Russia may be big and emerging, but it still seems locked in
the communist era when it comes to credit cards and bank
Suspicious of credit card fraud, more than 90% of Russians use
cash to pay bills and make purchases. And less than half of
Russians over age 15 have bank accounts.
), the largest operator of nonbank self-service payment kiosks in
Russia. Account holders deposit cash into the kiosks to store
value and choose screen options to pay bills or top off
More than 165,000 Qiwi-branded kiosks and terminals operate
across Russia and other former Soviet Republic states.
But that's just the basic business. Qiwi also offersVisa (
)-branded virtual wallets to make it easy for customers to pay
bills and make purchases using their cellphones in the small but
growing e-commerce market.
Unlike credit cards, mobile-phone penetration in Russia is
high, with more than 235 million cellphones in use, or about 1.65
In a country where consumers distrust credit cards, "It's the
more interesting part of the business," said analyst David Koning
of Robert W. Baird, referring to Qiwi's digital wallet.
"Consumers can make payments to thousands of places using
their cellphones without ever having to have a credit card," he
Since Visa Qiwi Wallet allows consumers to load an electronic
wallet and later make e-payments, it essentially acts as a
prepaid debit account, Koning points out.
Qiwi rolled out a digital wallet in 2008, a year after the
company was formed. It forged an alliance with Visa in
Visa Qiwi Wallet can't be used at physical stores' checkouts,
but Koning says that might happen eventually, "which may be why
Visa is participating."
Koning says Visa Qiwi Wallet is similar toeBay 's (
) PayPal in that customers enter their mobile phone numbers and
passwords to make purchases or pay bills.
The wallet can be funded using a Qiwi kiosk, bank account,
credit or debit card or money transfer.
"Russia is still in its early development of moving towards
electronic payments," Koning said.
Still, Qiwi says that more than 47,000 merchants accept
payments over its network and that more than 60 million consumers
use the network at least once a month.
Third-party agents actually buy, run and service the kiosks
while Qiwi operates the network that connects the kiosks to the
merchants and bill collectors, the latter of which include
utilities and banks. That business model limits capital outlays
as the firm expands its network.
Merchants and other recipients pay Qiwi a processing fee. Qiwi
passes on a portion to its agents.
Qiwi, which went public in early May, is growing at a brisk
clip. Revenue in the first quarter grew 50% over the earlier year
to $41.3 million. Adjusted net profit jumped 216% to $14.7
million, or 28 cents per American depositary receipt, or ADR.
Visa Qiwi Wallet made up $16.2 million of first-quarter
revenue, or about 40%. Payment volume on the wallet jumped 107%
to $1.73 billion. Average volume per wallet in the quarter was
The number of active accounts as of March 31 stood at 13
million, up 49% from the prior year.
Qiwi's kiosk payment volume grew 14% to $3.77 billion, driven
primarily by a rise in Visa Qiwi Wallet users reloading their
wallets through the Qiwi kiosk network, the company said.
The company grew "extremely well in the first quarter, better
than expectations," Koning said. "The company's guidance implied
some slowdown over the next few quarters, but our sense is that
management is trying to be conservative given they just had their
Management said it expects 2013 revenue to increase 23% to 26%
over 2012, while profit is seen rising 27% to 33%.
One of its biggest rivals is Yandex.Money, an e-wallet that
lets customers load money on their cellphones. But Yandex doesn't
have a kiosk network.
However, Russia's largest bank, Sberbank, bought a 75% stake
in Yandex.Money, which is operated by Russian-language search
engine Yandex. "So over time, they could end up offering loading
at (Sberbank) ATMs," Koning said.
While PayPal has received approval to enter Russia, it might
be tough for it to compete with Qiwi, which has strong name
recognition, Koning says. Qiwi also has the home-country
Qiwi's operations are based in Moscow, though the firm is
incorporated in Cyprus.
Rather than rivals, PayPal and Sberbank could become partners.
Qiwi's management confirmed reports that "there is an opportunity
to partner with its potential competitors," including PayPal and
Sberbank, analysts from William Blair & Co. wrote in a recent
client note following a conference it held that included
"We believe any partnership agreement would essentially help
leverage Qiwi's distribution network," the analysts wrote.
E-commerce in Russia is still hampered by shipment issues:
subpar postal service and costly private couriers. According to
various industry figures cited by Koning, Russia's e-commerce
market accounts for no more than 2% of retail sales.
But e-commerce should grow 44% annually on average from 2012
to 2014, noted William Blair analysts.
"We believe there is potential for new important partnerships
to be announced over the next several months," the analysts wrote
in their recent note on Qiwi.
"We also expect to see new investments in talent to drive the
data analytics and loyalty programs business over the next few
months since Qiwi views this as a major long-term