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UPS AND DOWNS OF MOBILE ACQUIRING AND ITS IMPLEMENTATION
Interview with Nikolay Zhmurenko, head of the company 2can who develops and delivers mobile payment services with bank cards and smart phones with NFC-chip. The focus of the conversation is on the present situation and prospects in the acquiring market.
Hello Nikolay! How do you assess the Russian and Ural markets in terms of capacity and stage of development especially in comparison with other countries, say Europe? How do you estimate the market share and the share of the main competitors? Can the regional specificity be seen?
The Russian market of mobile acquiring, as you know, is at a very early stage of development. Innovation leaders are traditionally Moscow and St. Petersburg, so the key connections take place there. The Ural region also exhibits activity, and most likely this is due to the fact that there are long-standing industrial production traditions and a strong entrepreneurial spirit. We put high hopes on the Ural Federal District.
The 2can company’s share is about 50% of the market. This is not surprising since we are the pioneers of the industry who first launched the mobile acquiring service in Russia. As noted above, the mPos market is still not very large. For us it is important now to keep up the pace with other players to work on expanding the mobile acquiring market though holding their share at the same.
This is not easy to do especially outside of the two capitals, as the development is being hampered by several factors. Regions are not so used to paying for goods and services with plastic cards as big cities. Although in recent years this trend has varied considerably. For example, according to a recent acquiring market research over the past five years the total volume of card payments increased by 5.5 times while the share of the transactions to pay for goods/services increased from 25% to 50%.
Another barrier that we face in the regions is often a lack of devices compatible with the service. In this regard, the trend is changing too. Virtually all smartphones sold in the moment in Russia, 95% are compatible with the 2can service. Replacing the old phones without Internet access owned by small business is the issue for the next two years.
What is the specificity of the Russian market apart from the lack of a habit to pay with plastic?
The Russian market with its specificity can be classified as developing in terms of technology.
In general, it is lagging behind America or Europe in terms of some factors but there are prerequisites which show that the gap will decrease rapidly in the near future. For example, at the end of 2012 in Russia about 200 million bank cards were produced, which is 1.3 cards per inhabitant including infants. In Europe, the same indicator is 1.5 - 1.8 cards per person. Thus we can say that we have already overtaken the Europeans as far as the number of issued ‘plastic’ is concerned.
It is about timing when people will get used to paying with a card. Beginning from this year, the number of customers who make payment with cards has already exceeded the number of those who simply cashes money with cards. Our smartphone penetration rate is slightly lower than that in Europe but since the life cycle of a smartphone as a product is about 2 years, in the near future we will have no barriers to the use of such services such as mobile acquiring.
How will the competition be developed, and that will be the main killer feature in the mPOS market in the near future? What about the same in the long run?
Now the key competitive factor is the quality of service. Those will win who will enable customers to easier and faster connect, and who will provide the most convenient service and high-quality support. Product specialisation will also become critical. As early as now 2can offers industry versions with additional special features oriented towards insurance companies, taxi companies, online shopping and the restaurants with a delivery service.
Contactless payment technology, a la PayPass, is that a serious competitor?
The contactless payment technology cannot be a competitor. Nor a chip can be a competitor to the magnetic strip. PayPass is a way of reading the cards, we can say the next generation. First there were cards with a magnetic strip; then the next generation is chip cards, more convenient and safe. The next step will be the development of contactless cards but there are very few of them now.
We focus on the technologies of cardholders and thus last year we launched our mPOS terminal based on the ‘magnetic stripe’ technology.
In Russia, until recently the share of cards with a chip was low. Thus all 200 million cards issued have a magnetic strip. Now the migration to EMV cards has accelerated, according to recent data, about half of the 200 million cards have a chip in addition to the strip. Therefore we will soon introduce a new generation of our mobile terminals to accept cards not only by the strip but also by the chip. Some of the chip cards have a contactless option, a year ago there were less than 0.5 million (0.25 % of the total emissions). Now probably there are several millions. In addition, there are a few tens of thousands of NFC-smartphones. All in all, it is still less than 1% of the total. We closely follow the development of the contactless market.
When the number of cards and/or NFC-smartphones with imported cards there becomes significant and noticeable on the general background, we will offer the next generation of our service.
* on the right – Nikolay Zhmurenko, CEO of 2can.
That was a question concerning technologies. Now let us speak about customers. What segment will be the market driver, online shopping, taxi?
Small business is our key customer. Although medium and big businesses also display interest and can apply our product where necessary to accept payments in a mobile environment. For example, we are currently developing a service for a large food delivery network. Big and medium businesses order from us the terminals for outdoor events (fairs, site trainings). Recently ‘Museum Night’ has been held in Moscow. As part of it 2can provided terminals for receiving payments to fair participants at the ArtPlay design factory. Basically that was a network cafe. We are active to engage taxi.
In the structure of small business the priority segments are online shopping, retail outlets and professional services.
Who feels better in this market, banks or independent players? Will the market be consolidated in the long run or have room for multiple players?
This medal has two sides. On the one hand, banks have an advantage in the form of an accumulated customer base, to which it is very easy to offer another service. On the other hand, knowing that this is an additional service, we understand what priority it will take in the promotion of the overall portfolio of banking services and how intensively banks will engage in fine-tuning the service component. Independent projects have no base but they demonstrate vibrancy, focus and motivation.
Now let us speak about the Urals. Say, a year has passed, how would you evaluate the region’s performances?
Our expectations regarding the Urals are quite high. By this time the region exhibits enhanced activity, and it will not be a surprise for me, if tens of thousands of entrepreneurs will start to use the 2can service during a year there.
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