Analysis of the ATM market in Russia

What foreign components are used by Russian-made ATMs?

Russian ATMs use South Korean and Chinese validators (devices for recognizing and processing bills), the domestic module is scheduled for release in 2026. This became known on May 23, 2023.

As a source in the banking market told Kommersant, the inability to set up American ATM validators to accept new Bank of Russia bills will force banks to replace them with Asian-made devices. According to the publication’s colleague, the ATMs of the Russian company Saga use Korean validators, and the equipment of the Moscow company BFS is Chinese.

BFS said that the company was able to organize a full cycle of serial production of ATMs from the concept, development of design documentation, unique design, Russian software and up to the production of components, assembly and testing of finished devices. The newspaper writes that BFS ATMs operate on a Russian-designed processor “Elbrus 8SV” (28-nm manufacturing technology, in the Russian Federation until May 2023 there are no factories capable of producing microelectronics in accordance with this norm).

According to Roman Prokhorov, chairman of the board of directors of the Association of Financial Innovations, ensuring full localization at the first stage will be problematic, since some electronic components will have to be obtained unofficially. However, Viktor Dostov, chairman of the Association of Electronic Money and Money Transfer Market Operators, believes that the term “localization” in relation to ATMs, whether Russian or foreign, is always limited.

According to Dostov, assembling and using local software is beneficial, as it can positively affect the price of the ATM, especially if the government supports this in terms of taxes and tariffs for customs clearance of parts.

Production of ATMs in Russia

Moscow Mayor Sergei Sobyanin wrote on his blog on May 22, 2023: “In the Moscow industrial park “Rudnevo” mass production of Russian ATMs has begun. We are talking about the project of the BFS Capital Company.”

According to him, the company is capable of producing 15 thousand ATMs per year, while its production capacity can be doubled. This volume of products will almost completely cover the needs of the Russian market. The capital’s mayor said that the company has already pre-ordered 7 thousand ATMs.

The ATM cores are “Elbrus” processors from the Russian company “MCST JSC”. BFS, together with MCST, has developed a system unit that includes all the necessary interfaces. Of the more than 800 ATM components – 80 percent are Russian-made, and gradually this share will grow.

As of May 2023, the BFS production line is located on 5.5 thousand square meters. It includes 11 final assembly stations and 9 final product testing stations. It is also noted that the production line is almost fully automated. For example, the welding process is carried out by the latest generation of welding robots. The company uses 3D printing and prototyping of plastic parts of an ATM.

The number of ATMs has decreased for 3 consecutive years

As of the beginning of January 2023, there were 179.7 thousand ATMs in Russia against 190.4 thousand last year. The number of ATMs in the country has decreased for the third year in a row. Moreover, the decrease of 10.7 thousand machines in 2022 was the largest decrease since 2015, when the number of machines decreased by 16.6 thousand units. This is evidenced by data from the Central Bank of the Russian Federation published in March 2023.

According to RIA Novosti, citing regulatory materials, ATMs with cash dispensing function were restricted most of all in 2022 – 6.4 thousand, up to 114.3 thousand units, which was the least number in 11 years.

In addition, Russians are using cards less and less to withdraw money – this indicator has decreased for the seventh consecutive year. At the end of 2022, the number of such operations amounted to 2.132 billion units against 2.314 billion units in 2021.

The Kommersant newspaper notes that by the end of December 2022, compared to the previous three months, the number of ATMs in Russia increased by 1.8 thousand units. Experts interviewed by the publication explain the sudden increase in the number of ATMs by the need to modernize the fleet of machines amid the withdrawal of Western manufacturers from the Russian market. The problem appeared when in mid-2022 the Central Bank announced that a new 100-ruble banknote had been introduced in Russia.

As market participants explained, banks had to configure ATMs with the function of depositing banknotes in order to accept new banknotes. However, due to the withdrawal of leading Western manufacturers of these devices, it became impossible to update their software. The only way out was to replace the devices with Chinese and Korean ones.

The active supply of ATMs to the annexed regions also played a role in this issue. In 2022, Promsvyazbank installed 700 ATMs in new regions of Russia.

Tinkoff releases its first production ATM

On December 27, 2022, Tinkoff presented its first production ATM – “One”, as the bank called it, which is the first ATM not only designed, but also assembled in Russia using domestic equipment and components.

