Interview with Vladimir Malugin, Head of PayPal Russia

Q: How would you describe the current e-commerce market situation in Russia?

A (VM): There are three main things that are happening today. The e-commerce market is growing. Mobile penetration is increasing and mobile participation in e-commerce is growing as well. Consumers today are starting not only to buy, but also to sell goods abroad. The Russian e-commerce market is a very large one. Within Russia's population of over 143 million people, about 100 million are participating in the online world today, and there are over 50 million buyers who purchase stuff through the internet. The mobile penetration is also high, since 50% of the 100 million online users have a smart phone. This allows them to actively participate in e-commerce by buying things online and paying bills. The third trend that we’re seeing today is that over 50% of online buyers this year have also used the internet to sell something - to receive money either for services or for goods.

Q: What do you think will happen in the next couple of years?

A: We expect this impressive growth to continue. The Russian internet today is growing on average by 20% every year. Whereas consumers used to begin with an online purchase, today often start their life in the online space by paying a bill, topping up their mobile phone, or doing some other activity. We're also seeing that the export sector is going to grow because more and more companies and people are participating in that market today.

Q: Your recent research suggests that there is a fast growing market of goods being sold from Russia to foreign customers. Do you see much potential in that market?

 A: Absolutely. It’s a market that today is worth about 2 billion dollars, as estimated by Data Insight based on a piece of research that we did with them this year. If the import market is about 4 billion dollars, the export market is half the size of that, which is quite good. The traditional categories, such as digital goods, make up 44% of the market, and travel occupies another 27%. There is also a new emerging category of physical goods, which is now about 23% of the export market, and it is the most dynamic category, growing at 120% year on year. Interestingly enough, the products that are exported most from Russia are not the ones you would expect. Instead of matryoshkas, ushankas and samovars, there are sunglasses, wedding dresses and cases for go-pro cameras that are frequently exported, making it a very unique and niche market. Trade partners of the Russian merchants also vary, with North America buying 44% of Russian exports, followed by Western Europe and then by Asia and the Pacific. What's quite intriguing there is the fact that it’s not necessarily Russian speaking people that are buying from Russia. In fact, buyers are people of all nationalities who are satisfied with the quality, the price and the offer being made. More than 50% of people online today don't necessarily care about which country the goods are coming form, as long as all the other factors are right for them.

Q: What kind of obstacles do small and medium-sized Russian businesses face when trying to sell abroad, and how can PayPal help them?

A: Today, the majority of the companies exporting online are fairly “young” - more than 60% of them are 3 years old or younger. Since 70% of these companies are based outside of Moscow and St. Petersburg, international recognition becomes more difficult, and the lack of experience becomes an obstacle. Where PayPal can help  them is providing access to our 200 million consumers worldwide who use our platform to pay for their purchases. Once these smaller merchants make PayPal one of their payment options, they become part of our 2-sided network where, on one side, we have the consumer, and, on the other, we have the merchant. And, because trust exists within the network and we’re providing for that with an additional feeling of safety through the Buyer Protection Program and the Seller Protection Program, consumers and merchants can transact in a much more secure way than before.

Q: Have Russians living in smaller, remote cities met any success when trying to sell to foreign customers?

A: We actually did a project a couple of years ago that looked specifically at consumers and merchants in smaller and far away locations. One of the conditions for participation in the project was that you had to be in a town with a population of under 30,000 inhabitants. We ran a contest on social media and received about 700 replies, in which people told us their stories about how they bought and sold things through the PayPal network, and how this enriched their lives, as they live in places so remote that even getting to a physical store can take several hours. We selected 20 stories and interviewed the people involved, and based on that chose 5 stories, which we then filmed, personally visiting the people involved. The project was called “Wherever You Are” because effectively it didn’t matter where people are located, as long as they have an internet connection and a PayPal account, which allows them to participate in the global e-commerce market. All the stories were very personal, very touching and very emotional, and all our heroes – unique people with unusually interesting lives. We did a similar project last year called “eCommerce Is Less Biased”  where we looked specifically at small merchants from all over Russia that use PayPal to find new clients abroad. It is about the people who do what they love, who have a hobby that has become a business and who use PayPal to sell their products to a larger global audience.

Q: Let's say I want to start selling things abroad. What would be your advice?

A: Well, just like in any business, I think being passionate and driven is why people succeed. The trust factor is important, and that’s where we can come in, as PayPal can help a business to expand and gain acceptance from foreign customers. By working with PayPal, a business can gain the trust of  many global consumers buying from Russian merchants. We also have a number of helpful programs, such as PayPal PassPort site where we explain to small merchants how to start building their business online and expand worldwide. My last word would be – don’t be afraid – just go for it.