Russian Electronic Payments: Innovation & New Regulation

"September, 15 2010 at a meeting of the Duma Committee on Financial Markets was the first meeting of the working group to prepare a law on electronic money. It demanded that representatives of the banking community to oblige the operators of electronic money to obtain a banking license."

It's important to note when reading this article that the new e-money regulations in Russia are still pending and not yet signed into law. If they are signed into law later this year, they could be active by early next 2011.

Late last year, bowing to an increased interest from the government to regulate non bank electronic payments, Russian e-money giants decided to establish an industry association. A similar situation had occurred earlier in Russia when the government began regulating payment terminals and during the rapid growth of pay terminals, a successful industry group had also been formed. As the terminal laws developed, interaction and lobbying from the industry group helped to shape the new regulations. Without that participation it can be said that those new laws could have created serious limitations on pay terminal activities. It is from this experience the concept grew for an Electronic Money Association. A similar outcome is now desired.

Fearing that strict banking regulation over non-bank electronic money would be detrimental to the industry by slowing growth and causing the business to be less profitable, in October of 2009, the Russian Electronic Money Association

Member companies included:

-WebMoney Transfer and Yandex.Dengi (these two companies handle approximately 90% of the Russian Internet payments/digital currency market in Russia)
-i-Free (mobile operator)
-QIWI (cash terminal operator)
-National Association of Microfinance Market Participants (NAUMIR) [Russian Association for Micro Financing]
-National Association of E-commerce Market Participants (NAUET). [Russian Association for Electronic Trade]

In the first nine months of 2009 in Russia Internet- payments reached 10 billion rubles, payments through the pay terminals of QIWI with the personal office reached 8 billion rubles and cell phone payments reached 7 billion rubles.*http://bankir.ru/news/newsline/cards/2465826

Goals of the AED

The major goals of the Electronic Money Association are to lobby for the interests of the industry in creating legislation for electronic money (now estimated at 30 billion rubles for 2010)

The major aim of the AED is to encourage the development of the e-money marketplace and to make it a popular financial facility for consumers, government groups and industry.

The methods being used to achieve these goals are:

-Work on legal aspects of the e-money market regulations,
-Widen cooperation between participants & interactions with other business entities & government bodies,
-Increase market transparency,
-Work out best practice standards,
-Popularize e-money-based services and protect the rights of their consumers.

It's very clear in Russia that non bank money transfer companies, mobile payments and payment terminals have become a widely used significant element of the Russian population's payment infrastructure. Non bank electronic money systems such as Webmoney Transfer have been and continue to be the largest single factor in e-commerce growth across Russia and most former CIS countries. Without easy access to credit cards, non-bank e-money has become a cost effective tool enabling many people to sell products online, monetize content and develop advertising revenue streams.

According to Peter Darakhvelidze of Webmoney Transfer, "This will be the first law regulating the payments as a separate type of activity". The new legislation will provide Russian e-money a clear legal definition. It is anticipated that these new regulation could become active sometime in 2011, and that would classify Russian e-money as a "credit institution".

Credit Institution

Legal entity for a profit as the primary objective of its activities on the basis of a special permit (license) of the Central Bank of Russia (Bank of Russia) has the right to conduct banking operations stipulated by the above federal law. KO formed on the basis of any form of property as a business entity. KO divided into banks conducting the full range of banking operations, and non-SC entitled to perform certain banking transactions. Permissible combinations of banking operations for non-KO by the Bank of Russia. KO subject to state registration in the Bank of Russia. Bank of Russia carries out the state registration KO and maintains the State Register of Credit Institutions. KO have the right to carry out banking operations from the receipt of a license issued by the Bank of Russia. Collegiate Dictionary of Economics and Law, http://www.smoney.ru/glossary/

It is recognized that the credit institutions may establish relationships with payment agents. After establishing a relationship the agent, on the bank's behalf, will continue to offer operational and clearing services to all retail and end users. In this possible future situation, not much will change regarding logistics of the old digital currency operation except the higher fees (of course). In line with this possible new regulation, all Russian digital currency liabilities would be now be issued by licensed banks and the existing digital currency operators will become the agents for those banks.

Along with the new regulations, a secondary possible future limitation on all e-money accounts will be the requirement of all agent operators to 'Know Your Client" and verify their customer's identification. As it currently stands, all transaction and funds over 15,000 rubles will require the user to be verified.

"Legal entities and entrepreneurs should always be identified, and the Central Bank may establish a limit on the receipt of electronic payments." http://www.vedomosti.ru/newspaper/article/2010/02/08/224970

During the past month, many articles have pointed out that these possible new regulations impose rules on Russian electronic money issuers that are more restrictive than what occurs in most other countries around the world. Due to intervention and regulations from the big banks, the online universe of digital currency is quickly changing as government's catch up with technology.