Pin It

Country Spotlight: Understanding Consumers and Cross-Border E-Commerce in Russia

Russia, the world’s biggest country and among the 10 most populous, is unique. Although it has always had a relatively mature payments infrastructure compared to other global powers, internet penetration developed much more slowly than in most other developed nations. Spread over two continents and 11 time zones, Russia has had some distinct economic challenges as well as advantages, some of which make it an attractive option for cross-border e-commerce investment.

One of the BRIC countries along with Brazil, India, and China, Russia is in a stage of newly advanced economic development. It boasts the world’s 12th largest GDP along with a rapid rate of growth. Since the US introduced sanctions against certain Russian banks in 2014, the Russian government has invested heavily in its own payment landscape in order to be less susceptible to external influences. The development of the Mir payment network and the National Payment Cards System (NPCS) has driven a spike in financial inclusion over the last two years and helped propel the e-commerce market, which has experienced 9% growth year over year since 2011.

Russian Consumers

The Russian e-commerce market has historically been held back by a general consumer preference for more traditional payment behaviors, but since 2014 this trend has seen a reversal. In the early days of e-commerce, Russian consumers who shopped online still opted for tradition payments methods, such as cash-on-delivery. Today, with online shopping more ingrained in everyday life, alternative payment methods have started taking hold.

Uniquely, Russia has a national search engine, Yandex, which is the most popular search engine domestically. Yandex has developed a proprietary e-wallet which helped drive the adoption of online payment methods, as has eBay’s localized Russian site, which includes both domestic and cross-border merchants.

In 2015, the total e-commerce market growth rate slowed markedly from 31% to 6.6% due to a combination of factors, including the low value of the Ruble, low oil prices, and Western sanctions. Despite the slower growth rate, cross-border e-commerce has seen a spike, as has the adoption of m-commerce. Cross-border purchases grew from a total value of USD 2.2 billion in 2014 to 3.4 billion last year, making it the fastest-growing segment of the market.

Though the cross-border market growth outpaces the domestic at a rate of 42% to 35% respectively, cross-border payments only account for about 14% of the e-commerce market’s total value of 10.5 billion USD. Domestic retailer Ulmart, specializing in computer hardware and consumer electronics, is the leading e-commerce website in Russia with nearly 600 million in sales in 2015. Those categories, however, were less in demand than previous years, being outpaced by leading product categories clothing and footwear, sporting goods, pet goods, children’s goods, and groceries.

Drivers and Barriers

Driver: The Leapfrog Effect

The leapfrog effect is a contemporary phenomenon of certain consumer populations suddenly and rapidly adopting e-commerce on mobile devices such as smartphones and tablets. E-commerce has been slowly building up in the world’s most developed economies with most consumers first shopping online using their desktop computers before the rise of smartphones. In other nations, internet penetration has historically been low, so it’s only now, with the widespread adoption of mobile devices, that these populations have regular access to the internet, and by extension, e-commerce. These populations “leapfrog” the intermediary step of e-commerce via desktop computer going straight to m-commerce, or e-commerce through mobile devices.

The share of Russian consumers accessing the internet via mobile devices rose from 17% in 2014 to 37% last year, resulting in a rapid influx of consumers seeking to do their shopping online.

Barrier: Logistics

When introducing your products to a new market, it’s usually pretty simple to figure out if you can reasonably ship to that market, but Russia is different. More than 12% of the planet’s total landmass is contained within Russia’s borders. When a Russian consumer orders your product, you may have to deliver it anywhere within an area that stretches from Russia’s western border with Poland all the way to Alaska and Russia’s eastern coast!

The good news is that last week the Russian Post announced an initiative to make “the delivery of shipments from foreign online stores faster and more convenient.” The commitment involves purchasing their own cargo planes and partnering with postal administrators in 35 countries, and counting.

Driver: Government Initiatives

The Russian Post isn’t the only national body pointing an eye toward fostering domestic and cross-border e-commerce. The government’s commitment to increasing financial inclusion with the introduction of the National Payment Cards System (NSPK) has been very effective, with a planned 120 million Mir cards in circulation by 2019. This shift will displace the market share of Visa and MasterCard, while financial institutions invest heavily in payment technology innovation.

Barrier: Recession

The bulk of the dollar-value growth of Russia’s cross-border e-commerce sales has gone to neighboring China, in part because of the low value of the Russian Ruble compared to the US Dollar. Western merchants saw a marked decrease in Russian activity in 2015 due to the depreciation of the Ruble, since much of the cross-border shopping in previous years was driven by the lower cost of Western products compared to products in Russia.

Russian E-Commerce Facts

• One of four countries recognized for new, rapid economic development (the BRICs).
• The total Russian e-commerce market grew by 42% in 2015, to a value of 10.5 billion USD.
• Cross-border e-commerce is growing at a faster pace than domestic.
• Local card scheme Mir accounts for a major share of the payments card market.
30 million online shoppers spent an average of 758 USD each in 2015.
• Clothes are the most popular online good, followed by consumer electronics. Travel is the most commonly used online service.

The Russian e-commerce market is unique and challenging but also young and eager for international goods. With most consumers newly connected and mobile, Russia is one of the world’s standouts in terms of growth potential. By investing in Russia now, online merchants can build lasting partnerships with domestic providers and tap in to a tremendous amount of purchasing power.

Expanding into a new international market is a risky venture but a very rewarding one if done right. For the latest information about how you can build and maintain a strong e-commerce enterprise and keep it compatible with legislation and buying habits at home and abroad, subscribe to the Payza Blog and follow us on Facebook and Twitter for the latest industry news.