When a relative asked Roman Khimich to help him sell his old M64 motorcycle, he was surprised to find out that these bikes are quite popular with European collectors.
“One man from Germany offered $3,000. The problem was that he wanted to pay with PayPal only,” says Roman Khimich, a finance blogger, describing the state of online payment systems in Ukraine.
But since Khimich lives in Ukraine he couldn’t sell through PayPal, only buy. So he sold the motor bike to a local farmer for six times less.
PayPal, the online money transfer company owned by eBay, is an international market leader used by more than 123 million people in 190 countries and 25 global currencies.
But Ukrainians can only use the system to only buy things because the company does not have an office in Ukraine and is not registered with the central bank, the NBU.
With PayPal largely unavailable, Ukrainians have few choices. Especially after WebMoney, PayPal’s Russia-based competitor with 21 million users worldwide, came under heavy pressure in Ukraine.
On June 11, WebMoney’s office in Kyiv was searched by tax officials, who confiscated several servers. According to a statement from the ministry of revenues and duties, they “established substantial violations of the law by WebMoney in Ukraine… Users of the system – internet shops, providers of services and entrepreneurs were hiding illegal financial operations,” the statement reads.
The ministry froze Hr 60 million ($7.5 million) in the firm’s accounts.
Despite such problems and restrictive legislation, the popularity of electronic payments in Ukraine is growing.
“According to our estimates, in 2012 the amount of people who buy products and services with electronic money grew by 10 percent,” says Margarita Ormotsadze, a spokesperson for WebMoney’s Ukraine operations.
Payments using e-money in Ukraine in January-March 2013 totaled $63,000, up 96.9 percent from the same period in 2012, says Tetiana Kovalenko, deputy chief of the department of cashless payments at NBU.
However, experts say NBU statistics are the tip of the iceberg, as they only count systems that were set up by Ukrainian banks and thus registered by the NBU as issuers of electronic money. According to law, only banks can be issuers of electronic money. These systems include MoneXy (Fidobank), MAXI (VAB Bank) and GlobalMoney (Oshchadnyi Bank).
Another option for payment systems has been to position themselves as a settlement system which deals with property rights and not electronic money. This is how WebMoney has been operating in Ukraine for more than a decade.
However, lawyers doubt the legal basis for such operations.
“As these e-payment systems accept payments for third parties and enable users to transfer money between themselves, in my opinion, this proves that it is a money exchange, despite what they call it,” says Anna Pushkaryova, senior associate at Lavrynovych & Partners.
And for such money exchanges, the company has to be registered with the NBU, adds Pushkaryova.
The last group of e-payment systems is the foreign companies who have not legalized their activity in Ukraine, thus offering limited services to their clients: PayPal, Moneybookers, Yandex.Money, MoneyMail among others. Their electronic transactions cannot be converted into hryvnias at Ukrainian banks.
Lawyers say the government is trying to establish control over the market of online payments and e-commerce in particular. The most recent initiative by the NBU involves limiting the amount of monthly electronic money to $3,000 per user. Other initiatives that are still pending include a requirement to provide the NBU with information on an e-commerce system’s agents.
Experts and lawyers are sceptical about these efforts.
“The NBU is ignoring the fact that most of the electronic money that belong to residents of Ukraine are situated in the channels which are not under NBU’s jurisdiction. The international laws that regulate this market are much more liberal than what the NBU suggests,” says Khimich.
“The Ukrainian legal framework on e-money contains certain provisions substantially restraining the development of e-money, as compared to EU legislation,” says Yulia Kyrpa, partner at Vasil Kisil & Partners.
She in particular mentioned requirements to “give special status to e-money issuers which must enjoy the status of a banking institution, which narrows down the circle of potential issuers.”
Another restriction, according to Kyrpa, is the requirement for NBU approval of the rules of each particular e-money system prior to issuance of any electronic money by a bank.
“Such rules must include a detailed description of all transactions to be performed in the system, risk management and security instruments, template agreements with agents, operators,” said Kyrpa
To improve the situation, experts say it’s best to cancel many legal limitations and to bring Ukrainian law in line with EU legislation.
Kyiv Post staff writer Svitlana Tuchynska can be reached at [email protected].
