The share of non-cash payments in the Russian Federation in 2008 was no more than 5%. In 2017, it was already 39%. In May 2019, Olga Skorobogatova, First Deputy Chairman of the Central Bank of Russia, reported that the share of non-cash payments in our country had reached 61%. These growth rates are among the highest in the world. The most important driving force behind the development of cashless payments is acquiring.
1. What is acquiring in simple words
Acquiring (from the English «acquiring») is a method of paying for goods and services with plastic cards. It includes the movement of non-cash funds, as well as banking and technical support — the processing of personal data of customers
The term «acquiring» comes from the English «acquire» — to acquire, receive. In our country, acquiring began to be used back in Soviet times, but at first it was available only to foreign citizens. In the early 1990s, several first-wave Russian banks began issuing plastic cards and began offering them to Russians as a means of payment.
There are 5 parties involved in the cashless payment process:
- Salesman. It sells goods and services, concludes an agreement with the acquiring bank for the supply of acquiring equipment and further support on a paid basis. Opens a checking account. The commission from each check is 1-3%.
- Acquiring bank. Concludes an agreement with the seller. Delivers equipment, is responsible for its technical serviceability, trains the seller’s staff. Must be registered in the main payment systems (MasterCard, Visa, Mir). Receives a commission from the seller.
- Issuing bank. Issues plastic cards with which the buyer pays with the seller. Responsible for the correctness and security of payments. Receives a commission from the acquiring bank (interchange) — 0.7-2.4%. Develops loyalty programs and accrues cashback, miles, points, etc. to the client.
- Payment system (MasterCard, Visa, Mir and others). Receives a commission from both the acquiring bank and the issuing bank — 0.1-0.2% of each.
- Buyer. Pays for the purchase using a plastic card issued by the issuing bank. Doesn’t pay commission. Receives bonuses from the issuing bank.
Under the current law «On the Protection of Consumer Rights», the seller does not have the right to change the prices of goods and services depending on the method of payment. Therefore, all acquiring costs fall on his shoulders. In percentage terms, the commission paid by him is distributed approximately as follows:
- Issuing bank — 70-80%;
- Acquiring bank — 10-20%;
- Payment system — about 10%;
Sometimes it happens that the acquiring bank and the issuing bank are the same. This is typical for large banks, which allows them to receive additional profit, which they partially use to attract customers. That is why Sberbank, VTB and other leaders of the domestic banking system have such developed loyalty programs.
2. Types of acquiring
Today it is customary to distinguish 4 main types of acquiring:
- ATM acquiring. ATMs and terminals — mini-offices designed for financial transactions;
- Trade acquiring. All outlets where the buyer has the opportunity to pay with a bank card;
- Mobile acquiring. Used by vehicle drivers, ticket sellers, couriers;
- Internet acquiring. Special computer programs are used to ensure the security of funds and personal data of the payer;
3. What determines the size of the commission of the acquiring bank
The commission in each case is individual and is established by an agreement between the seller and the acquiring bank. The main reasons affecting its size:
- The location of the acquiring bank in relation to the issuing banks. If it is located abroad, and the issuing banks are in Russia, then the commission will be higher.
- Payment security. As a rule, special security protocols are involved in merchant acquiring, so the commission is on average lower than in mobile or Internet acquiring.
- Sales turnover. The higher the turnover, the lower the cost of acquiring.
- Type of activity of the seller. Usually, the commission in the food sector is lower than in the trade of large household goods. This is due to the higher probability of return of manufactured goods by buyers.
- Type of plastic cards. The more often credit, gold and platinum cards are presented for payment, the higher the commission will be.
- Vendor location. In remote areas where the bank’s acquiring costs are high, the commission is higher.
4. Advantages and disadvantages of acquiring
Is acquiring profitable? Judging by the growth dynamics of non-cash payments in Russia, the answer looks obvious. But everything is not so simple. The advantages and disadvantages of acquiring should be considered from at least four positions, so the question should be reformulated: cui prodest (who benefits, lat.)?
1 Banks. Credit organizations are the most interested party in acquiring.
The acquiring commission is a significant item of their income. Yes, there are technical costs, yes, there are vulnerabilities and problems associated with the security of personal data of customers, but all of them are more than covered by the profits. Therefore, the question of the benefits of acquiring for banks should be given an unequivocal affirmative answer.
2 State. The interest of the state in non-cash payments is not in doubt. In January 2017, Finance Minister Anton Siluanov proposed taking measures to limit the circulation of cash, which caused a slight panic among the population. Later, First Deputy Prime Minister Igor Shuvalov was forced to clarify that there was no talk of administrative measures, which somewhat reassured the people. The state is interested in increasing the share of non-cash payments, because this allows it to:
- Reduce the cost of issuing cash;
- Fight the shadow economy and corruption;
- Control and increase tax revenues to the budget;
The state is very profitable acquiring, and it plays an important role in the regulation of non-cash payments.
