Friday, 2 November 2007

Smooth Operator

Russia's e-commerce market may be underperforming today, but it is tipped to boom soon, and the few trailblazers who have already recognized the potential of one of the national economy's latest El Dorados seem destined to scoop up the profits.

The Moscow News talks to Dmitry Shmakov, vice president for marketing and commercial operations at ChronoPay, one such company doing all it takes to convince you that clicking the "Buy" button on your computer screen is a lot more convenient than counting bills in a department store.

MN: For those among our readers who are not familiar with ChronoPay - what does your company do?

Shmakov: ChronoPay is a universal payment gateway for e-commerce, which facilitates online payments by bank card and e-money. The company, originally established in the Netherlands by a group of investors possessing copious work experience in Internet companies, began operating in 2003. The Moscow office opened practically right after the company launched activities in Europe. Moreover, ChronoPay's main technical subsidiaries are located in Russia. However, the most lucrative markets at the moment are based in Europe. Today, the company has four offices - three in Europe and one in Russia. They are linked with both the markets we're interested in and partner banks based in different countries. In Russia we currently deal with Rosbank, which has been our sole partner here over a lengthy period of time. Today, a number of other banks are displaying a keen interest in e-commerce and Internet acquiring, so we are holding talks with some of them in regard to potential partnerships.

MN: What's the current size of Russia's electronic payments market? How does it compare to other European markets?

Shmakov: It is difficult to properly assess the size of the market. According to figures, released at the recent "E-commerce" conference, the market size is estimated at nearly $2 billion. That number is debatable - last year I heard something about $1 billion. This is minuscule when compared to Europe's leading markets such as Spain ($8 billion), the UK and Germany ($30-40 billion). The Russian market keeps growing by $500 million a year, which is still a great deal far from the numbers in Western Europe's top markets.

MN: How competitive is this market? What helps ChronoPay stand out in the crowd?

Shmakov: As regards different types of electronic payments, bank cards account for 40 percent, the remaining payments are made by means of e-money such as Yandex, WebMoney and others. By the way, we do not consider the operators of e-money payment systems to be our competitors, and, moreover, we intend to create a universal platform that would feature both cards and e-money.

Recently, ChronoPay signed an agreement with Moneybookers, the recognized global leader in this business. The partnership with Moneybookers will help us process the payments made by some of the most popular brands of e-money from all over the world, as well as some of the local bank cards, like Chinese cards, for instance.

We are sure that in the next two to three years in Russia the interest in e-commerce will significantly grow. These are enticing perspectives and there is enough room for all as each player develops its own segment of the market.

MN: What's driving the market and how do you see it grow in coming years?

Shmakov: The catalyst of growth will be the new regulations, which in the foreseeable future, for instance, will oblige all of us to buy e-tickets instead of those printed on paper. The statistics compiled by the European Association for Electronic Commerce suggests that approximately 50 percent of the entire revenue in e-commerce is generated through the sales of e-tickets, hotel and car rental bookings. The chief payment tool here is a bank card - Visa or Master Card - and we can see that the mentality of the clientele in Russia is steadily shifting toward using bank cards. Undoubtedly, the number of our citizens using electronic payment systems will keep growing each year.

MN: How well do you know your clientele? Do you survey the clients' pool and what kind of feedback are you getting?

Shmakov: Our client is the trading company, not the end user that buys goods from a trader in a store. Trading firms survey the market and their polls suggest that, as a rule, clients opt for e-commerce when purchasing goods that don't require delivery, such as mp3 files, computer games available online, different kinds of software, and so on. At the same time, the goods such as books are acquired exclusively for cash upon delivery.

MN: ChronoPay recently announced it would create a platform for introducing e-tickets in Russia, de facto becoming a pioneer in that business here. In your opinion, what prospects does e-ticketing hold and how do you see that market develop?

Shmakov: Plane tickets are a complex assignment, which in a way resembles the building blocks game. The ticket payment is important, but it is not the only key component of that business, because you also have the booking segment and other segments, and many companies involved in these segments are starting to be interested in this business.

Here I'd like to add that we are in talks with the three leading Russian airlines and as of today these negotiations are in their final stage and we should sign contracts by the end of this year. The talks are confidential, and we are obliged to keep the details undisclosed, so unfortunately we can't name the airlines at this point, but all three are leaders in the national aviation market.

MN: What's it like to be running the processing business today in this country? Are you happy with the achievements accomplished so far and what are the company's targets in the future?

Shmakov: The processing business is steadily expanding, the turnover is rising, but we can't say we're happy with the current pace of growth. We'll be able to say that when the market starts growing due to the massive development of the travel industry. In my opinion, that's going to happen once we start implementing the e-ticket payment systems - this could be a turning point for developing this business in Russia. Moreover, I am convinced that in the future all market players will be dividing the timeline into pre- and post-e-ticket era.

MN: Does ChronoPay provide the services of mobile phone payments?

Shmakov: We don't operate stand-alone terminals that process mobile phone payments, but we do provide the same service online. By using ChronoPay's platform a client can transfer money to his account and also use the "Mobile Purse" feature, which, besides adding cash to his account, offers the option to use the cash in the same account for online purchases, too.

MN: Security of payments is one of the key issues that get raised very often in a business like yours, especially when something goes wrong. What do you do to ensure that your clients and their money are sufficiently protected?

Shmakov: There are three levels of security designed to protect the clients' payments. The first level is the protection provided by the bank that issued the card. Probably, many of your readers are familiar with the so-called CVV code, which the bank recommends to be kept in utmost secrecy as it is the key link in the security chain at this level.

The second security level, which hasn't been widely spread in Russia yet, is when the issuing bank seeks additional authorization by the client at the moment when he's making an online purchase.

And finally, the third level of security is a whole package of protective fraud-fighting measures introduced by our company in order to secure the system from hackers and break-ins. These defenses include over 200 automatically adjustable filters, which prevent a fraud transaction at the initial stage. We also have an efficiently-run Risk Department, which manually checks all suspicious-looking and non-transparent transactions. ChronoPay owns a fair number of certificates, such as PCI (awarded on the basis of annual audits) and the Hacker Safe Certificate, which allow us to assert that the transactions conducted through our payment gateway are reliably protected.

In addition to this, we advise online buyers to observe basic security rules, such as not to keep too much cash on the card, which is being used for e-shopping.

Speaking about market tendencies, it needs to be said that the effort to define clear zones of responsibilities of all parties involved in e-commerce has picked up pace recently. While earlier the responsibility in case of a fraud used to lie mostly with the trader, today, owing to a successful implementation of the 3D-Secure data protection system, it's shifting toward the issuing bank itself.

MN: How soon do you expect to see more people in Russia shifting from cash to cards and online payments?

Shmakov: According to some analytical surveys conducted abroad, an average customer in Iceland uses money bills once a month, not more. In Russia, stats are a bit different and they suggest that more than 90 percent of salary cash transferred to employees' accounts is retrieved from ATMs during the first week after the actual transfer.

That figure illustrates pretty well that the culture of card use hasn't yet taken deep roots in Russia. The level of the population's mistrust toward cards is still rather high and such sentiments are especially strong in the Russian provinces, but there's no reason to panic - it's a natural process and it will take a certain while before bank cards become such a common feature in an average Russian's life, such as a parking ticket or a movie ticket.

By Bojan Soc

Related Articles by Labels