The acronym BRIC was originally coined by Goldman Sachs economist Jim O'Neill in a 2001 article in which he identified the countries of Brazil, Russia, India and China as having the greatest potential for economic growth. In 2010, South Africa was added at the behest of China making BRICS the new acronym. This article explores the original four and shares perspectives from payment pioneers in each region.
Disparate in many ways, the BRIC countries exhibit a growing sense of unity and cooperation, as evidenced by initiatives set forth in annual summit meetings held jointly by this group since 2009. Collectively, these countries represent an estimated three billion people and $14 trillion in gross domestic product.
As the BRIC countries hop onto the technology bandwagon, alternative payments are gaining on traditional card payments, especially online. A WorldPay Inc. study Your Global Guide to Alternative Payments (Second Edition), predicted that by 2017, alternative payments will surpass card payments for online purchases by a margin of 59 percent to 41 percent, and e-wallets will equal cards in popularity as payment methods at 41 percent apiece in global market share.
Industry insiders have observed that Russia's payment systems are advanced by today's standards. "They're big admirers of technology options coming from the U.S., and their banks are very savvy," said Pradeep Moudgal, Director, Emerging Technologies Advisory Service at Mercator Advisory Group. "They're actually investing a lot of money in payments companies in America." He added that from a market sizing perspective, Russia is not growing as much as Brazil, China and India. "It's only 140 million people, whereas China is 1.5 billion, India is 1.2 billion and Brazil is slightly smaller than the U.S. in terms of population," he said.
One company working to bridge alternative payments globally is Munich, Germany-based Pay.On AG, which now has an office in New York. "Clients engage with our systems either as a fully hosted, white-labeled global payments platform or as a gateway-to-gateway solution integrated to their existing systems via a single proprietary API [application programming interface]," said Michael Doron, Managing Director at Pay.On America Inc. He added that the company accelerates connections to more than 350 acquirers and payment schemes, including over 150 local payment methods across 100 countries.
Waltham, Mass.-based BlueSnap Inc. supports global connectivity and has several pilot projects underway with U.S.-based ISOs. "Once you're connected to us you're connected to 180 countries, and it's all done through IP [Internet protocol] recognition," said Ralph Dangelmeier, BlueSnap Chief Executive Officer. "As soon as a shopper comes in from those companies it immediately recognizes it and it knows the device, too." He noted that online clients are seeing a 5 to 7 percent uplift in payment conversions.
Within Brazil's predominantly Portuguese-speaking population of more than 200 million people, 62 percent are under the age of 30, which enhances its reputation for being a vibrant, adaptive culture. The two most prominent payment methods are the Bolleto Bancário regulated by the Brazilian Federation of Banks and installment payments. "If you don't offer those types of local payment options, you're missing a huge share of the population," Doron noted.
As a market, Latin America is following trends witnessed in North America. "Today it's a very traditional market with a terminal or a mobile device going directly to an acquirer or processor where now some of the larger companies are becoming more sophisticated," said Jennifer Miles, President of VeriFone Americas. "It's an opportunity for us to bring some of our ISO partners in to provide technology as ISVs in that region."
In April 2014, WorldPay strengthened its global position by acquiring Brazil-based payment service provider Cobre Bem Tecnologia. "Brazil today is the powerhouse of Latin American e-commerce, accounting for around 60 percent of all spend," said Ieuan Owen, Senior Vice President eCommerce Strategy at WorldPay.
Analysts predict Brazilian e-commerce sales will rise from $24 billion in 2013 to $39 billion in 2016. "Most of this spend is on domestic brands' websites, although foreign brands' share is estimated to be in the range of 5 to 10 percent and rising," Owen said.
U.S.-based online merchants interested in doing business in Brazil should be forewarned that tax codes there are among the most complicated in the world. Multicurrency payment processor PayScout Inc. CEO Cleveland Brown commented on the complexity of Brazil's closed-loop network process policy. He said American businesses wanting to sell to Brazilian consumers must undergo a difficult 12-step sequence to establish a payment presence there.
