One of the major hurdles to the development of business-to-consumer (B2C) e-commerce in Russia is the impracticality of paying on the Internet.
It's actually a two-pronged problem. Russians don't have that much money to spend in the first place, and even when they do, finding a convenient and safe way to pay is difficult.
Since most Russians have low purchasing power, several observers wonder whether selling goods on the Internet can be profitable in the short run. As for payment systems, the one most used in the West, i.e. credit cards, is neither very widespread nor trusted in Russia.
According to research by PricewaterhouseCoopers, only 18 percent of Russians have credit cards. What's more, 10 percent of credit-card transactions over the Internet are fraudulent, and this proportion could increase. There are, of course, other means of payment, like cash-on-delivery and prepaid cards, but they are not very convenient.
Knowing all that, it took a bold and innovative move to launch a new payment system for Internet B2C transactions. And innovate, new payment system EACCESS (http://www.eaccess.ru) does, on at least two counts.
The first problem EACCESS tried to solve is Russians' limited financial means. Its answer is simple and logical: Focus on micropayments, that is, transactions no higher than $10. And, EACCESS founders think, that segment of the market is developed enough to be profitable for them.
"Micropayments account for 19 percent of transactions over the Internet worldwide, and that proportion is probably higher in Russia, so it is a really large market" said Sergei Kuznetsov, executive director of EACCESS.
Since it is concentrating on small transactions, EACCESS will be a payment means not for material goods, but for services and resources you can access over the Internet. These will include ticket reservations, access to paying databases and archives, downloading of software, and so on.
This will solve another problem e-commerce shops often have, which is particularly acute in Russia, where post-office delivery often doesn't work well: delivery delays. Since EACCESS is only designed for immaterial goods, there will not be any delivery or delivery delay goods will be accessible instantly.
That is assuming, of course, that users can also pay instantly. And this is EACCESS' second innovation. Services bought on the Internet will be charged on the client's phone bill and paid for at the end of the month.
After having logged onto a Website selling services and working with EACCESS, a user wishing to purchase something online will go to EACCESS' site. He will be given a paying code corresponding to the purchase he is in the process of making, as well as a phone number to call.
The user then calls this phone number and gives the paying code he has just been given. The corresponding sum of money will automatically be written on his phone bill. He then goes back to the Website he was initially on to access the service he purchased.
EACCESS has an agreement with Rostelecom, a subsidiary of Russian national phone company Svyazinvest, which allows it to operate the scheme. At the moment, there are no agreements with mobile phone firms.
Of course, this system raises a certain number of questions. For instance, how will users react to having to make a phone call after they have accessed a site which, for many, means disconnecting themselves from the Internet and then getting connected once more, a process that can take some time?
EACCESS General Director Ylgiz Yamilev said that about half of Internet users access the Web from their workplaces. These are often equipped with a line dedicated for the Internet, or with an ADSL (Asymmetric Digital Subscriber Line) connection, which allows one to be connected to the Internet and talk on the phone at the same time.
As for users who log on from home and use a regular dial access, Yamilev said EACCESS would still be more convenient for them than having to buy prepaid cards or pay cash on delivery two common methods of Internet payment in Russia.
Another problem might arise from users who don't pay their phone bills, or who can't pay for what they bought at the end of the month. This is a particularly serious question, since, to attract Websites selling services and resources and convince them to work with it, EACCESS has to pay for the commodities in advance, before they have actually been purchased by Net users.
Only when users pay their phone bill will EACCESS get its money back, plus a margin, since it sells services to Internet users for a higher price than it pays the partner Websites. Kuznetsov said EACCESS would have between $25,000 and $30,000 immobilized at any given time as a result of its buying services in advance. He agreed it was a risk for his company but said this was only a temporary disposition during the project's launch phase.
According to Kuznetsov, EACCESS represents an investment of $200,000. The money comes from Russian "private investors." EACCESS hopes to have 1,000 transactions a day and a turnover of $700,000-$800,000 for 2001.
Correction: Last week, in "B2B portals begin to focus on consumer goods," Peter Lavelle should have been identified as head of research at investment bank IFC Metropol.
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