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September 25, 2015

Clean-up of the market shifts the balance of power: paying agents switch to CyberPlat en masse

Vedomosti: Central Bank of Russia brought a trillion of rubles out of the shadows. The money was cashed out from the payment terminals

Central Bank of Russia has blocked one of the biggest channels that had been very likely to be used for cashing out, says Yuri Polupanov, Head of the Department for Financial Monitoring and Exchange Control.

Funds could be cashed out via paying agents that own the terminals. Paying agents sign agreements with payment systems and when a customer pays via the agent’s terminal, for, say, utilities or tops up their phone, the payment system, which the terminal is connected to, transfers these funds to a bank account, wherefrom they are credited to the addressee (in our case it would be a utility company or a mobile operator). The trick is that funds would be transferred via the regular account, and not the designated one, which Central Bank of Russia made mandatory for transferring money coming from terminals to control the cash flow.

Having compared proceeds from terminals with the amount of money transferred to the service providers via the designated accounts, Central Bank of Russia has revealed that designated accounts accounted for a mere 8% of the paying agents’ turnover, says Mr. Polupanov. Paying agents could sell the rest of the cash for non-cash funds (receiving a commission on top of it), which in turn could be used for settling with service providers.

According to the estimates of the Central Bank of Russia in 2014 alone designated accounts lacked about RUB 900 billion — this amount exceeds the amount of funds that were cashed out in banks: for the same period the regulator revealed cashing out transactions amounting to RUB 700 billion.

Cash not transferred to the designated account means it could go to the shadow markets, explains Mr. Polupanov. That kind of cash comes in handy to pay out unofficial salaries and to evade taxes, because unlike the non-cash funds, cash funds can’t be traced, brings an example Mr. Polupanov. It could also be used for bribes, migrants and shadow trade, he says. The regulator began its battle with illegal cashing out back in early June by convening the major market players: Qiwi, Comepay, Rapida, Contact, CyberPlat, and DeltaPay, says Mr. Polupanov. Central Bank had a round-table discussion with them, where they were given a task to increase the proceeds coming to the designated account to 20% by July, and then boost it to 50% by August (see the chart). According to Mr. Polupanov, currently about 98% of paying agents’ turnover goes through the designated accounts with a weekly amount of RUB 13.5 billion. Starting early June e-payment market members would cooperate with the Central Bank almost on a weekly basis, recalls a round-table discussion participant. According to him, some payment aggregators didn’t feel like stimulating paying agents to make immediate transfers of cash from the terminals to the designated accounts, which some agents didn’t have to start with. Some have won tenders in trade networks and have already paid for allocation of the terminals. «But the Central Bank of Russia persisted, reminding that it was all about complying with the law,» he says.

In early 2015 over 220 000 terminals were scattered across Russia, recollects Sergey Shavkunov, CEO of J’son & Partners Consulting, in 2014 the market’s turnover made up RUR 960 billion. This year J’son & Partners predicts a turnover of RUR 1 trillion, where Qiwi accounts for 55% of it.

Qiwi Group represented by Qiwi-bank has been using designated accounts ever since their foundation, claims a Qiwi representative. Qiwi-bank doesn’t accept cash revenue from agents, he explains: agents operate all across Russia and «from the cash standpoint they operate with local banks.»

«We appreciate efforts of the regulator aimed at increasing transparency of settlements and within the shortest time possible we will do our best to bring the collaboration process with agents in compliance with the requirements set forth by the Central Bank,» says a representative of the non-profit organization Rapida (operator of Rapida and Contact systems). Vladimir Kuznetsov, CEO of CyberPlat, also appreciates efforts of the regulator and points out that his company was always against illegal transactions involving sale of cash. «After the clean-up we had tons of terminal owners coming to us. They want to operate legally and don’t want to work with the Qiwi-wallet,» he says joyfully.

However, Qiwi fails to see loss in number of paying agents: their number varies, sure, but they haven’t noticed any noticeable fluctuations, said a Qiwi representative.

«Today [in the market in general] 35-40% of terminals don’t operate, due to the missing revenue that used to be generated by the sale of illegal cash, whereas the remaining terminals now have a new commission of 3-10%,» estimates Mr. Kuznetsov. Many paying agents signed rental agreements based on their previous revenue, he explains. Now their revenue has plummeted but the agreements are still the same. Space rental in a busy district would previously cost $2000 for a terminal and $500 for an ATM, the difference explained by the profitability of the former one, clarifies one of the market participants.

Toughening of the regulation will bring about bankruptcy of not only paying agents, but also of payment aggregators, predicts Mr. Kuznetsov, and it will also result in the market overhaul and will push consumers from terminals to the bank channels and retail networks. «Terminals were so popular in Russia due to the possibility of making a really good coin from unaccounted cash,» he concludes.

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