FinTech in Russia: how has this changed since the “special military operation”?

As I posted analysis of the state of financial innovation in Ukraine the other day,  I thought it only fair to get the other side of the story: what’s happening in Russia?

I have many friends in both countries. In particular Daniel Gusev, Managing Partner & Founder at Gauss Ventures, has been a good Russia contact for many years, so I reached out and asked him: what’s happening in Russia? Here is his summary:

The situation in Russia

This analysis is done solely to, as objectively as possible, overview repercussions from war and imposed sanctions on Russian economy, payments, fintech.

Russian market is resilient to stand the isolation in medium term: cracks will be amply oozed with liquidity from commodity and forest / metals export, now locked by sanctions: whether the quantity of money compensates the quality of goods required by a sizeable market is a different matter, where opinions diverge. Seeing past the horizon is anyone’s guess.

“Cancelling Russia” is tricky, considering perfectly rational past decisions to integrate its gas supplies magnified by public fear of Fukushima disaster, titan to support the boom in Airbus plane building, rare metals for computer industry – all that has to be taken into account of a constant fight of “headless heart vs heartless head”.

Overall

• 1. Russia will remain a sizeable consumer market of 80 million economically engaged people out of 146 million: it’s the trimming of SKU (stock) due to FX shocks, unpredictability of logistics and moral stand of western providers that will impact both the “what” and the “how” of consumption.
  2. Country experiences deficit of small margin / high volume goods like packaging, paper, carton, chemicals etc. – reliant on the same global chain footprint it would now have to recreate with inferior alternatives.
  3. Rather than suffer across the wide board of SKUs, importers, marketplaces, merchants will trim the available selection. It also suffers from exodus of established western brands, but this will be more recognized by metropolitan area consumers, than blue collar workers.
  4. Logistical networks will be refocused on goods that are a sure bet while saving marketing budget to promote those – no longer a variety megapolis consumers used to. Also, no more big-spend market share acquisition budgets from big brands.
  5. NSPK (National Payment Card System) will carry the flag of supporting local payment switch – but card importance in terms of payments will cede before faster payments integrated to support in-app payment and QR payments for offline. Merchants will be required to accept QR (lowering the cost of acceptance). Several competing standards might appear – promoted by big acquirers.
  6. Cashless drive will suffer a hit, also due to lowering of interchange that would lead to lower cash-back. Marketing budgets from OEMs will also disappear, time will be required to build local champions whom users would trust.
  7. Merchants will lead the evolution of payments, mirroring Chinese / SEA model, where banks become plumbing: several who maintain prowess in acquiring will invest in checkout experiences as well as improved QR payments – as Android smartphones are extremely popular.
  8. Banks are investing to bring ATM maintenance in-house and hoard tools and components, where most units are quite sophisticated with recycling units and require attention.
  9. The state, concerned about the cash cost, promotes development of CBDC and stablecoins / digital cash analogs to alleviate the problem.
  10. As said earlier, it all comes to ability to retain talent able to execute the management adjustment and implement technological programs that the country relied for many years on international partners – as well as capital for that.
  11. Here, western sanctions provide a (unintended) silver lining: while morally castigating Russia to oblivion, sanctions provide the country with capital – effectively solving the capital flight problem – as well as securing professional middle class help.
  12. Those, who out of fear of repercussion for voicing their disagreement, tried to leave, might have to return, not able to open a foreign bank account, pay for means to sustain themselves and their families. Managerial professionals will return to establish a new “social contract”.

Daniel Gusev majored in History and International Relations @ Moscow State University and built his career in payments, contributing to a big number of breakthrough innovations worldwide since 2009. His more personal assessment of the unfolded events can be found here.