VC Field Trip: Mobile Payments In Russia

Welcome to the latest edition of’s VC Voices: a weekly column where we bring you commentary from the best of the best around the world of payments investment. Want to know what the biggest backers of our industry’s innovators and disrupters think? We give our VCs 500 words of unedited space to do with as they please, so you’ve come to the right place.

This week, hears from Dan Rosen, general partner at Commerce Ventures, about his experiences with mobile payments abroad.

Dan Rosen, General Partner, Commerce Ventures

This week, I’ve taken a few days away from meeting with entrepreneurs for a semi-work, semi-holiday trip to Russia. Knowing that I would be contributing this piece to, I have been paying close attention to the existence (or absence) of mobile commerce innovations during my travels.

My first stop on the trip is St. Petersburg, Russia’s second largest city by population and the country’s original capital. With nearly 5 million residents, the population of St. Petersburg is technically larger than all U.S. cities other than New York (in actuality the comparison is not so clear when you factor in metropolitan statistical areas). Founded in 1703, St. Petersburg is a relatively new European city and yet it is considered the cultural capital of Russia, serving as home to over 50 theaters, many of Russia’s most famous authors and artists and the seemingly endless, world-renowned Hermitage museum.

While here, I’ve taken in many amazing sights … but I have NOT yet seen anything relating to mobile commerce. Conspicuously absent at cafés are loyalty-related decals or checkout terminals battling for consumer mindshare, and no one I asked seemed to know what NFC or QR codes were. When visiting restaurants, I saw no tablet Point-of-Sale (POS) systems – although, interestingly, many restaurants had iPads simply to showcase pictures of dishes (not mobile ordering). Most establishments seemed proud enough to accept card-based payments, suggesting that cash is still in heavy supply here. NOTE: the sign below says ISIC, or the International Student Identity Card, not ISIS.


I spent much of today asking myself why the mobile commerce frenzy hasn’t hit this part of Russia. Sitting less than 200 miles from the headquarters for Nokia, arguably the inventor of the modern mobile network, St. Petersburg feels light-years removed from the mobile wallet or MPOS battles we follow so closely in the Bay Area.

Was the issue a lack of digital connectivity? The answer is clearly a resounding ‘no.’ Almost all restaurants and retail establishments I visited had Wi-Fi networks and most were open to the public. In fact, Russia leads Europe in online penetration and its Internet user base is growing at 15 percent/year.

Is the population distinct in some way that would make it unsuitable for adopting mobile commerce innovations? Well, after some quick research, I learned that the Median Age in St. Petersburg is 40 years old (not too dissimilar from the Median of 38.5 in San Francisco), so there isn’t an obvious age-related bias. Median household income in St. Petersburg is approximately 20% greater than Russia’s country-wide Median. For comparison, Boston’s population earns just 2 percent above the U.S. Median Household Income and New York City is actually 24 percent BELOW the national average. Clearly, income is not the barrier to adoption here (although it would seem important as factor in other regions).


After a fair bit of web research, I did notice some key distinctions between St. Petersburg (as well as Russia) and the cities I frequently visit in the United States. These distinctions interested me as potentially more generic drivers of a region’s readiness to adopt mobile commerce innovations.

Population Density. When researching population per square mile, I started to see some stark differences between geographies – San Francisco has 50 percent more population per square mile than St. Petersburg, Boston is twice as densely populated and New York City has a whopping 300 percent the population density! What does it mean? Well it suggest that more densely populated cities and countries are more likely to see mobile commerce adoption earlier…perhaps because reaching minimum scale in merchant density is much easier in such geographies. Some notable densely populated countries to monitor might include Singapore, Taiwan, South Korean and the Netherlands.

Smartphone Penetration. According to Nielsen, U.S. smartphone penetration recently surpassed 60 percent of mobile subscribers. Last year, the U.S. was one of only six nations with 50 percent-plus smartphone penetration…to be clear, Russia was not on that list. In fact, despite its leading Internet connectivity levels, Russia ranked 28th in the world as of 2011 with only 18 percent of the population owning a smartphone (despite Russians owning on average more than one mobile device per person). With SMS finally in decline and mobile data usage exploding, it stands to reason that smartphone adoption is a potential predicate for mobile commerce. If this is the case, other top smartphone countries worth tracking include all Nordic countries, the Netherlands, U.K., Germany and South Korea.

4G Coverage. Another potential consideration is high-speed mobile data access. A recent WSJ article covered by highlighted that the U.S. has dramatically outpaced European countries with respect to 4G coverage and user adoption. Today, Verizon alone boasts LTE coverage for 90 percent of the U.S. population. In contrast, only one Russian mobile operator had launched 4G services (as of mid-2012) and they were expecting to cover only 25 percent of the country’s population by yearend. Mobile commerce describes more than simply paying with a phone – it involves the integration of mobile devices into the total shopping experience. As a result, higher speed connectivity would seem to be an important driver of mobile commerce. Other 4G countries of note include Germany, Scandinavia and South Korea.


Clearly this isn’t meant to be a technical research paper nor a precise predictor of when we can leave our wallets at home. Instead, my goal is to highlight what is necessary to enable a mobile commerce world. After the past few days, I believe that many (if not most) major cities around the globe show no discernible signs of mCommerce adoption today. Don’t get me wrong…I love, love mobile commerce (traveling via Uber, paying with LevelUp, booking via HotelTonight), so I’m hopeful that adoption accelerates. Meanwhile, I would love to hear from people who are seeing this occur in their home regions today.


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