Brown added that a U.S. business must establish a corporation in Brazil under the guidance of a corporate attorney. However, a Brazilian partner must first agree to own a 50 percent stake in the corporation. The next step is to establish a physical office, but to qualify, the corporation must hire employees under the tutelage of a labor law compliance attorney. Then it must establish a bank account and merchant account before integrating with the local network. Once processing begins the company is required to use the services of a local tax attorney, federal tax attorney and central banking accountant.
Brown completed all 12 steps before opening PayScout Brazil as a subsidiary in 2013. PayScout offers ISO partners a white-label e-commerce program for their U.S.-based merchants to sell into Brazil, which can be set up in about two weeks time.
While Western political exchange with Russia has been tumultuous in recent months, some payment providers see a bright spot in the future for this region. The political situation escalated in March when U.S. government sanctions targeting Russian officials and Bank Rosiya in response to Russia's seizure of Crimea ultimately forced Visa Inc. and MasterCard Worldwide to shutter service to that bank and three other Russian banks.
Visa and MasterCard together process about 90 percent of Russia's card payments. To ensure stability in the card payments system moving forward, a bill approved by the Russian parliament in April was signed into law by Russian President Vladimir Putin to establish a national card payment system in Russia. Analysts estimate it could take from six months to two years to establish the new system. The goal is to reach 100 million cardholders.
Also stipulated under the new law are measures that would impose fines for denial of service and mandatory quarterly security deposits by foreign-owned payment systems to the Central Bank of Russia starting in July 2014. On May 23, Visa and MasterCard executives met with senior Russian officials, who said they would consider easing payment requirements outlined in the new law.
According to Miami-based Net Element International Inc., which launched TOT Money as a Russia-based subsidiary in 2012, the current situation in that country could bolster its business in that region. Net Element CEO Oleg Firer stated during a quarterly earnings call in May 2014 that its business focuses on alternative payment systems operating outside the Visa and MasterCard networks.
TOT Money uses a direct carrier-billing model whereby the company bills mobile operators for customer usage outside the mobile networks. "For example, the consumer could go online and buy content, and all they have to do is put their cell phone number in, and we bill the mobile carrier, and then we settle out with the merchant or content provider," Firer said.
In 2009, Atlanta-based Global Payments Inc. acquired United Card Service, a merchant acquirer and indirect payment processor affiliated with Rosbank in Russia. Global Payments declined to comment on recent developments in Russia. However, according to the company's most recent financial statement, cash earnings from international merchant services, including Russia, rose 10.4 percent for the nine-month period that ended Feb. 28, 2014.
When promoting mobile or any other commerce model in Russia, it's important to understand very few Russians carry debt. "Most of the mobile subscribers are top-up users," Firer said. "I think between the top mobile operators in the country, it's over 200 million subscribers and growing."
Rising affluence among certain segments of the population could change this dynamic. "I think Russians have woken up to consumerism in a big way," said Mercator's Moudgal. "They are one of the biggest spenders amongst travelers outside of the Chinese, Japanese and Germans, and they have money. A lot of it is oil wealth, but there is also new wealth that has come in."
Within India's population of 1.2 billion, there are six major language groups and 110 distinct dialects spoken. In March 2012, RuPay was launched as a national payment card network by the National Payments Corp. of India. It now has about 20 million cardholders.
"In India there are 30 million small to midsize merchant businesses," Moudgal said. "It's a rapid-growth region and many companies have partnered with banks mainly and have actually come up with solutions, but there's no trust in leveraging electronic payments. Cash is still king in India and even in China." Other hurdles mentioned include lack of infrastructure to deliver physical goods efficiently, payment complexities due to fragmentation and regulatory and tax restrictions.