The device is based on the capabilities of the bank’s technical production company (Tinkoff ecosystem in spring 2022). The new model has accumulated the latest developments in the field of banking devices and customer experience over the past 5 years since the installation of the first Tinkoff ATM, the credit institution said in a statement.

The new model supports all services: cash deposits and withdrawals using contactless cards, telephone and QR codes. Also, the ATM is equipped with a recycling module that provides work with several currencies.

The first “One” was installed in the “Vodny” business center in Moscow. The Tinkoff press service announced on December 27, 2022 that in the near future, another 1,000 ATMs will be added to the network, which currently has 3,500.

Russian banks continue to turn off thousands of their ATMs.

In Russia, the situation with the availability of ATMs is rapidly deteriorating. They are disappearing across the country. The Bank of Russia paid close attention to the current situation, saying that in terms of the number of ATMs, Russia has almost fallen back to where it was 12 years ago.

According to the Central Bank, by December 2022 there will be no more ATMs in Russia than in 2011. Their number will reach 178.22 thousand, moreover, this figure is as of October 1, 2022. The Central Bank did not provide more relevant data. At the time of publication of the material, given the general trend towards the abandonment of bank ATMs, most likely, their number has decreased slightly over two months.

From January 1 to October 1, 2022, Russia has never recorded an increase in the number of cars issuing cash to ATMs. At the beginning of the year, there were about 190.4 thousand, that is, in just 9 months their network has decreased by about 12 thousand or about 6.5%.

According to sources, in the first half of the year, the share of total bank card transactions due to cash withdrawals was only 41.7%, while in 2008 this figure was 92.6%. They attribute this to the fact that you can pay by card or transfer money from one account to another through a mobile application even in the market.

However, the reverse dependence cannot be ruled out. Due to the lack of an ATM nearby, Russians are forced to pay for everything through a terminal or from the screen of a smartphone.

On the one hand, the digitalization of payment transactions allows you not to carry cash with you and, for example, not to risk losing it. Also, when paying by card, the likelihood that the seller will “accidentally” incorrectly count the change due to its complete absence is reduced.

On the other hand, by exchanging cash for a card or application, Russians may encounter, for example, a malfunction of the bank payment system caused by a technical malfunction. In this case, it will not be possible to pay for goods or services at all. Or there may be no mobile communication at the point of payment, which will also prevent payment.

In addition, we must not forget that the card money, although it belongs to the account holder, is actually with the bank. In this case, the money on the account may be blocked or withdrawn for some reason by mistake or as a result of fraudulent actions.

Banks moved towards a gradual reduction in the use of banknotes by Russians almost nine years ago, although before that, on the contrary, they sought to facilitate their access to ATMs and cash as much as possible.

The number of ATMs in Russia increased by April 1, 2014 and reached 237.4 thousand. From that moment until December 2022, with the exception of only a few months, ATMs in Russia became smaller and smaller. If we compare the indicators for April 1, 2014 and October 1, 2022, the country has a shortage of about 59.2 thousand machines for issuing cash.

It follows that the search for the desired ATM for Russians takes longer than before. Residents of large cities are less worried, while the disappearance of an ATM in small towns can turn into significant problems for their residents.

Central Bank presents “roadmap” for domestic ATM introduction

In September 2022, the Central Bank of Russia presented a roadmap for the creation and implementation of domestic ATMs in the country. As Kommersant writes, referring to this document, testing of such equipment manufactured by BFS and SAGA in the largest banks will begin in the fall of 2022.

If the tests are successful, serial production of Russian ATMs will be launched, which may enter credit institutions in the first quarter of 2023. It is estimated that the first batch will include several hundred machines.

According to Alexey Voilokov, vice president of the Association of Russian Banks (ADB), even after serial batches of ATMs enter the market, their manufacturers will continue to work on localization over the next two years. The expert claims that it is technically impossible to create a completely domestic, 100% localized ATM in Russia.

The newspaper’s source said that it is possible to manufacture the case, the mechanical part of the ATM design, in the country, but in most cases the electronic filler is not produced in Russia and is unlikely to be produced soon.

Dmitry Vishnyakov, an independent expert on the payment card market, believes that there is no need to urgently manufacture Russian ATMs at all.

