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. Last Updated: 07/27/2016

E-Banking Revolution a Decade Away

Www.gutabank.ruUnlike Guta, roughly half of the banks that say they offer Internet banking actually do so.
Although most experts predict a glowing future for Internet banking in Russia, it may be a decade or longer before that image is realized and before the system reaches the level of confidence and performance that it has attained in the United States and Western Europe.

The technological backwardness of Russia's communications systems is only part of the problem. After the reforms of the early 1990s and the financial crisis of 1998, which cost many Russians their bank savings, people are afraid of losing their money again, especially to a system that deals in intangibles.

According to the Internet finance web site, there are currently 32 Internet banking systems used by roughly 160 banks in Russia. The vast majority of these banks, 89, are located in Moscow. However, these numbers are misleading.

"Only half of the banks that claim to be offering Internet services are actually doing it," said Oleg Drobyshev, general director of INIST, which developed Internet portals for 24 Russian banks. "And only one-quarter have more than a few dozen clients." For the rest, Internet banking serves merely as a marketing tool.

The Internet banking systems vary greatly in what they offer. Some sites are oriented toward large companies, while others pay more attention to the needs of individual clients.

Impexbank's online service allows customers only to check their account status online. Meanwhile, more advanced systems, such as the one used by Avtobank, provide access to a full range of services, enabling customers to handle nearly all of their banking needs via computer.

Most other Internet banking systems fall somewhere in between, enabling customers to open and close accounts, transfer funds, pay bills and buy and sell foreign currency.

Despite the obvious advantages of Internet banking, it is currently used by fewer than 1 percent of all banking customers. According to Avtobank estimates, out of roughly 150,000 Moscow clients, just 3,000 people take advantage of its Internet service. Only 1,000 customers are using Impexbank's site, said a bank specialist.

Overall, said Yury Voronin, deputy chairman of Avtobank, there are only "roughly 15,000 people" using Internet banking in Russia.

The causes are myriad, but they have some bedrock roots. According to a recent study funded by Obshestvennoye Mneniye, or Public Opinion, only 9 percent of adult Russians, or 9.6 million people, are active Internet users, compared to 60 percent of Sweden's adult population, for example.

Of those 9.6 million people, 30 percent have a monthly income of less than $50 per family member. Forty-one percent earn between $51 and $99 per month. And only 29 percent make more than $100, the study said.

According to a study conducted last fall by MASMI research group (, two-thirds of Russian Internet users have a monthly household income of less than 10,000 rubles ($320).

These numbers lead to striking differences between Russia and the rest of Europe. Internet transactions accounted for only 3 percent of all banking operations in Russia last year, compared to almost 25 percent in Western Europe.

"Until Russians start earning the same amount as Americans or Western Europeans, will we see the same level of Internet banking development in this country," said Alexander Kholmogorov, head of Avtobank's salary products department.

Yet, with nowhere to go but up, Internet banking in Russia is developing, however slowly.

"It may be years before Russia's 'Internetization' reaches its maximum level," Kholmogorov said. "But Internet banking is no longer a mystery. We constantly get telephone calls from people interested in these services."

Paltry salaries and limited Internet knowledge are clear causes for the low usage of electronic banking. But some experts also blame the economic upheaval of the early 1990s and the '98 financial crisis for the slow spread of Internet banking.

Simply put, people who have had dismal experiences with banks in the past are more likely to question the security and reliability of a banking web site.

The fact that the majority of Internet-banking software employed by Russian banks has been developed domestically is of little comfort.

"Would you leave your account number online?" Yelena Siroklina of Impexbank said.

Drobyshev, of INIST, claimed the problem was more cultural than technological.

"Software solutions are all out there," he said. "But people are just not ready for them yet. It will be at least 10 years before Internet banking becomes as integral part of life as it is in the West."

As it stands now, large companies have placed greater trust in Internet banking than have individual clients.

"It is used mostly by professional people, even though it is meant to make the life of average customers easier," Drobyshev said. "Professional people are more prepared to deal with traditional banks. In the long run, services for the individual customer are very promising. But their progress is hampered by the undeveloped state of the Internet in this country."

Indeed, business people are responsible for the vast bulk of Internet banking transactions in Russia today.

Although there are definite signs that Russia has overcome the psychological impact of the 1998 default, it may be some time before faith in the domestic banking sphere is fully restored.

Until this happens, Internet banking will lag behind.