Global investment in fintech ventures tripled to $12,21 billion in 2014, confirming the sector to be a hot ticket for everyone thinking about becoming a “unicorn” enterprise, making a breakthrough in technologies or changing consumer experience. A new startup field boomed 5-7 years ago in the USA is gradually building its momentum in Russia.
A confusing relationship between banks, VCs, government and startups have surprisingly led to organization of fintech events, elaboration of global strategies and creation of a fintech hub. Simply put, it is a process worth discussing and being known. Will fintech become a buzzword du jour in Russia? Digitally disrupted, still influenced by U.S. trends, but designed with a Russian heart.
In 2014 investments in FinTech comprised $11,8 million in Russia (comparing with the US situation that soared to $9,89 billion). Being at its infancy, the fintech startup scene is building a remarkable pace in evolving the Russian fintech business. From peer-to-peer lending to crypto-currencies, from digital wallets to micro-credits, credit scoring and acquiring platforms, a new generation of startups is taking place at the heart of the industry.
With introducing the following 5 trends of fintech business in Russia in 2015/2016 we can dive more deep in the field.
1. Going Global
The mobile acquiring market continues to evolve, being the top 5th segment in fintech investments. The more mPOS (mobile points-of-sale) market grows, the more competitive nature of the market it generates. The Russian fintech startups are looking to take advantage of the hype and overrun the “Square effect”.
The success of the US set company Square Inc opened up new opportunities and has harshen the competition on different geographical markets. Square mainly operates in the US (with little presence in Asia), while SumUp and iZettle – the European counterparts – cover Europe.
Russian startup ibox has gathered data from Euromonitor, WorldBank, Internet World Stats, Asia SME Finance Monitor and Russian Official Statistics.
2can startup with 24% share of the Russian market merged with another Russian startup iBox to increase its presence in the Asian market and win 60% of the total market in Russia. The promising perspectives of the Southeastern Asian market (for example, the card transactions there comprise $70 million) defined the business pathway. To overrun the “Square success” requires huge investments in marketing or choosing the market with a high potential but not taken before.
USA, Europe, Asia or Russia? Comparing to the American, European and even Russian micro-business, the Asian merchants are typically represented by a large number of cafes with two or three tables and tiny convenience stores, which are often owned by women working hard to earn additional income to support their families. The owners of such small stores usually don’t know how to handle electronic document processing, so many of them go bankrupt in less than a year after opening. In the Philippines, there are over 1 million of such stores, so called sari-sari stores, and some 600,000 in Vietnam.
2. Cooperation Between Banks And Startups
Skills and culture present a great challenge for banks and startups’ interactions. The brands win over small fintech startups in attracting clients, revenues and government’s favor. As Richard Branson calls the situation “entrepreneurial David fighting with a Goliath”. In most cases, bank-startup collaboration runs slowly here.
However, mPOS projects are usually conducted in a close partnership between a fintech startup and a bank (for example iZettle –Santander, iZettle – Nordea, 2can&ibox – Sberbank, etc), since an in-house practice is not a common thing for banks.
Moreover, a newly set initiative to launch a fintech cluster (Future Fintech) in the Moscow center may be a useful tool in building partnership between a bank and a fintech startup. Alfa-bank invests in fintech popularization (conferences, educational laboratories, workshops, hackathons, camps) in a close partnership with Microsoft, VISA, Russia’s Internet Initiatives Development Fund.
Opposing the expansion of Paypal, Apple Pay and Bitcoin systems, banks need to adapt to new realities, digital disruption. Hence, banks and startups can leverage each other’s strengths to address a new context of competition in the fintech sector. It was clearly announced during the Forum of Innovative Financial technologies FINNOPOLIS in September 2015.
3. Bitcoins And Block Chain Technology
Russia has an uncertain stance on bitcoin and digital currencies. Money substitutes, as they are called, could be prohibited if the bill on monetary penalties for bitcoin use and promotions will be passed. There’s a growing awareness that blockchain technology can revolutionize financial services. Barclays, Deutsche Bank, Citigroup and even the Central Bank of Russia are conducting research use of blockchain, since it has much more to offer than a mere cryptocurrency.
Concentrated developer at the first fintech hackathon arranged in Russia this November. Photo: HSE Lab
The dialogue between business entities, society, startups, banks and government is gradually enhancing thanks to hackathons (the first Fintech hackathon in Russia was held this November), Fintech cluster’s interests in startups working on a blockchain technology, Qiwi announcement of launching the “bitruble” cryptocurrency and Yandex.Money (the Russian leading system of electronic payments) intensions to work with blockchain technologies.
4. The Fintech Ecosystem
A Russia-set fintech venture fund and accelerator Life.SREDA looks for promising early-stage startups. With the focus on different markets such as Southeast Asia, Latin America, US, Europe and Russia, it also helps local fintech startups to think global and seek for the international mentorship.
QIWI Venture (a corporate venture department of the leading provider of next generation payment services in Russia and the CIS – QIWI) strives for startups in financial services, CBM, Mobile – and E-commerce, client relation management services, Hard’n’Soft solutions for business optimization, virtual reality. Being a well-built brand in the fintech sector, it considers startups to enhance the ongoing business of QIWI Group.
5. Consumer And Merchants Expectations
On a global and country’s scale, consumer expectations have shifted. The new services, fintech startups offer, affect the user-experience and relationship with banks.
The “mobile first” banks are focused on daily interactions between users and banks, shifting the focus from the inconvenient banking services to friendly and simplified apps or tools, like Simple, or the Russian analogs Instabank, Rocketbank and Tinkoff Bank.
Mobile acquiring (mPOS) makes the purchasing experience for both merchants and consumers convenient. But it is not only a platform for mobile payments, fintech startups are encouraged to think different and offer a supportive ecosystem for everyone involved in a shopping process. Ibox offers an offline accounting solution for micro-businesses in Asia – a new tablet app, iboxKasa, that will allow them to keep tabs on their goods, income, expenses as well as installment payments. And this will basically do all the accounting for $3 a month.
This post is written by our regional guest blogger from Moscow, Viola Serdiukova. Serdiukova covers monthly the most interesting news from Russian startup scene.