According to Vishnyakov, multifunctional devices will be more relevant for Russian banks, which can combine the function of issuing cash with many others and provide citizens with access to financial services from regions with low Internet and mobile penetration.

According to Roman Prokhorov, chairman of the board of directors of the Financial Innovations Association, the production of ATMs is a relatively high-tech industry, it will not be possible to ensure rapid import substitution in it, so you need to use the existing import opportunities.

Russian banks are turning to Chinese ATMs.

On July 11, 2022, news of the purchase of Ak Bars Bank ATMs manufactured by the Chinese company GRG was published. The Russian credit institution began installing the purchased equipment in September 2022.

As a representative of Ak Bars Bank told Izvestia, cash receiving and issuing devices were purchased. Previously, ATMs of American manufacturers were used in the bank’s network.

Ak Bars Bank is not the first Russian credit institution to decide to switch to Chinese ATMs. For example, Postbank is already using such systems, and VTB is testing self-service machines, including those made in China.

Zenit plans to use Chinese and Korean ATMs. They cannot be delivered earlier than the fourth quarter of 2022. A similar possibility is considered in UBR. Chinese ATMs can be purchased at Sberbank, Otkrytie and Novikombank, Izvestia writes.

The Central Bank of the Russian Federation told the Izvestia newspaper: that they are studying and evaluating the capabilities of Russian manufacturers of various equipment – ATMs, counting and sorting machines, payment terminals. The Bank of Russia is negotiating with them. According to the regulator, in some market segments, Russian players occupy a high share, they are competitive both in terms of price and technology. They added that Russian manufacturers have the opportunity to expand their presence.

Banking in Russia – Facts and Figures

The Russian banking industry, which is among the top 10 largest in Europe, is characterized by a high level of capital consolidation and a reduction in the size of credit institutions. Such a tendency is closely related to the Central Bank’s policy implemented in 2013, aimed at reducing the size of financial institutions in the country. As a result, more than 500 bank licenses were revoked by the government. Despite the numerous financial institutions operating in the market, the foundation of the system is close to the systemically important banks. As of December 2020, almost half of the total assets of the banking sector were held by three large banks, more than half of which belong to Sberbank – the largest bank in Russia.

Lending and Savings

Amid the latest geopolitical and socio-economic events, the Russian banking sector has been experiencing a major financial crisis caused by the severe sanctions imposed by leading economies in response to Russia’s military invasion of Ukraine. In February 2022, the Central Bank set the key interest rate at 20% due to the increase in inflation. Although interest rates on consumer loans have been relatively stable in recent months, demand for loans has declined significantly across the country. With the gradual increase in the volume of customers’ bank deposits, Sberbank ranked as the most reliable institution for such purposes.

Mortgage loans were the most in demand for consumer loans, which was reflected in the growing trend of mortgage debt in the country. In the corporate lending market, the growth rate of SME credit increased by six percent in 2022. The value of loans granted to businesses reached a historical maximum and exceeded 86 trillion Russian rubles as of January 2022.

Consumer Banking

Interest in retail banking in Russia has been very prominent in recent years. In this context, retail banking services have seen rapid development, which has partly contributed to the gradual migration to cashless payments. Although customers’ preference for cash remains dominant, the volume of credit cards issued across the country has been steadily increasing year-on-year, reaching around 40 million in the first quarter of 2021.

While Russians’ share of banking services is increasing, loyalty rates for the most widely used banks hit their lowest point in 2020, following a steady decline over the past few years. However, the majority of users reported overall satisfaction with their financial service providers that year. The majority of customers processing bank transactions online serves as evidence of the advanced stage of digitalization of the banking system.

Russian banks

The Russian banking system is heavily regulated, largely state-controlled, and heavily regulated by the Central Bank of Russia.

The Russian government owns a majority stake in the top two banks, Sberbank (SBER) and VTB (VTBR), which together account for more than half of the assets of the Russian banking industry.

After these two giants, the next three largest banks by assets are the state-controlled Gazprombank, Promsvyazbank, which was nationalized in 2018 and became a lender to Russia’s defense industry, and the fully state-owned Russian Agricultural Bank.

Number of foreign banks in Russia by country and their assets, million dollars

 

Notable is Russia’s $26 billion spending on buying up ownership of banks that were planning to leave the country after the Ukraine war.

