another American project, the ROAM Data company managed to acquire more than 500,000 customers. ROAM Data has a business model different from that of Square; the company sells the service as a white label through a lot of partners.

In the U.S. market there are probably ten companies smaller than Square and ROAM Data which develop this service.

In Europe, mobile acquiring appeared half a year later than in the United States. In the autumn of 2011 the iZettle project was launched in Sweden which acquired 50,000 customers in the spring of 2012. Prior to its launch the number of traditional POS-terminals in the country totalled 200,000 units. Due to mobile acquiring the bank card network has expanded by 25%.

Encouraged by the success, iZettle entered the markets of Finland, Denmark, Norway, the UK and Germany. At the end of last year joint projects with the mobile operators T-Mobile in Germany and EE in the UK were launched.

In the second half of 2012 a few different projects in different countries were launched, Payleven (Germany, Brazil), SumUp (Germany, Ireland, the UK), mPowa (the UK, South Africa) and Swiff (France, Singapore).

International payment systems are confident in the prospects for the service and are willing to support it. The MasterCard Mobile Point of Sale Program is launched; the mobile 2can terminal developed by ‘Smartfin’ became the first Russian member of this international programme. Visa is considering a similar programme. Moreover, in the most successful mPOS projects invested international payment systems such as Visa in the Square, MasterCard and American Express in iZettle, and this is the best assessment of the mPOS potential for the market.

The readiness of the Russian market for mPOS is somewhat different than that in foreign markets, and that is due to the level of development of the Russian card market as a whole. Our everyday bank card culture and their widespread use are just emerging; many card holders still consider cards as a key to the ATM to withdraw cash and not as an adequate payment tool.

On the other hand, the gap from the overseas markets is being reduced fast enough, the number of credit cards issued in the country exceeded 200 million units, on average every citizen of Russia has 1.4 cards while the average European level is between 1.3 and 2.4 cards per person. So the development of mobile acquiring in Russia now - with three-year lagging behind the United States and one year behind Western Europe - roughly corresponds to Russia’s overall card lag in the market.

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