PayPal to Enter Russian e-Payments Market

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Aug. 26 – American payment system PayPal will begin carrying out money transfers in Russia and the Ukraine starting from the end of September, the company said in a statement.

The PayPal web site has published new money transfer tariffs that will come into force on September 24.

The fee for sending money to Russia will range from 0.5 percent to 1.5 percent depending on the country you are sending it from. Sending money within Russia will cost 1 percent.

As Russian daily Vedomosti reported earlier this month, PayPal’s initial investment in the Russian market will amount to US$25 million.

Previously PayPal, which is a subsidiary of eBay Inc., restricted money transfers to Russia fearing corruption and hacker attacks. Russians could only receive money from another PayPal customer in special circumstances — for example in a refund for an item that was not received from eBay.

In 1998, CompuServe cut off access to Russia. Too many hackers logged in on false accounts or with falsified or stolen credit card numbers, the company said at the time.

Meanwhile, Russia has one of the fastest growing e-payment markets in the world with the number of subscribers exploding over the last three years.

The number of people connected to the Internet is doubling about every 18 months and experts say it will reach about 50 million people by the end of 2011. Within the last year, online payment turnover in Russia increased 75 percent year-on-year to about US$2.5.

According to an AC&M Consulting report, broadband connections are growing by about 3 percent a month and penetration reached 29.7 percent last December. It is interesting that subscriptions in Siberia grew even faster by 4.3 percent in the same period of time, outpacing growth in Moscow.

However, as it remains very difficult to pay for goods, the development of the e-market in Russia is slowing down.

“The low penetration of credit cards means that it is hard to get cash out of customers even if they want to pay,” said Simon Dunlop, CEO of Dream Industries, which owns Russia’s biggest online bookstore,

Many Russian sites accept payment via mobile phones, while the customer texts an SMS with the order and a charge is added to the phone bill. However, mobile operators charge up to 40 percent of the purchase price as a fee, which is extremely expensive for customers.

Just a few Russian companies organize online payments like Yandex, Dengi and WebMoney, so these two services accounted for more than 90 percent of the Russian e-payments market, the Electronic Money Association data says.

Credit cards drawing on a foreign bank also rarely work on Russian sites.

Considering the situation in the market, experts predict PayPal’s investment to be profitable for the company and good for the Russian market and online shoppers.

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