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October 15, 2007

The Text of the CyberPlat Representative Speech at the Round Table: “Payment Models: Banks and Agents – Together or Instead” Held by Russian News and Information Agency NOVOSTI

Let me present us within few minutes. We believe we know the issue better than others.

First of all, we, CyberPlat®, were those who invented real time top up for mobile communication subscribers in 1998. Historically we were the fist company in Russia which effected the remote payment transaction for the mobile operator services. Beeline was the operator. During 9 years, our company has been building the infrastructure to accept from the citizens of our country the micropayments, mainly for the mobile network operators.

We have built the network which, as per our estimates, doubles the banking network in the country. At present, 56 thousand bank offices operate in Russia but we have over 85 thousand direct dealer outlets. Also we have a lot of sub-dealers whom we do not see in our system. We estimate their number to be around 30-40 thousand. It comes to 120 payment acceptance outlets in total.

It is noteworthy to mention that CyberPlat does not own the outlets. They are owned by supermarket, mobile phone retailer, filling station chains, etc. CyberPlat is a powerful center processing payment transaction data in real time mode.

We process around 120 million payment transactions a month for the amount of approximately $450 million. In this year, we have already collected over $3.5 billion for mobile network operators and believe this amount will reach $4.8 billion by the end of the year.

We are telling all this just to demonstrate that we know the issue and know payment acceptance market better than many others.

How has the micropayment acceptance market being built? First of all the renowned retailer networks like Svyaznoy, Dixis, Euroset and many others started to accept micropayments at their cash desks. Later on supermarket, Gazprom Neft, LUKOIL filling station chains and many others started to employ cash desks to carry out the payment acceptance business. At the very outset all these cash desks used the cash machines equipped with fiscal printers and there were no compliance issues in this segment of the payment acceptance market.

However the payment acceptance market has gone through a real inrush of self-service kiosks which unfortunately were not equipped with fiscal printers due to a trivial gap in the legislation as we believe.

Accordingly some of the self-service kiosk owners started to gain additional (illegal) income.

This illegal income is formed as a result of fiscal printer absence in the kiosks and lies in an opportunity of concealing a part of cash proceeds from a kiosk with its further reselling as per the so-called “black money” scheme. The rates on the shadow market for the service of “out-of-bank conversion into cash” fluctuate within the limits of 6% to 8%.

Thus the situation has developed when a bona fide self-service kiosk network owner, (let us call it Elecsnet) earns on average 5% from the turnover, but an owner of a self-service kiosk network illegally selling black money gains 11% - 13% from the same turnover.

Hence the unfair self-service kiosk owners have the possibility to offer rent payments for placing a kiosk which is much higher than a fair self-service kiosk owner can earn. And this happens quite often.

For example, according to our information, some of the renowned supermarket chains terminated lease contracts with the bona fide self-service kiosk owners in favor of those who were able to offer them higher rates although on apparently shady grounds.

Indeed the situation when lawbreakers have a competitive advantage in comparison to fair businessmen can not be endurable.

We believe black money generation by self-service kiosks must be stopped and stopped immediately.

We have long been proposing the legislative and executive authorities to adopt the standard acts prohibiting use of the equipment accepting cash payments without fiscal printers. For example we have been proposing to empower law enforcement agencies and fiscal discipline supervision authorities to block and confiscate such equipment and bring the owners thereof to responsibility.

This simple, clear and effective measure will facilitate to totally suppress this negative development.

At the same time CyberPlat argues against complicated, unclear and harmful for population proposals to destroy the payment acceptance model itself.

Mobile communication development around the globe has been always built on the basis of the operator - authorized dealer - sub-dealer relations pattern. A dealer is an agent of a mobile network operator and given infeasibility for an operator to work directly with all counterparties the operator has contractual relations with authorized dealers. And they work locally with the smaller sub-dealers (using agency model as well).

The payment acceptance market on the cash desks is built as per the same pattern. Electronic payment processing systems, CyberPlat® as an example, work with large chains and they use agency model to work with small provincial convenience stores located outside the big cities and in the villages. These Soviet-type stores will be forced to stop acceptance of payments for mobile network operators as neither a bank nor a payment processing system present physically in their villages.

Hence tens millions subscribers living far outside the large cities will find themselves disconnected from mobile communication services as “scratch cards may fail to be delivered or the necessary face value is not available”.

We at CyberPlat® payment processing system can not agree with the attempts of some market players, knocked out from the supermarket chains by unfair players, to use the struggle against illegal circulation of cash for the benefit of their commercial interests regardless the interests of tens millions Russians, first of all those from socially vulnerable groups.

We are of opinion that amending the legislation to enable both banks and any other organizations accepting micropayments for a third party would meet the interests of population to the maximum extent. Needless to say, strict control over observation of the cash transaction procedure, first of all over availability of fiscal printers, should be in place. We would like to propose treating the payments for the amounts less than equivalent of $10 as micropayments.

We suggest all the parties concerned to strive for elimination of unrecorded cash funds through equipping self-service kiosks with fiscal printers and jointly oppose abolishment of agency model for payment acceptance.

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