Russians still prefer cash despite growing bank card market

AFP MOSCOW

Bank card use in Russia has skyrocketed in the past year, but analysts here say that is not necessarily a sign that Russians have been able to wean themselves from the security offered by hard cash.

State-owned Sberbank, Rus-sia's largest bank in which two-thirds of the country's population keep private accounts, issued 57 percent more bank cards over the past 12 months.

Now some 5 million people possess Sberbank-issued debit cards.

In total, there are some 15 million cards currently circulating in Russia, and half of them are international Visa or Mastercard, according to Andrew Keeley, an analyst with the Renaissance Capital investment bank.

"Banks issued Visa cards with frantic speed" over the past year, said Brian Huckett, deputy head of Visa International's development department.

Indeed, the number of Visa cards issued in Russia in 2002 doubled compared with the previous year, reaching 5.1 million cards.

But for a country with a population of 145 million "this is still just a drop in the ocean," noted Maxim Buylov, a specialist on the issue for the respected business daily Kommersant.

While credit card use shot up to 5.8 billion euros last year, it still trails far behind Poland, where twice the number of people hold Visa cards and used them to spend 839 billion euros last year, Visa's Huckett said.

And while international groups Mastercard and Visa hold half of the Russian market, the other half belongs firmly to domestic Russian cards, mainly used for cash withdrawals.

But even that was a rarity in Russia just a couple of years ago, with Russians still reeling from the 1998 financial meltdown and accustomed to keeping their savings tucked away at home in cash.

Russians are thought to stash an estimated $75 billion, and most continue to pay for property and large purchases in cash, while banks hold just $30 billion in private accounts.

These practices, however, are gradually changing, thanks to political stability and an uncommonly strong ruble.

Russian businesses, such as mining giant Norilsk Nickel, often give their employees ATM cards to retrieve their salaries, aiming to simplify accounting practices and save money by making redundant workers who manned cash registers handing out pay.

Baltisky Bank official Alexander Kazansky says that this system is the main reason why card use in Russia has increased.

The government is also pushing citizens toward using cards, paying state workers directly and handing over student grants through bank accounts.

Yet the number of bank accounts remains low, representing just 10 percent of gross domestic product, while in Western Europe it represents 78 percent, Renassaince Capital's Keeley said.

The low number of ATM machines accounts in part for the failure of bank accounts to catch on in Russia, where 40 machines exist for every 1 million people.

In Western Europe, an average of 550 ATM machines exist for every million, while in the United States 1,200 exist for every million, Renaissance Capital estimates.

Furthermore, most Russian cards are bank-specific and can be used only in the issuer's ATM machines.