Translated material
Cheaper, further, faster
Domestic transfer systems enter a price war
Money transfer systems have their own GTO standards: who will offer a wider geography of transfer, who will transfer money faster and cheaper. So far, domestic systems have been more successful in delivering them, since the consumer chooses them.Money transfers are one of the most dynamically developing and fastest growing market segments. Thus, according to the Bank of Russia, in 2004 the volume of the transfer market (excluding domestic Russian transfers) grew by $1 billion, in 2005 - by $1.5 billion. Oleg Galeev, head of the commission and deposit products business unit FC Uralsib attributes this impressive annual growth to “increasing financial literacy of the population, rising incomes, growing numbers of workers from the CIS countries coming to the Russian Federation to work, and growing students traveling outside the Russian Federation to study.” But still, the bulk of the Russian remittance market is provided by guest workers, who last year transferred about $3.2 billion to their homeland, which is almost 70% of the market.
Popularity rating
Basically, money goes from Russia to Ukraine, Moldova, Tajikistan, Kyrgyzstan, Armenia and Georgia. “This is due to the fact that many Russian citizens have family ties with residents of the CIS countries,” explains Lydia Hertsena, director of the retail business department of Promsvyazbank. “The number of people coming to Russia to work and sending money to their relatives using money transfer systems is also not decreasing.” A constant increase in transfers to neighboring countries is also noted at Moscow Capital Bank. “This is happening, first of all, due to the influx of labor from the former republics of the Soviet Union,” the bank believes. “So, in 2005 alone, the volume of transfers more than doubled.” Every year the volume of transfers to Russia from foreign countries increases.
“There are several client groups that carry out the following types of transfers: the main one is transfers of seasonal workers to families in neighboring countries, or across Russia from socially developed regions to less developed ones. A smaller group is the receipt of transfers to Russia from more developed countries,” says Ekaterina Demygina, deputy chairman of the board of Soyuz Bank. -- The remaining share consists of non-systematic transfers, for example, monetary support for relatives on vacation or emergency transfers. If the client is interested in urgency or simplicity of the sending/receiving procedure, he chooses urgent transfer systems, because These systems, as a rule, do not require opening accounts for the sender and recipient. In other cases, traditional bank transfers are used. Also, a significant share of bank transfers is used to pay for the services of various trade and service enterprises and organizations. In this case, payments are mainly made within Russia.”
Player positioning
The growing profitability of this business is attracting more and more players to the translation market. International systems are already operating in our market: Western Union, MoneyGram, Travelex Worldwide Money Ltd., Ria Envia. Urgent transfer systems created by domestic banks: Contact (created by Russlavbank), Migom (European Trust Bank), UNIStream (Uniastrum Bank), Bystraya Pochta (Impexbank), STB-Express (Rosbank), Guta Sprint ( Vneshtorgbank 24), VIP Money Transfer (VIP Bank), InterExpress (Interkoopbank). As well as Russian Post, Stranaexpress (based on banks participating in the Golden Crown payment system), Armenian Anelik and Ukrainian PrivatMoney. And that's not all. At the end of the year, Sobinbank’s “Live Money” urgent transfer system was added to this list. And in February, Sberbank launched its own system of urgent transfers “Blitz”.
“If a few years ago there were only a few serious players in the Russian market, such as Western Union, MoneyGram, Migom and Travelex, and the share of Russian systems was negligible and they could not compete with foreign players, now the situation has changed significantly,” notes Vladimir Kustov, head of the retail deposits department of the Moscow Credit Bank. -- For example, clients generally prefer to make transfers within the CIS countries through Russian money transfer systems, since in this case they significantly save on commissions. Even the reduction of tariffs in this area by foreign systems could not affect this situation.” Supporting statistics are provided by Stroykredit Bank. “Currently we cooperate with money transfer systems Anelik and Western Union,” says Vladimir Skripchenko, head of the non-cash payments department. -- The number of transfers sent and paid by the bank in 2005 compared to 2004 increased by 16.3% through the Western Union system and by 70.6% through the Anelik system. The bank’s income from the money transfer segment in 2005 increased by 31.52% compared to 2004.”
In general, today the balance of power is as follows: global transfer systems (primarily Western Union, MoneyGram) control transfers to (and from) foreign countries, since in terms of the geography of transfers they have no equal, and the systems of domestic and post-Soviet operators dominate in the CIS space . “The majority of transfers to non-CIS countries are carried out by bank clients through the Western Union system. In Russia and the neighboring countries - through Anelik,” confirms Denis Khrenov, director of the department of non-trading operations at Globex Bank.
Power struggle
The large number of players in this market segment, to which new ones are added, leads to tougher competition. “Recently, more and more new transfer systems have appeared, most of which are identical in terms of conditions, geography, etc. Each system tries to surpass the previous ones, the systems become more technologically advanced, and the transfer time is reduced,” notes Evgenia Mikhalchuk, deputy head of the department of non-trading operations at Moscow Capital Bank. -- Growing competition in this segment leads to lower commissions, which is a big plus for the consumer. I believe that healthy competition only benefits both consumers and the entire market.”
However, for now, according to bankers, there is enough space on the market for everyone. “I believe that the market capacity for these services is much greater than what the existing systems can handle,” says Andrey Pogoryansky, Deputy Chairman of the Board of the City Client Bank. “Thus, the existing competition cannot be called tough; in this market segment there is a fairly stable situation in which competitors are able to exist peacefully.”
But in the near future, experts expect tougher competition (especially on post-Soviet routes), which should inevitably lead to a reduction in tariffs. “Currently, with the advent of new Russian payment systems, there is a certain saturation in this market, and, as a result, the next stage of market development will move into the area of price competition for the client,” according to the Moscow Credit Bank.
Who is smaller?
Currently, the most expensive transfers are offered by the international systems Western Union and MoneyGram. Travelex has lower tariffs, but it has fewer points of presence in Russia. Ria Envia has even lower prices, but so far the system only transfers money to Russia. Of the Russian systems, Contact and Anelik offer the widest geography of translations. For example, Contact transfers money to 78 countries, having over 27 thousand service points. But they are inferior to foreign giants in translation speed, although they are superior in cost (3% in the CIS and non-CIS countries). Our other systems, as a rule, have lower rates, but the geography of transfers is not so impressive. Basically, they compete with each other in the post-Soviet space, charging 1.5--2% for transfers in rubles and 1.5--3% for transfers in foreign currency (the most interesting conditions are offered by “Live Money”, UNIStream and VIP Money Transfer) .
Experts predict a reduction in tariffs, but, in their opinion, it will be insignificant. “Tariffs are already at a level close to the minimum, and they cannot go beyond the limits of profitability,” says Vladimir Kustov from the Moscow Credit Bank. According to bankers, now that a large number of systems have appeared on the market offering essentially identical services, tariffs have begun to decrease noticeably. “Market participants themselves are pushing each other to reduce tariffs,” Soyuz Bank believes. “New players who enter the market begin to dump, as a result of which the remaining participants have no choice but to respond to changes by reducing tariff plans.” Vladimir Skripchenko from Stroykredit also believes that tariffs will decrease. In his opinion, this is facilitated by the aggressive marketing policy of such money transfer systems as UNIStream, Contact, Migom, as well as the entry of Sberbank’s Blitz system into the domestic Russian market. “The likelihood of price reductions in the near future is very low, since tariffs are already quite reasonable. This business is very promising, and the number of operators will grow every year. Perhaps, in proportion to the growth of operators, prices will also decrease, but not dramatically,” summarizes the City Client Bank.