3 Holders of bank cards. People quickly get used to the good. Cash can be stolen, it can be lost, it can become worthless or even disappear in the event of a fire, flood, or other force majeure.
Plastic cards are convenient: they allow you to quickly make purchases, accumulate bonuses, they can be easily blocked in case of theft and restored if they are lost. This is their undeniable advantage. Yes, there are scammers who come up with new ways to steal money from the bank accounts of gullible citizens. But you can protect yourself from their intrigues if reasonable precautions are observed.
A relatively small number of people live in Russia who do not use bank cards in principle. As a rule, these are elderly people. They remember well what happened to their pension savings during perestroika and in the post-perestroika years.
The default of 1998, when the state refused to fulfill its financial obligations to the population, has not been erased from their memory. Our country is far from the only example of restricting access to citizens’ funds in times of political and economic upheaval. In the United States in the 1930s, the government decided to completely close the banks in order to avoid a financial collapse.
The conclusion is as follows: acquiring is convenient and beneficial for cardholders during periods of stability. In troubled times, it is wise to protect yourself and consider additional measures to ensure your well-being.
4 Sellers. They bear all the costs of acquiring. Therefore, the question of whether acquiring is beneficial for them is particularly acute.
Benefits of acquiring for sellers:
- The problem with counterfeit banknotes is removed;
- Reduced collection costs;
- Accelerates cash transactions;
- There is an opportunity to obtain borrowed funds from clients. Credit card holders can pay with them;
- Attract additional buyers. A person prefers to shop in a store where he is given the freedom to choose payment methods;
- The average check is increasing. Psychologists have found that people part with non-cash money much easier than with banknotes;
Disadvantages of acquiring for sellers:
- Only one is the cost of acquiring. Purchase or rental of POS equipment, but mainly commission payments;
The issue of a high bank commission for acquiring did not arise yesterday and not in Russia. In other countries, it was solved differently. It just so happened that in our country he rose today so sharply that he reached the level of the head of state.
5. The problem of acquiring in modern Russia
Bank acquiring commission of 1-3% — is it a lot or a little? It must be borne in mind that a commission is charged on each cash transaction. And the amount of the check and the net profit of a trading organization are completely different things. If the business is thriving, as is the case with large organizations, the commission seems to be quite reasonable. But if we are talking about a small retail outlet whose net income is 5-7%, or even less, then it can be too burdensome.
That is why representatives of retailers (retailers) over the past years have repeatedly raised the issue of reducing the acquiring commission and its legislative regulation at the highest level. Traditionally, representatives of the Federal Antimonopoly Service (FAS), the Ministry of Finance and the Central Bank rejected such an idea.
In February 2019, at the plenary session of the Business Russia Forum, Anna Nesterova, an entrepreneur and public figure, addressed the President directly. She stated that in some countries the acquiring commission is 0.3% or even lower. The president responded that the 3% commission was indeed too much and called it a «quasi-analogue». At the same time, he noted that prohibitive measures would only limit the growth of e-commerce, and called on the business community to take an active part in discussing the problem.
The reaction of the banking sector followed immediately. German Gref and Mikhail Zadornov (FC Otkritie) said that the president was misinformed. According to them, the real bank commission for acquiring in Russia is 1.5-1.7%. They believe that its decline is fraught with changes in the entire business model in our society. Anna Nesterova and the president of the Association of Internet Trade Companies (AKIT), Artem Sokolov, who supported her, did not agree with their opinion. They stated that data on banking fees are publicly available on banks’ websites, and fees sometimes reach 3.7%. Some analysts note that not only small, but also larger retailers have recently begun to encourage customers to pay for goods in cash.
On March 1, 2019, an extended meeting was held with Deputy Prime Minister Dmitry Kozak, where acquiring issues were discussed. It was attended by representatives of the FAS, the Ministry of Finance, the Central Bank, the Ministry of Industry and Trade, the Ministry of Economic Development, retail chains, payment systems and banks. At the meeting, a decision was made on the inappropriateness of state regulation of the acquiring commission. For ordinary consumers, this means that everything has remained the same, in a state of unstable equilibrium, at least for the moment.
Is it good or bad? It would be too naive to think that the reduction of acquiring commissions by forceful methods would lead to a decrease in retail prices. The experience of Western European countries, where they make up 0.2-0.3%, has revealed a number of negative consequences of making ill-considered decisions. Today, an ordinary European pays up to 20 euros per month for servicing a bank card, and loyalty programs have practically disappeared. Banks actually shifted the acquiring costs to the shoulders of buyers. The ideas of retailers are clear and meet their interests. Whether they meet the interests of the whole society is a very big question.