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29 октября 2014

A Matter of Trust

Turnkey outsourcing solutions involving merchant acquiring and card processing services for credit institutions is not new and unknown to the Russian financial market.  However, banks still predominantly choose to develop this business line on their own. Experts believe acquiring and processing to be inseparable from purely banking functions for the majority of financial institutions. Banks’ position on the matter is largely influenced by trust (or distrust) in potential outsourcers.


Acquiring means that a bank or payment company has to be technically capable of processing payments for goods and services made with plastic cards (either debit or credit). Acquiring involves verifying cardholder’s details, debiting the payer’s account and crediting the payee’s account.

In addition to the widely used acquiring mechanisms, there are those that are less popular or, more precisely, less common. The latter, in particular, include Internet acquiring which allows online payments by cards through a secure interface. This type of acquiring is mainly popular among online stores.

The Internet merchant acquiring scheme is rather straightforward: If a customer wants to pay online for goods with a card, they can do so by choosing the corresponding option. Then the customer is forwarded to the online terminal of the provider (acquiring bank) to enter the details of their bank card.  The bank authenticates the card by transmitting its details to a processing center which, in turn, sends them to the payment system. The payment system can either accept or decline a transaction. If payment is accepted, the acquirer credits the online store’s account.  The price of Internet acquiring services may vary from bank to bank and is set out in an agreement between the online store and the acquiring bank. This also sets out rules that, for the most part, reproduce the requirements of payment systems, such as Visa and MasterCard.

Some features that distinguish Internet acquiring from its offline counterpart include an intermediary role played in the processing of payments by an Internet provider, and also processing transactions without a POS terminal or cashier.

The requirements to undergo certification and create an appropriate technology platform often hinder banks from entering the Internet acquiring market. Most of the financial costs and time expenditure can be avoided by using turnkey outsourcing solutions offered by third party acquirers. These usually include software, a server platform, a fraud monitoring system, technical support services for acquiring participants, an office for the bank’s customers, connecting online stores partnering with the credit institution, and risk management advice. The outsourcer can also offer a wider range of partner payment systems.

Home Credit and Finance Bank is ready to pilot an outsourced solution for Internet acquiring. "Soon, we will offer our customers an opportunity to repay loan on other banks’ cards on our website by outsourcing this service to another company," says Kirill Kibalko, IT Director at HCF Bank.

The cost of an outsourced solution depends on the number of customers, technology infrastructure of the credit institution and an expected number of payments. Experts assess it at least at 15 million rubles.

Professionals state that banks are becoming increasingly interested in cashless payments and demand for Internet acquiring services is growing, but in general they are not as popular as in Western countries.  This is due to the fact that Russian market players seek to provide as many services as possible by themselves. In today’s Russia, Internet acquiring is mainly used by subsidiaries of foreign credit institutions, such as Deutsche Bank, UniCredit Bank and Citibank.

At the same time, outsourced Internet acquiring products can provide access to the service at a fixed rate for those banks who are not willing to invest in the overall improvement of their technology capabilities. By outsourcing Internet acquiring services, banks will no longer have to offer their services at dumped prices.

The integration of an outsourced product into the bank’s infrastructure usually involves its deployment, staff training, current business process monitoring, measures to ensure the security of payments, regular audits, software updates and upgrades, and technical support of Internet acquiring.

Developers believe that a bank electing to acquire an outsourcing tool for Internet acquiring can expect to be able to enjoy flexible pricing, elimination of potential risks by the use of proven solutions, predictable expenditures, guaranteed quality, minimum expenditure of money and human resources, and the most rapid integration of the product with the payment IT infrastructure of the credit institution.


Outsourcing of Internet acquiring requires that banks have their own card processing systems. Processing involves working with data on card transactions, namely receiving, processing and distributing data on card payments to payment parties.

For a larger credit institution, in-house card processing is more economically efficient.

"We have used outsourced processing services until March 2013. But now, we have TranzWare platform to do it in-house. In this way, we are more flexible and can deploy innovation with lower costs.  Today, we can manage ATM-provided services by ourselves. We can devise new services and make banner ads faster and easily. This is more convenient than it was when we were outsourcing.  And the most important thing is the price. Given the scope of our operations, it is cheaper to do this by ourselves," notes Kirill Kibalko of HCF Bank.

"We have our own processing center", says Dmitry Orlov, Deputy Chairman of the Management Board at FORA-BANK. "This makes us more flexible in customization and deployment. We have more control over transactions and we can respond to problems faster."

Meanwhile, the card processing function can be outsourced. Industry experts believe that the transition to a national payment card system will force banks to improve their approach to managing their in-house processing centers where large arrays of data are processed, and will increase demand for services of outsourced processing centers.

Such solutions are relevant for small and medium-sized players. However, observers believe that outsourcing of card processing will have a great future. By outsourcing these functions to third party processing centers, banks will be able to effectively and successfully develop interbank business. Moreover, professional equipment and highly skilled staff of processing companies will enable credit institutions to improve the quality of customer service.

Financial and legal liability in case of an accident or processing failure will be borne by the outsourcer. However, specialists note that the likelihood of such disruptions is virtually nil, since certified processing centers are regularly audited for security by large payment systems.

Statistics prepared by VTB Group’s Multikarta clearly show the increasing popularity of processing companies:  During the first six months of 2014, its processing centers processed 383 million authorizations, a one and a half times increase from the first six months of 2013.  

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