Earlier this year, after speaking at the Russian Internet Forum at St. Petersburg, I put together a blog post entitled Russia Open to Performance Marketing, But Lacks Basics. In it I wrote that one of the basics that is lacking is payment-related, namely the fact that “some 90% of Russia’s payments for online orders are cash on delivery”.
This morning, as I was discussing the specifics of Russian ecommerce with an Israeli colleague, a hypothesis occurred to me, and I’d like to share it with you today.
Why is it that Russians prefer to avoid payments by bank cards?
I believe that the reason may be in the fact that the vast majority of plastic card holders have a very specific card in their hands/wallets — a so-called “salary card”. Russians were introduced to salary cards around the dawn of the 21st century, and unlike any other type of plastic these cards quickly took root. No surprise there. People had little choice: either learn what it is, and how to use it, or forget about your salary (which started being paid to the bank account tied to your “salary card”).
As a result, (a) 80-90% of all bank cards in today’s Russia are salary cards [source], (b) people learned how to use them, but in 90-98% of the cases use them only to withdraw money from ATMs [source], and (c) even though the market of credit cards is developing dynamically — in 2003 there were only about 200,000 credit card holders in Russia, while in 2010 some 9,000,000 [source] — 85% of bank card holders believe that one card is more than enough [source], and taking the stats from point “a”, for the vast majority that one card is naturally their “salary card” (essentially, a debit card).
Now, a “term” which I find perfectly illustrative of what causes problems with people agreeing to make payments over the Internet is how Russians often describe how they get paid. “I get paid «на карточку» (on a [bank] card)” many say… And since we’re talking people who for years were carrying only cash in their pockets, the “card” then becomes an equivalent of that cash wad for them. And who would entrust a stack of cash to an online processor?
I know, my blog is being visited by many Russians, as people who work in/with Russia. If you have something to comment about the problem of online payments in Russia, the comments are all yours; and I would love to hear from you.
Let me describe you a case
I live in St Petersburg, Russia. My father is 54 years old. He is pretty modern-thinking, former engineer, owns a business now. He is used to credit cards and he has been purchasing via Internet for several years.
And you know – a month ago I had to explain him now to use a Shopping Cart. “I do not use it” – he told me – “I’m just looking for phone number on the shop page and making a call”.
People have been using phones and paying cash for a whole life, and when it comes to money transactions they are just more comfortable with instruments they are used to. But things are changing amazingly fast – look at Geno’s numbers above. We just need 5-10 years.
Thanks for your comment, Sergey. That’s a very good example of how people are just not comfortable outside their comfort zones. I do hope that, with the pace at which things are moving, Russia will catch up in 5-10 (but, hopefully, 5!) years.
Sergey, thank you for forwarding to me the newest data on Russian plastic payments online. For non-Russian-speaking audience of my blog, here’s the gist of what Oborot.ru wrote earlier today:
By August 2011 there were 47.84% Russian shoppers who paid for their eBay and Amazon purchases by plastic cards. This was 63% higher than the data (30.38%) collected in March of this year. BayRu indicates that the popularity of plastic payments is growing primarily due the speed of payment processing and the lack of additional bank fees (which may be incurred when other methods of electronic payments are used).
In my opinion, the problem with credit card usage is to a large extend psychological. Russians don’t trust anyone with their money. They’ve been tricked too many times (consider the events of the 90s alone). Credit cards are an easy target for fraud, which is also quite hard to spot in a good time, since online banking in Russia is almost non-existent.. I am rather skeptical myself to use my card in Russia. Even though I know that things have changed, the idea of being fooled again is still sitting in the back of my head.
I agree with you, Verona. Having lived in a busy Russian city for 5 years, I can tell you all sorts of stories about my credit (and debit!) card info getting stolen, money withdrawn without my consent, etc… So, I don’t blame them for not trusting anyone “with their money”. Better be safe than sorry, right?
I lived in Russia for 6 months (I’m only half russian btw!) and have some experience with all this.
The current system isn’t all that bad you know. In point form! :
I remember “buying” a photo camera off a Russian site when I was in Moscow. The next day someone came to my office, gave me a call on my mobile when they arrived at reception, I came down, checked out the camera (they showed me in was unopened & then proceeded to open the camera box), I tested it, and only then did payment in cash happen. Let say there was a problem, something missing etc.. I could return it right away without the hassle & cost to send via post. What a luxury!
From the vendor’s perspective also “cash in hand” can be good thing in Russia for many small businesses & employees who desperately don’t like paying tax. To have everything paid direct into their accounts will make any tax “efficiencies” harder to achieve.
It wasn’t actually all that long ago in Russia there was a run on the banks – memories (and wallets) are probably still sore from that experience. It will take time & a big effort from banks to encourage and regain the trust of its card holders.
From an affiliate marketing perspective, this causes us issues I agree. But this affiliate world will need to adapt its model to suit the Russian reality.
I hold Raiffeisen Moscow and Alfabank cards and have done since 2002 (as a foreigner). I have always paid in “plastic” but only when present in the store – I have never seen this as unusual in any way, in fact have been paying in plastic in Moscow since around early 1999 (admittedly in TsUM!).
I have never had unauthorised debits however – whether this is luck I do not know but I use the cards extensively all over Russia without issue.
In one sense Russian banks are ahead. One can receive an SMS of a transaction immediately (<5 secs) after authorisation and for free! Using this facility I do admittedly feel a little safer.
However… large items purchased over the net from a Russian distributor as has been stated are usually hand delivered to your office/home and checked before payment is exchanged in cash.
All of our Russian staff had Payment Cards. I am not sure however they were well liked with many expressing displeasure at having to use them. I should have delved more deeply into the reason.
Great Blog as usual.
Ed, thank you for the compliment on my blog post regardless of the fact that your experience with paying by “plastic” has been vastly different from mine [see this comment]. I lived in St Petersburg between 2001 and 2007 (and still visit every summer), and during my time there I had unauthorized debits, unauthorized withdrawals, issues with paying by card (terminals not working properly in physical stores (charging me twice, for example), eyes rolled at me with an oh-c’mon-don’t-you-have-real-money type of look, etc). Glad your experience has been different.
As for those “payment cards”, I would really love to hear their reasons for “displeasure at having to use them”. So, if you ever find out, please do chime in again here. Many thanks in advance.