Wednesday, May 5, 2010

Thriving E-Money Industry Puzzles Regulators

By Irina Filatova
The Moscow Times
Wednesday, May 5, 2010

Veronika Moiseyeva, 24, a broadcast journalist, loses no sleep over holiday gifts because she knows she can always send her friends a virtual bouquet of flowers on, Russia's leading social network.

"The last time I sent flowers to my friends was on March 8. But there are different occasions. It's a new way to communicate," Moiseyeva said. offers a variety of inexpensive virtual gifts that can be purchased through an instant cell phone message, a credit card or an electronic payments terminal.

Buying virtual gifts is one of the most popular types of electronic payments, major players on the electronic money market said. But legal regulations remain a matter of concern for many operators as the presidential administration considers two versions of a bill to create a new National Payment System aimed at uniting players in the electronic payment market.

The e-money market was worth 40 billion rubles ($1.3 billion) in 2009 and may double this year "if a proper law is approved and the current dynamics remain," said Viktor Dostov, chairman of the Russian E-Money Association, an industry group.

Industry players said regulation is needed but should be compatible with the current market model. The government, however, is caught in an inner struggle over the legal status of e-money operators.

The Finance Ministry was supposed to prepare the legislation by April 1, but its proposals were rejected by the Central Bank, which is set to be the regulator for e-money operators.

The bank said it would not be entitled to oversee the operators if they retained their current status of payment organizations, and it has drafted its own version of the bill, changing their status to that of credit organizations, which makes them similar to banks.

Extended discussions between the ministry and the Central Bank resulted in them sending two separate versions of the bill to the presidential administration on April 1.

Market players support the Finance Ministry proposal, which defines the status of electronic market operators without turning them into credit organizations.

The industry does not object to being regulated by the Central Bank, but it fears that turning e-money operators into credit organizations would lead to excessive regulations from the Central Bank and might cause commission fees to increase, said Dostov of the Russian E-Money Association.

"We do not want to restrict the power of the Central Bank. We clearly see that the power of the Central Bank should be expanded to noncredit organizations involved in payment operations," Dostov told The Moscow Times.

E-money operators should not be turned into credit organizations because their income is significantly less than that of other segments of the financial market, said Yevgenia Zavalishina, chief executive of Yandex.Dengi, one of Russia's leading electronic money operators.

"We think that the regulations must be proportional to the risks. An electronic money operator cannot give loans, which removes most of the risks that banks are bearing," Zavalishina said in an e-mailed statement.

Another option is to turn electronic money operators into nonbanking credit organizations, said Sergei Barsukov, head of the Finance Ministry's financial policy department, which was in charge of drafting the bill.

In that case, the Central Bank could set more flexible rules for e-money operators than for other nonbanking credit organizations, he said.

He promised that the e-money market would not be damaged regardless of the future status of the operators.

Electronic money operators keep simpler accounting records than banks because they handle small payments requiring no bank accounts, which removes credit risks that banks need to manage.

The average one-time payment handled by e-money operators amounts to 500 rubles ($17), but there is also a segment for small payments less than 100 rubles ($3.50), Dostov said.

"Electronic money operations are very cheap, the commission is very low, and their cost price is very low," he said. "Therefore, it is profitable to make not only 1,000 ruble or 500 ruble payments. This operation remains profitable for payment system operators even with payments of several rubles."

Electronic money is attracting consumers since it is a very convenient payment instrument, Dostov said.

"To open an electronic wallet … it is enough to have a computer with Internet access or a cell phone," he said.

An electronic wallet, as defined by, is an encrypted storage medium holding financial information that can be used to complete electronic transactions without re-entering the stored data at the time of the transaction.

Electronic wallets, available on the web, pay terminals and cell phones, currently have 20 million active users in Russia, according to the Russian E-Money Association. The number of web wallets alone amounted to 2.3 million last year, 1.2 million of them with Yandex.Dengi and about 1 million being WebMoney accounts.

The work on the new e-money legislation began in December, when President Dmitry Medvedev ordered the Finance Ministry to draft a bill regulating the electronic payments market and modernizing the financial system.

In March, Medvedev chaired a meeting on the National Payment System, which he called "a strategic issue" that would make the economy more stable.

Creating a legal basis for the National Payment System, which will also introduce electronic payments for state-provided services, and determining its major participants is a priority for the government, Medvedev said.

The industry is cautiously optimistic of the new legislation. "The rules of the game in the market will be clearer. That usually results in improving the quality of services and, in many cases, in decreasing their cost as well," Zavalishina of Yandex.Dengi said of the bill.

"If we all are lucky and the law is approved without sophisticated restrictions and requirements, consumers will benefit," she said.

The new bill on the e-money market will define consumer rights and expand the range of services provided by operators, Dostov said.

E-money is hardly a vital economic tool for its current users.

Moiseyeva, the broadcast journalist who sends virtual gifts to her friends on, said she never deposits more than 100 rubles a time into her account at the site.

After depositing money through one-time payments, users of can buy “voices,” the social network's currency used to purchase gifts, the number of which indicates popularity of the user.

"When you visit someone's page and see many gifts, you think, 'Wow!'" Moiseyeva said.

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