Spotlight: the Russian e-commerce cross-border market
The Russian e-commerce market demonstrated a record-breaking 59% growth last year.
According to the latest data of the Association of E-commerce Companies (AKIT), the volume of the Russian e-commerce market has reached 1.66 thousand trillion rubles ($25.5 billion) in 2018. The last three years showed roughly 20% growth – which is growing at an unprecedented rate.
Cross-border is flourishing
The Central Bank of Russia has reported that Russian customers spent $9.7 billion (610 billion rubles) in foreign online stores. In 2018, the income of foreign merchants from the Russian market has significantly increased by 34.7%.
In 2018, the rate of cross-border sales was about 30.4%, which shows a stable rate of Russian customers shopping on foreign online stores. The rising trend of cross-border trade is based on customer demand for quality. Earlier Russian buyers were keen on making low-price and affordable goods orders from abroad. But now, more and more high-quality and luxury goods retailers are experiencing interest from Russian consumers.
The cross-border segment of online sales has shown signs of growth. According to AKIT, 380 million parcels were sent to Russian customers from foreign stores in 2018 (+30.1% in comparison to 2017). China stands at 92% of foreign orders followed by the EU (3%) and US (2%).
In 2018, AKIT data showed that the most popular product categories among Russian customers buying online from abroad included apparel and footwear (33%), household appliances and electronics (28.3%), perfumes and cosmetics (7%). The “other” category (19%) includes products for pets, office equipment, building materials, decorations, food, books.
Top categories of cross-border trade in 2018 are provided by AKIT and listed below:
|Category of goods||Percentage in cross-border|
|Apparel and footwear||33%|
|Household appliances and electronics||28.3%|
|Perfumes and cosmetics||7%|
|Autoparts and car accessorizes||7%|
|Household products and furniture||7%|
The e-commerce landscape: how to meet a Russian customer’s demand
Experts from the Gaidar Institute based in Russia, consider the middle Russian cities (with population from 200 to 500 thousand people) to be the target audience of online retailers. The reasons are the lack of assortments in local offline stores and the attractive prices.
The biggest cities have the highest rate of consumers and users of online payments and shopping.
Partnerships between payment service providers (PSPs) and banks has encouraged the expansion of online customers. Some consumers in the Russian e-commerce market are still interested in buying goods via foreign websites, but face difficulties due to a lack of consistent payment methods.
Some cross-border players have already noticed this trend. For example, as Turkish online platforms are in great demand to Russian customers. Isbank recently partnered with Yandex.Checkout to provide over 10,000 of its merchants with local payment methods that are popular on the Russian market – enhancing the engagement of customers in cross-border purchases between the two nations.
Rise of Russian eCommerce: forecasts
The Gaidar Institute predicts that the market will double in growth to $42.7 billion (2.78 trillion rubles) by 2024. Additionally, AKIT estimates that the market will rise by 32.5% up to $33.8 billion (2.2 trillion rubles) this year.
Morgan Stanley also provides a promising forecast. In 2018, bank experts predicted a near threefold growth in the e-commerce market in Russia over the next five years. According to the analysts, the electronic market for physical goods will grow to $31 billion by 2020 and will probably reach $52 billion by 2023.
Russia is the largest online audience in Europe (the sixth in the world), and very well acquainted with online purchases and e-commerce trends. That’s why one of the drivers of e-commerce growth is the increase in the amount of online purchases per user. According to the e-commerce Russia Association, there were four online orders per user in Russia, while the Chinese market accounts for 38 per individual in 2018. The transfer of offline purchases to online, particularly, in those industries that weren’t coved by online infrastructure yet, is also another key development
In early 2019, the consumer-to-consumer (C2C) Faster Payments System (FPS) was launched by the National Payment Card System. The system ensures money transfers between clients of different banks by their phone number. At the moment, there are 14 members of the FPS and over 100 organisations are in the process of integration. Yandex.Money, the joint-venture of Yandex and Sberbank, is also considering its involvement in the scheme.
FPS was created to change the Russian payments market by simplifying the P2P experience. The volume of the P2P market is significant and in 2018, this figure reached about $477 million (30 trillion rubles). It exceeded the annual volume of cash payments, for the first time. One third accounts for industry of services. The FPS will certainly advance next year’s growth of the e-commerce sector.
Regulators are also planning to introduce the consumer-to-business (C2B) FPS later this year, which will enable instant payments from individuals to businesses selling goods and services. The demand for a simple C2B payment scenario in Russian e-commerce is evident. It will help decrease the costs for payment acceptance in comparison to any other methods (e.g. online acquiring). However, merchants face the task of encouraging customers to pay this way, since customers using bank cards are accustomed to getting cashback and bonuses, while payments through C2B FPS don’t have a loyalty program.
That’s why online merchants will have to motivate customers to pay via FPS on their own. Yandex.Checkout, is also considering the possibility of adding a C2B FPS method, which will help tap into the 38% of e-commerce players on the Russian market. However, it is key to note that the FPS only works for settlement accounts registered in the Russian Federation, and does not work for cross-border transactions.
By Oksana Korobkina,COO,Yandex.Money