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IBS talks to the head of outsourcing services at SwitchMaster, a Russia-based payments processor, about its TranzAxis platform from Compass Plus, the role of the company in the Russian payments industry, and the threats and opportunities of new businesses.

SwitchMaster in Russia is a privately- owned payments processor which services 50 banks, a network of tens of thousands of ATMs and self-service kiosks, and processes around ten million cards. The company launched in H2 2011 on the TranzAxis platform from domestic provider, Compass Plus.

SwitchMaster’s head of outsourcing services, Danil Pominov, says the driver for the launch of the payments processor was that there were difficulties associated with… continues (login/register).

IBS talks to the head of outsourcing services at SwitchMaster, a Russia-based payments processor, about its TranzAxis platform from Compass Plus, the role of the company in the Russian payments industry, and the threats and opportunities of new businesses.

Danil Pominov, SwitchMasterSwitchMaster in Russia is a privately- owned payments processor which services 50 banks, a network of tens of thousands of ATMs and self-service kiosks, and processes around ten million cards. The company launched in H2 2011 on the TranzAxis platform from domestic provider, Compass Plus.

SwitchMaster’s head of outsourcing services, Danil Pominov, says the driver for the launch of the payments processor was that there were difficulties associated with the interaction between operators within the payments industry. He says: ‘The necessity to have a universal switching centre which would take over clearing and transactional interaction between the operators of payments systems clearly emerged on the market.’ SwitchMaster was launched to enable financial institutions – members of different payments systems – to provide their customers with a wider range of services and a lower cost of implementation, he adds.

Pominov muses that the company’s agreement with United Settlement System (USS) has also ‘accelerated’ the growth of SwitchMaster. USS, a Moscow-based clearing house, is one of SwitchMaster’s largest customers. It comprises 130 banks and operates a network of more than 25,000 ATMs. SwitchMaster has, over time, become the main switching and clearing centre of USS. This partnership has also enabled SwitchMaster to switch and process the transactional flows of major operators of payments systems including domestic players like Zolotaya Corona, NCC-US and CyberPlat, he adds.

To underpin its business, TranzAxis was brought in to cover SwitchMaster’s transaction processing, card management, retail banking, analytical tools, merchant and terminal management, security and monitoring tools, delivery channels and switching. Pominov notes that the key feature of the system is its openness. He says: ‘The embedded development tools of the platform enable the implementation of new products in just a few days.’ He adds that it is also possible ‘to quickly implement new business processes and technical procedures, for example to support online clearing interaction with an external system’.

[blockquote class=quotes]

‘The necessity to have a universal switching centre which would take over clearing and transactional interaction between the operators of payments systems clearly emerged on the market.’
Danil Pominov, SwitchMaster

[/blockquote]

Other reasons for choosing Tranz- Axis included the fact that it is a single technological platform built on Java, and it deals with both card and non-card transactions. Additionally, Pominov says that any user of the TranzAxis system minimises its dependence on the vendor as almost all application tasks – including system customisation, support of technological options and implementation of new products – can be performed by the user themselves.

Regarding the IT set-up, SwitchMaster runs the TranzAxis platform on a hosted basis. This environment is still ‘uncommon’ in Russia, Pominov notes, as most of the key players prefer to own the full technological infrastructure. In addition, SwitchMaster has a partnership with Compass Plus’ processing centre, which means that if the processing centre doesn’t offer a service that SwitchMaster does, the customers of Compass Plus are offered this service from SwitchMaster and vice versa.

What is it like to be a payments processor in Russia? Pominov says the industry is growing with many interesting niches. The development of the industry – including the entrance of Russian companies to Western and emerging markets – and SwitchMaster’s ‘unique’ market position ‘presents the opportunity to run this business with an acceptable rate of return and without any serious threats’, he observes.

Pominov says SwitchMaster’s strategy differentiates the company from its competitors. In particular, its scope of work is very specific, aiming to meet the needs of the industry’s ‘elite’ – the payments system operators. Hence, its model ‘is not built on a traditional marketing strategy, where the concepts of differentiation, competitive advantage and others are used, but rather based on understanding the global industry trends and building the non-competitive technology and business models which are undoubtedly interesting and profitable for the industry leaders’. For onboarding new customers, Pominov says the strategy is to ‘provide the participants of your payments service with the opportunity to implement new services quickly and cost-effectively’.

SwitchMaster’s main competitors in the local market segments tend to be processing companies, payment services aggregators and operators of payments systems. However, Pominov says, ‘it would be incorrect to call any one of them a key competitor. Initially we tried to take a position which was closer to an industry association, whose purpose is not to earn profit rather than to promote the industry development as a whole’.

Speaking about the Russian payments industry today, Pominov thinks that the level of automation has significantly developed. He says this is partly due to the fact that ‘the Russian market was created later than others and therefore it initially relied on more modern technology’. However, non-cash payments ‘are not yet as common in Russia as in the West’.

Pominov says the long-standing players in the market will continue to attract business through innovative technology, such as mobile wallets and online payment services. However, he feels that there is scope for start-ups in the Russian market. ‘New and interesting players are emerging, including those that rely on previously uncommon services, for example the management of accounts in electronic form and the consolidation of payment accounts.’

Concerning market pressures, Pominov points out that direct participants of the financial services market (such as banks, non-bank credit institutions, and electronic payments systems) are experiencing increased control from regulatory bodies. However, he says that this provides an opportunity for SwitchMaster, because the financial institutions are ‘becoming more interested in creating efficient and transparent business models’. Pominov gives the example of a new regulation introduced in January this year, meaning that the issuer will have to refund any disputed transaction automatically, and volumes are expected to increase fivefold.  ‘Whilst people are unhappy about this, we saw it as an opportunity, and quickly built a dispute resolution system on TranzAxis. Now our customers are happy and this new service attracts additional business.’

The biggest trend in the Russian payments industry, he remarks, is the growth of mobile payments. ‘Mobile devices play an increasingly significant role as a payment tool and it concerns various business models including banking applications for account management, innovative mobile wallets, mobile operators’ service, m-commerce and loyalty applications.’ Pominov also notes that he has witnessed modernisation of the banking environment. ‘There are many new banks that implement cutting-edge products and a full range of services to its customers. This is a response to the current trends and competition from non-bank players.’ He concludes that with the increased control over the payments industry, the banks take up a more ‘favourable position’.

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by Darshana Adanwale
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