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Analysis & Opinion
25.07.11 Life In Plastic
By Svetlana Kononova

The Mayor of Moscow Sergey Sobyanin has signed a decree on the emission of universal E-cards (UEC) in the Russian capital, thereby launching a country-wide experiment. From January of 2012, E-cards will serve as identity cards and multifunctional payment instruments in Russia. Step by step, they will replace all kinds of other social cards, including pension certificates, student ID cards and medical insurance policies. They will also be used for making different payments, such as ticket purchases, housing and utility payments, Internet fees and others.

Every E-card will be attached to one of its owner’s bank accounts. It will look like an average plastic bank card, and will contain the following information – the carrier’s first and last name, date of birth, expiration date, bank account number, social security number, authorized signature and contact info for the organization that issued the card. From January 1, 2012, to December 31, 2013, the card will be issued to those Russians who apply for it. After that, cards will be distributed to all other Russian citizens who don’t submit a written refusal. The cost of this project is estimated at more than $5 billion. A quarter of this money will cover the emission of the cards. The number of services that will be available to cardholders will grow to several thousand by 2017, the project’s masterminds claim.

But experts point out both positive and negative aspects of this novelty. “The realization of such a large-scale nationwide project in itself will become a powerful catalyst for the development of the Russian IT market, financial and other spheres, and will decrease administrative burdens. Obviously, it is a strong stimulus for building infrastructure. Many Russian regions still lack financial and IT infrastructure,” said Tatiana Zemtsova, an analyst at Finam investment holding. “It will also decrease pressure on the monetary sector. The current volume of non-cash transactions inside the country is still very low, despite dynamic development of banking. More than 144 million bank cards are now being emitted in Russia (the country’s population is now about 142.8 million people). But 67 percent of card transactions are cash withdrawals, and only 33 percent are payments for goods and services, data from the Central Bank shows. Moreover, the implementation of UEC is an important stage of setting up an E-government. It would streamline state services granted to the public and businesses, expand the opportunities for self-service at state agencies and decrease bureaucratic hurdles in general,” Zemtsova added.

Olga Chernysheva, an economist at the Ministry of Finance, is less optimistic. “The cost of UEC emission is very high. It is hard to believe that this investment would pay off. This project looks like the next Potemkin village,” she said. Zemtsova also pointed out some possible disadvantages: “It would be difficult to persuade private investors that this project is commercially viable. Interest on behalf of commercial credit organizations, integrators and service enterprises in the project seems relatively low,” she said. “The other challenge is that many Russians can’t learn to use universal E-cards effectively on their own due to old age, living in non-urban areas, etc. So the government will have to teach them how to use these cards, which makes for extra expenses. Moreover, the cards might become good targets for fraudsters, because they include information about the owner and their bank account. So, additional means of protecting information and the owner’s identity will be needed.”

Information safety experts also point out that the universal E-cards are susceptible to fraud. “The problem of confidential bank information theft has not been solved in Russia. Fraudsters use special scanners that they install at ATMs. In theory, such sham reading devices could be also used for attacks on the UEC. Additionally, stealing personal information is also possible due to malicious programs on the Internet,” said Sergey Golovanov, a senior antivirus expert at Kaspersky Lab.

Universal E-cards will be operated under the Russian payment system PRO100. Theoretically, this might be the first step toward reducing the influence of leading international payment systems, such as MasterCard, Visa and others on the domestic market. “A national payment system is an inchoate project. Currently there are no suitable alternatives to transnational payment systems in the country. However, some concealed pressure may be implied. One of the goals of this project might be to localize the processing of international payments. These plans seem like quite a reasonable initiative,” Zemtsova said.

Meanwhile, many Russians are apprehensive and skeptical toward the state’s new initiative. A poll conducted by the research center of the recruitment portal found that 40 percent of Muscovites don’t want to use the UEC at all. Twenty-eight percent of respondents said they could try to use the UEC, and ten percent don’t know anything about E-cards. Women, people over the age of 45 and respondents with relatively high incomes have the most negative attitude toward the UEC.

The most typical explanations for the respondents’ unwillingness to use universal E-cards sound like this: “It is total control which violates privacy,” “It is money laundering,” “My personal information will be in jeopardy,” “I don’t want to let them [the authorities] know where I am and what I do.”

One of the respondents in the poll supposed that transaction terminals will only be available in big cities. “One hundred kilometers from Moscow, people will look at such cards like American Indians at the beads of Columbus,” he suggested. More than a half of Russians live in villages and small towns, where banking and IT infrastructure is very poor. It is still unclear how and where these residents would use universal E-cards – electronic payments seem like science fiction for the average Russian village. It is also unclear whether foreigners living in Russia, including foreign students and contract workers, could apply for the UEC. Another point of contention is direct debt collection from universal E-cards: supposedly, debts may be collected from the UEC under a court order without the card owner’s permission.
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