In Russia, there's a large potential for U.S. payments providers willing to brave country's complex tech infrastructure and a national ID and payment card initiative that's still a work in progress.

"When you think about the payments market in Russia, you tend to think it's similar to Western Europe, like France or Germany, and it was a global superpower not long ago," says Tristan Hugo-Webb, an analyst at Mercator Research who just finished researching the Russian market. "But Russia is more like a developing country. Consumers are still using cash as a primary method."

The difference between Russia and other expanding payments markets such as Africa and India is the Russian market's growth is not as reliant on mobile money. There's a small existing card market in Russia that is growing quickly—the compound annual growth rate for debit cards is nearly 10%, according to Mercator.

The number of debit cards in circulation in Russia is currently about 150 million, with fewer than 40 million prepaid cards and less than 15 million credit cards for a population of 143 million. The U.S., by comparison, has 875 million credit cards and 286 million debit cards in circulation for a population of 312 million.

In Russia, the number of cards is expected to expand to nearly 250 million debit cards, about 140 million prepaid cards and nearly 50 million credit cards over the next two years, Mercator reports. American card brands are the leading cards in Russia, with a few local competitors, including Zolotaya Korona, which offers a full range of products, Mercator says.

 "There is potential growth across payment cards, for both point of sale and e-commerce," Hugo-Webb says. "It was slow for a while but it's starting to pick up."

Other researchers have also noticed this trend, including Capgemini, which says Russia, China, Brazil and India are "next in line" to embrace contactless payments technology.

The maturation of card payments and adoption of new payments technology faces two challenges—a divergence in technology in different parts of the country, and a lack of clarity posed by a national card initiative. These issues create hurdles for card networks such as Visa, MasterCard and American Express.

Russia is in the midst of a developing a universal card for identification and payments. The goal is to have these cards issued by 2014, but there are doubts about the project finishing on time—and general details are scarce, Hugo-Webb says. There are also questions about the cost of the program, and around Russia's recently announced plans for a national card processing center, he says.

American Express is currently working with the Central Bank of the Russian Federation to establish a local clearing and settlement process for payments in Russia by July 2014 in accordance with the National Payment System law, says Peter Wright, head of American Express Card Services for the EMEA region. American Express has partnered with Russian Standard Bank, Sberbank and Uralsib Bank, Wright says.
Visa did not return requests for comment, and MasterCard would not comment for this story.

Russia's technology adoption differs by region, making it hard to use a single technology model to develop mobile or online payments.

"There is a huge difference between urban and rural areas. Moscow and St. Petersburg look more like the U.S. in terms of how people make payments, while the rural areas are very different," Hugo-Webb says.

For example, larger banks in cities offer EMV-chip cards, while those in rural areas do not, he says.

The difference is also apparent in transit payments. The Moscow Department of Transport, for example, is using technology from NXP Semiconductors to sell a single card to use across multiple transport types. The Russian city of St. Petersburg also uses this technology for its public transport system.

NXP is also teaming with Alioth, which sells government and payment cards in Russia, to combine transit payments with other transactions.

Despite the regional tech differences, there is consumer demand for electronic commerce, with lots of room for growth, Hugo-Webb says. There were fewer than 20 billion e-commerce transactions last year, a volume that's expected to grow to between 30 and 60 billion by 2015, Mercator says.

There are a handful of electronic payments providers in Russia. The Yandex search engine developed Yandex.Money, which is similar to PayPal (Sberbank recently purchased a 75% stake in Yandex). WebMoney, a Russian e-wallet, allows consumers make online payments and transfer funds. Assist processes more than 80% of Russian online card transactions.

At Amex, mobile payments are a longer-term project in Russia.

"At present, American Express' card-issuing partners do not issue any mobile-enable payments or services in Russia," Wright says. "However we work closely with our partners to explore opportunities that will enable us to expand our business utilizing mobile and other channels." 

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