Russia, the world’s biggest country and among the 10 most populous, is unique. Although it has always had a relatively mature payments infrastructure compared to other global powers, internet penetration developed much more slowly than in most other developed nations. Spread over two continents and 11 time zones, Russia has had some distinct economic challenges as well as advantages, some of which make it an attractive option for cross-border e-commerce investment. Visit https://blog.payza.com/ for more payments/e-commerce stories.

1. COUNTRY SPOTLIGHT: UNDERSTANDING CONSUMERS
AND CROSS-BORDER E-COMMERCE IN RUSSIA

2. RUSSIA
Russia, the world’s biggest country and among the 10 most populous, is
unique. Although it has always had a relatively mature payments
infrastructure compared to other global powers, internet penetration
developed much more slowly than in most other developed nations. Spread
over two continents and 11 time zones, Russia has had some distinct
economic challenges as well as advantages, some of which make it an
attractive option for cross-border e-commerce investment.

3. NEWLY ADVANCED ECONOMIC
DEVELOPMENT
One of the BRIC countries along with Brazil, India, and China, Russia is in a
stage of newly advanced economic development. It boasts the world’s 12th
largest GDP along with a rapid rate of growth. Since the US introduced sanctions
against certain Russian banks in 2014, the Russian government has invested
heavily in its own payment landscape in order to be less susceptible to external
influences. The development of the Mir payment network and the National
Payment Cards System (NPCS) has driven a spike in financial inclusion over the
last two years and helped propel the e-commerce market, which has experienced
9% growth year over year since 2011.

4. RUSSIAN CONSUMERS
The Russian e-commerce market has historically been held back by a
general consumer preference for more traditional payment behaviors,
but since 2014 this trend has seen a reversal. In the early days of e-
commerce, Russian consumers who shopped online still opted for
tradition payments methods, such as cash-on-delivery.Today, with
online shopping more ingrained in everyday life, alternative payment
methods have started taking hold.

5. RUSSIA’S NATIONAL SEARCH ENGINE
Uniquely, Russia has a national search engine,Yandex, which is
the most popular search engine domestically.Yandex has
developed a proprietary e-wallet which helped drive the adoption
of online payment methods, as has eBay’s localized Russian site,
which includes both domestic and cross-border merchants.

6. ECOMMERCE MARKET GROWTH
In 2015, the total e-commerce market growth rate slowed markedly
from 31% to 6.6% due to a combination of factors, including the low
value of the Ruble, low oil prices, andWestern sanctions. Despite the
slower growth rate, cross-border e-commerce has seen a spike, as has
the adoption of m-commerce. Cross-border purchases grew from a
total value of USD 2.2 billion in 2014 to 3.4 billion last year, making it
the fastest-growing segment of the market.

7. CROSS-BORDER PAYMENTS
Though the cross-border market growth outpaces the domestic at a rate of
42% to 35% respectively, cross-border payments only account for about 14%
of the e-commerce market’s total value of 10.5 billion USD. Domestic retailer
Ulmart, specializing in computer hardware and consumer electronics, is the
leading e-commerce website in Russia with nearly 600 million in sales in
2015.Those categories, however, were less in demand than previous years,
being outpaced by leading product categories clothing and footwear,
sporting goods, pet goods, children’s goods, and groceries.

8. DRIVERS AND BARRIERS

9. DRIVER:THE LEAPFROG EFFECT
The leapfrog effect is a contemporary phenomenon of certain consumer populations
suddenly and rapidly adopting e-commerce on mobile devices such as smartphones
and tablets. E-commerce has been slowly building up in the world’s most developed
economies with most consumers first shopping online using their desktop computers
before the rise of smartphones. In other nations, internet penetration has historically
been low, so it’s only now, with the widespread adoption of mobile devices, that these
populations have regular access to the internet, and by extension, e-commerce.
These populations “leapfrog” the intermediary step of e-commerce via desktop
computer going straight to m-commerce, or e-commerce through mobile devices.

10. MOBILE DEVICES
The share of Russian consumers accessing
the internet via mobile devices rose from 17%
in 2014 to 37% last year, resulting in a rapid
influx of consumers seeking to do their
shopping online.

11. BARRIER: LOGISTICS
When introducing your products to a new market, it’s usually pretty simple to figure out if
you can reasonably ship to that market, but Russia is different. More than 12% of the
planet’s total landmass is contained within Russia’s borders. When a Russian consumer
orders your product, you may have to deliver it anywhere within an area that stretches
from Russia’s western border with Poland all the way to Alaska and Russia’s eastern
coast!
The good news is that last week the Russian Post announced an initiative to make “the delivery
of shipments from foreign online stores faster and more convenient.”The commitment involves
purchasing their own cargo planes and partnering with postal administrators in 35 countries, and
counting.

12. DRIVER: GOVERNMENT INITIATIVES
The Russian Post isn’t the only national body pointing an eye toward
fostering domestic and cross-border e-commerce. The government’s
commitment to increasing financial inclusion with the introduction of the
National Payment Cards System (NSPK) has been very effective, with
a planned 120 million Mir cards in circulation by 2019. This shift will
displace the market share of Visa and MasterCard, while financial
institutions invest heavily in payment technology innovation.

13. BARRIER: RECESSION
The bulk of the dollar-value growth of Russia’s cross-border e-
commerce sales has gone to neighboring China, in part because
of the low value of the Russian Ruble compared to the US Dollar.
Western merchants saw a marked decrease in Russian activity in
2015 due to the depreciation of the Ruble, since much of the
cross-border shopping in previous years was driven by the lower
cost of Western products compared to products in Russia.

14. RUSSIAN E-COMMERCE FACTS
• One of four countries recognized for new, rapid economic development (the BRICs).
•The total Russian e-commerce market grew by 42% in 2015, to a value of 10.5 billion USD.
• Cross-border e-commerce is growing at a faster pace than domestic.
• Local card scheme Mir accounts for a major share of the payments card market.
• 30 million online shoppers spent an average of 758 USD each in 2015.
• Clothes are the most popular online good, followed by consumer electronics.Travel is the
most commonly used online service.

15. GROWTH POTENTIAL
The Russian e-commerce market is unique and challenging but also
young and eager for international goods.With most consumers newly
connected and mobile, Russia is one of the world’s standouts in terms
of growth potential. By investing in Russia now, online merchants can
build lasting partnerships with domestic providers and tap in to a
tremendous amount of purchasing power.

16. FINALTHOUGHTS
Expanding into a new international market is a risky venture but a very
rewarding one if done right. For the latest information about how you
can build and maintain a strong e-commerce enterprise and keep it
compatible with legislation and buying habits at home and abroad,
subscribe to the Payza Blog and follow us on Facebook and Twitter for
the latest industry news.

17. ABOUT PAYZA
Payza is a leading online payments technology platform used by licensed entities around the
world. Payza's highly secure platform provides businesses and consumers with convenient and
flexible solutions for sending and receiving payments worldwide.The company offers access to
payment services in both traditional and emerging markets, as well as a host of tools and services
including: fraud screening, dispute resolution, currency exchange, global payouts and
disbursement services.With millions of members, Payza offers its services around the world in 21
currencies, and is proud to provide its merchants around the globe with a complete solution for
accepting payments and managing their businesses.
More information is available about Payza on its website, http://www.payza.com, Facebook,
Twitter and the company's blog.