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. Last Updated: 07/27/2016

Race Is On to Save Pay Terminals

MTA woman paying a bill at a terminal in a branch of mobile telephone retailer Yevroset on Triumfalnaya Ploshchad.
Senior state officials were scrambling Wednesday to avert the imminent closure of thousands of payment terminals across the country five days ahead of a deadline for them to channel all payments through commercial banks.

Finance Minister Alexei Kudrin gave officials three days to find an alternative to switching off the terminals, which millions of Russians use to pay utility and phone bills, during a closed-door meeting with high-ranking state officials.

A Central Bank directive designed to regulate the terminals, which have mushroomed in the last couple of years, could mean that half of them are switched off when it comes into effect Monday.

Kudrin, recently appointed deputy prime minister with responsibility for the economy, was meeting with IT and Communications Minister Leonid Reiman, Central Bank chief Sergei Ignatyev, head of the State Duma banking committee Vladislav Reznik, head of the Federal Anti-Monopoly Service Igor Artemyev and senior tax officials.

"A decision was reached to give officials three days to come to a consensus," Reznik said. "While a legislative solution is being sought, the Central Bank directive will not be enforced."

The directive, issued in July, stated that payment-terminal owners could only accept payments from users if the money was be processed through commercial banks. Private entrepreneurs running the terminals were also ordered to reregister their businesses as limited liability companies or quit.

Last month, Reznik and Artemyev wrote jointly to Ignatyev, pressing him to rethink the change. In the letter, both officials condemned the directive, predicting that it would destroy the existing payment network, scare away most of the market players and lead to social tension.

Reznik said Monday that he had proposed an amendment to the Civil Code to clearly delineate the functions of commercial banks and allow commercial organizations to continue to receive payments for phone bills and utilities through the existing payment terminals.

The measure, the Central Bank argued, would regulate the market and encourage owners of terminals to pay taxes, while also fighting money laundering by keeping an eye on cash flows.

Russians' distrust of credit cards coupled with a lingering Soviet-era paranoia about long lines has made the stand-alone payment terminals a hit. An estimated 60 million Russians regularly use about 200,000 payment terminals across the country -- a number that has rocketed from just 10,000 terminals two years ago. The payment terminals business is valued at $15.5 billion annually, according to the National Association of Electronic Market Participants.

The impetus for the boom is a law passed in August 2006 that allows unregistered commercial organizations and private agents to accept payments for mobile phone and municipal utility services.

This has been good news for millions of people in small towns and rural areas, where banking services are virtually nonexistent and mobile phones are often the main mode of communication.

Entrepreneurs have also found the automated terminals appealing because they provide a business model that requires no full-time employees, cash registers or large premises.

"An automated terminal costs just $5,000 or so to deploy," said Alexei Nikolashin, director of Kaskad Pay, a key supplier and owner of thousands of payment terminals. "You can just wake up and own one."

And, with the banking sector expanding and consumer loans booming, automated payment terminals look set to become an indispensable means of making repayments.

Market players fear that the Central Bank's directive could nip these developments in the bud before the market gets the chance to mature.

"By weeding out individual entrepreneurs, the market would shrink and lead to uncompetitive practices," said Andrei Kashevarov, deputy head of the Federal Anti-Monopoly Service.

"There is a tendency for prices to remain high and uncompetitive -- especially since Sberbank, a state-owned bank, will be the main player in the market," Kashevarov said. "Only multiple players would ensure an equilibrium between price and quality."

The anti-monopoly service has been seeking to persuade Central Bank officials that there is a place for independent terminal operators.

"Acceptance of payments is not just a banking operation. Only the transfer of money strictly falls under banking operations," Kashevarov said. "In a healthy economy, every individual or retail outlet can accept payment for goods and services. That does not imply that each and everyone needs a contract with a commercial bank."

Dmitry Repin, marketing director of Eleksnet, which owns nearly 1,400 terminals, said the directive "will only affect small and dishonest players who have been working outside legal framework and are essentially engaged in money laundering." He dismissed the suggestion that most terminal owners would flee the market, adding, "If some shady owners leave the market, it will open the way for law-abiding ones."

Nikolashin, of Kaskad Pay, warned that payments through terminals would plummet unless a compromise was reached very quickly.

"The measure could imply a death knell for our business because 50 percent of our agents are individuals without legal status," said Nikolashin, who said he hoped the directive would be "withdrawn or modified before the deadline."

Vladimir Lopatin, general director of United System for Instantaneous Payments, which controls some 16,000 terminals across the country, said commercial banks' involvement would raise prices for services but that he expected the services of individual owners and commercial banks to complement each other.

The country's major mobile operators also said the measure could endanger businesses by reducing their clients' choice of payment methods.

"The banking system, in its current state, could not maintain the same extensive networks of payment terminals that our clients use," said Yelena Prokhorova, a spokeswoman for VimpelCom, the country's second-biggest mobile phone operator.

In addition to cutting an essential service, the move could bring hardships to residents of remote areas of the country by making it impossible to use their mobile phones when in need of emergency services, said Marina Belasheva, a spokeswoman for MegaFon, the No. 3 mobile operator.