Russian fintech miracle : Payment kiosk

Once upon a time in cold Russia of 2000 something important happened. A new payment system was born. It would soon dominate the whole country, become part of daily life of every single Russian, and spread across the borders to neighbouring Ukraine, Belarus and various X-stans.

The invention so ingenious that it is still unclear why it did not take off in comparable cash markets of Africa or South-East Asia. System so smart and obvious that many would not believe it was born, designed and engineered in Mother Russia. There is no other region on Earth that would have it to this day. I am still amazed at that too.

In the late 90s, early 00s there were no smartphones, iPhone was still years ahead, and the population was increasingly accepting the idea of the personal mobile phone. Mobile phones were becoming cheaper and cheaper, and everyone got a chance to own one.

Mobile operators issued scratch-cards with the airtime value, and you could buy those either in the telco offices, or through their agents. Scratch-card had a value, and you were supposed to dial the number on the card, scratch and enter the PIN from it (guided by the voice instructions). Much like in Kenya now and before, or the rest of Africa, the agent network was the main force for the operators, and the scratch-card — the main vehicle.

The history has many names of the first companies and persons that were responsible for the birth of this new payment system, and some of them are still very much active in the fintech space even today. Anyways, a machine was designed to sell airtime and accept cash for it. It is called payment terminal — literally, when crudely translated from Russian, and up to this day there is no obvious English name for it. For the lack of such thing anywhere else. I call it — payment kiosk, ATM-like machine, payment box, etc. And then show a picture.

First machines looked like ugly steel boxes. They had cash accepting slot and storage, receipt slot, monitor and keypad that quickly got replaced by the touch screen, simplistic computer block with the software, GPRS/GSM modem for internet connection, and a cord to be plugged into electricity grid. First ones were pricey. As they evolved, their design and intestines were becoming smarter and cheaper. These machines were so simple in assembly, that they could be produced ‘DIY style’, all the major components bought at a local store or later brought from China. This was basically a steel cash-accepting box connected to internet.

The machine software and its functionality has also evolved from airtime top-up — first to e-wallet top-up, then to money transfer, local and cross-border, payments for utilities, electricity, water, traffic fines, game account top-up, entertainment subscription payments. And finally, any e-commerce store could issue a code that contained the shopping order information, and let the customer pay up through those payment kiosks. Pure magic of online to offline, e-commerce to cash prepayment.

The business model is something even more amazing, and soon proved viable for scaling. All the existing scratch-card resellers were offered to participate in a new capacity: to purchase the machines as a one-time investment, teach their customers how to perform the payment through the machine, and receive not one but two commissions from their payment — one from the kiosk software maker, and another they were allowed to set on their payment kiosk as a default setting. The kiosk software maker was able to pay up because they basically shared the fee that telcos paid them.

Such set-up proved to motivate agents greatly, incite the spread of franchises, agent and sub-agent networks, competition within kiosk makers, fights for the dense passer-by spots. It made software makers to connect all services, commercial or governmental, in each and every region, no matter large or tiny, as long as they had to collect payments. A new industry was born.

In mere 5 years payment kiosks invaded and occupied the whole country, and the neighbouring ones, hundreds of thousands of them. In any city, no matter how small, you could find one of them within hundred meters. The largest retail chains also ran same software for those who preferred cashiers. Later even banks started to push their own payment terminals alongside with the regular ATMs, since it used to be a regular behaviour — to withdraw money from the ATM, and immediately put it in the payment kiosk. Many governmental offices would have them too to ease the job of the cashier and speed up formalities. That is how used people have become to this idea.

Usual regular payments, game top-ups, e-wallet top-ups, money transfer — all of them are convenient, immediate, backed by automised API integration between the businesses. Cash was not a headache for the digital business, these kiosks made cash digital in a matter of several seconds.

10 years ago things slowly started to change in favour of usual bank card payments, both offline and online. I have heard of attempts at introducing such system to the US, Thailand, Vietnam and a few other countries, but I have yet to see any real example of them working on-scale outside of the ex-USSR, we all know the innovation is uneven. Now this Russian fintech miracle is in its receding era making way for other habits, systems and generations.