Seizing an opportunity in April 2012, U.S.-based Calpian Inc. acquired significant ownership of Mumbai, India-based My Mobile Payments Ltd. and established Digital Payments Processing Ltd., which does business with consumers as Money-on-Mobile. The stored-value service allows Indian consumers to pay for goods and services or transfer funds from one cell phone to another using short message service technology.
More than one entity guided Calpian's acquisition. "The Reserve Bank of India issues detailed and thorough regulations on what companies can and cannot do, so you have to proceed with caution," said Harold Montgomery, CEO of Calpian. "In addition, investment by foreign companies such as Calpian is governed by the Ministry of Finance Foreign Investment Promotion Board," which oversees many aspects of the acquisition process, he added.
Montgomery attributed Calpian's success to its partnership with a strong Indian management and leadership team. Today Money-on-Mobile is available at 180,000 retail locations, and growing, and has reached 10 percent of India's 900 million mobile phone subscribers, 98 percent of whom prepay for their phone services. There are approximately 150 million mobile Internet connections in India.
Cash on delivery remains a dominant model in India. "We had a meeting with McDonald's of India that operates 250 stores in the northern region of India, and 50 percent of their business is home delivery, which is really e-commerce if you think about it," Montgomery said. "You call up a call center, order a meal and they put it on a motor scooter and send it out to you."
There are obvious financial risks associated with this model. He believes that in the future a retailer-assisted model could emerge in India resembling the Sears catalog stores of yesteryear. In the modern era, customers will order products at local stores via iPad, items will be shipped to the stores for pickup and the store owners will earn a margin on each order.
"India is an environment where most people do not have a car or motorized transportation, so they're walking everywhere," Montgomery said. "You need within a quarter mile of where you live all of the goods and services that you need to function." For example, in India it is common to purchase a cell phone and dinner plate at the same retail location.
Montgomery enjoys working the India side of his business and advises ISOs to seriously consider which regions are most attractive from a personal perspective due to the time commitment and the fact that there is no ready exit strategy.
As the most populous BRIC nation, China also enjoys the largest e-wallet usage. According to WorldPay, 44 percent of transactions in China are made using e-wallets. With an estimated 618 million Internet users, China recently surpassed the U.S. market in online commerce. And China UnionPay debit cards became the most popular payment method in the world based on purchase volume in 2013, according to The Nilson Report.
California-based Acquiring Solutions International Inc., which specializes in card-not-present and business-to-business payment processing, established partnerships in Europe and Japan before targeting China in the mid-2000s.
"We opened what is known as a Wholly Foreign Owned Enterprise, or a WFOE, and registered as a consulting company in the Shanghai bankcard industry market," said Michael Fisher, President of ASI. "I was spending about half my time there for a period of nearly two years." Although fluent in Mandarin, Fisher hired a full-time interpreter to assist administratively.
"We were looking ultimately to enter into a joint venture with a local business to set up an ISO to acquire Chinese merchants," Fisher said. "We never got to that stage." Instead, they sold their interest in the company. What Fisher observed was that larger banks and processing networks in China were inaccessible for partnership with smaller players at the time, which may have changed since then, he said. He also noted that to register with the Chinese government, a substantial financial commitment was required. As a consulting company, a minimum investment of $250,000 over a two-year period was required; for an ISO, the investment was closer to $2 million.
Total System Services Inc. (TSYS) did form a successful joint venture with China UnionPay in 2005, creating China UnionPay Data Services Co. Ltd. According to TSYS, this is the only payment network sanctioned by the People's Bank of China. From May 2011 to July 2013, the People's Bank of China issued 250 payment licenses, with offline acquiring, Internet payment and mobile payment businesses topping the list.
"It remains difficult to predict the future direction for Chinese payments, given the incredible speed of change and the need for the legal and regulatory landscape to catch up with the market," said WorldPay's Owen. Even so, the BRIC bloc holds tremendous potential for anyone willing to navigate rocky waters.
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