E-commerce in Russia

Although Russia, like many other countries, faced a collapse in financial and economic markets during the coronavirus pandemic, it took advantage of the opportunity and developed its digital technology sector. One dimension of this technology market is the e-commerce sector, known as e-commerce, which is active in both government procurement and domestic sales markets, as well as online exports of goods from Russia to foreign countries. The growth of the online sales market in Russia is on the rise, but given the recent conditions, the pace of this growth has slowed down and in 2023 (so far) it has grown by 30% to 7.4 trillion rubles.

In Russia, practically all companies active in the field of e-commerce are IT companies, as they attract and employ a large number of IT experts. Currently, the rate of bank loans to support the industry is about 27%, which is a very high rate. This rate was previously 10%.

According to the market analyst firm, the Russian e-commerce market size in 2022 was 5.7 trillion rubles. In addition, Russia had the highest growth rate in the world in online retail in 2022, with a growth of 38%. The peak of the Russian online sales market was in 2020, the first year of the Corona pandemic, when it grew by 69%. In 2019, the base figure for online sales of products in Russia was a very low figure of about 1.6 trillion rubles.

Wildberries and Ozon were two of the largest virtual marketplaces in Russia in June 2022. In Russia, they accounted for 69% of the total order volume, that is, two-thirds of all orders. In November, the share of these two marketplaces was 75%.

Large Russian e-marketplaces – refers to companies with a minimum annual turnover of more than 30 billion rubles, at least a quarter of their sales are through e-marketplace models, and cover most product groups. As of December 2022, the largest e-marketplaces in Russia are: Wildberries, Wildbreeze, Ozone, Yandex Market, Aliexpress Russia (which only sells products from Russian companies), Ozbermegamarket. Their order volume is 1.99 billion orders (89%), the average check paid is 1,370 rubles (-3), and the market volume is 2.7 trillion rubles (80%).

Currently, due to the imposition of sanctions, the supply and delivery chain of this industry is facing problems. In particular, they are having problems in the supply of various chips. The logistics chain must find a new structure to regain its efficiency. The problem of supplying electronic equipment for the production of household appliances in Russia is very serious. Currently, imports of goods in this area to Russia are mainly carried out through parallel imports. Also, duties on the import of electronic equipment and components into Russia are high, which will likely lead to a shortage of electronic equipment in the near future.

In recent years, Russia has focused a lot on the development of state and private platforms for selling, exporting goods and training electronically.

Suitable groups for developing cooperation in the field of e-commerce in Russia:

The Ministry of Digital Development, Telecommunications and Mass Media of the Russian Federation is responsible for regulatory and policy issues
The specialized subgroup of the Chamber of Commerce, Industry and Trade of the Russian Federation focuses on the development of e-commerce, helping to remove legal barriers, facilitating and training businessmen and entrepreneurs. The President of the Chamber of Commerce, Industry and Trade of the Russian Federation is Mr. Sergey Katerin. The Head of the Digital Technologies Department of the Chamber of Commerce, Industry and Trade of the Russian Federation is Mr. Vladimir Maslov. The Chairman of the Council of the Chamber of Commerce, Industry and Trade of the Russian Federation for the Development of E-commerce is Mr. Alexey Fyodorov.
The head of the Association of Trading Companies and Manufacturers of Electronic and Computer Appliances is Anton Guskov.
The head of the Association of Designers and Manufacturers of Electronic Equipment is Ivan Pakrovsky.
The Association of Internet Trade Companies
The Association of Russian Retail Market Specialists
The Public Organization “Russian Export Development Center” provides educational services and sales facilitation, especially for the export of Russian products, through the digital platform “My Business”;
The Specialized Committee on IT and Computing Technologies “Business Russia”

Summary

According to the above statistics, the Russian banking and economic system has undergone many crises and changes after the war in Ukraine. The planning and investment of the Central Bank of Russia to overcome the crises and get on the path of development and progress include long-term investments in all sectors of the banking system infrastructure in Russia. Since there has been a great dependence on Western companies in the production and technology of banking infrastructure equipment, after these companies left Russia, a large gap has formed in the supply of necessary equipment, such as ATMs. Although attempts have been made to meet market needs with the entry of Chinese and Korean companies and the establishment of domestic production lines, there is still a need for new players to enter to meet market needs.