Russian digital ecosystems are not yet quite as profitable as their foreign counterparts, generating roughly 1.7% of foreign platforms’ profits, their aggregate capitalization still less than 1% of the world’s top 100 platforms’ value. However, this market is poised to grow so rapidly that it will have to be structured and organized soon. The discussion at the forum, Development and Regulation of Ecosystems in Russia: Towards Digital Equality, organized by the Segodnya conference center, focused on the possible approaches to the regulation and oversight of digital platforms and whether this would help mitigate the key risks that ecosystem users are facing along with the national economy.
The new payments landscape
Experts believe that one of the key challenges arising from the development of the global ecosystems market is posed by their expansion into the financial segment. Digital platforms are launching various financial products including digital wallets, which would give them unlimited access to user transaction data, warns Artem Genkin, Doctor of Economics, Professor, President of the NPO Center for Protection of Bank Clients and Investors. Potentially, this puts all financial transactions within such ecosystems beyond the control of regulators or even national authorities, and increases the risk of system failures.
Moreover, major tech players are launching private digital currencies, ensuring their rapid and broad implementation, the expert reminds.
Such private digital currencies run the risk of tech giants gaining excessive market power and changing the payments landscape. This will influence the functioning of the monetary system, threatening to create an oligopoly with a few originally non-financial ecosystems controlling the payment market.
On the other hand, Artem Genkin argues that private ecosystem currencies have catalyzed the launch of central bank digital currencies (CBDCs), and offered several examples to substantiate his opinion. According to the Bank of Russia experts, financial transactions with CBDCs will actually have greater transparency and controllability, while also mitigating the risks posed by non-backed currencies and lack of state control.
The question of whether private ecosystems will remain sustainable when CBDCs go on stream remains open. According to the expert, the US and China’s experience has provided a number of illustrative examples where this has led to collisions and subsequent bans, lawsuits and antitrust fines for private businesses.
Personal data at risk
Digital companies build enormous bases of user data, from their shopping preferences and routes to passport data and credit card numbers.
“For digital companies, it is a capital they can easily monetize. Back in 2016, Google estimated the worth of one individual’s data at $720 per year. With millions and even billions of ecosystem users, it is an impressive scale,” notes Andrei Tenishev, Head of the Department of Competition Law at the Russian Academy of National Economy and Public Administration (RANEPA).
There is currently a lack of user data security. In 2022–2023, 32% of leaks entailed compromising personal data, according to Olga Minayeva, GR Director of SearchInform, who also notes that the number of cyberattacks in Russia soared by 80% in 2022, followed by further 65% in 2023.
“There is a need for a comprehensive approach that would require implementing security tools to protect from data leaks and hacking, as well as organizational measures such as clear operational regulations – and certainly all aspects of training. People working in the key industries must have stellar cyber hygiene skills,” Olga Minayeva says.
Investment activity at the minimum
Digital ecosystems could play an active role in financing new economic development projects in the country, an activity that would be in demand considering the amount of the investment Russia needs, including in the real sector.
In the meantime, Russian companies rely on their own capitals and the lending sector accounted for only 7.4% of the total investment last year, notes Vladimir Gamza, Chair of the Russian Chamber of Commerce and Industry’s Council on Financial, Industrial and Investment Policy.
“Russian financial ecosystems have been developing largely as trade-focused. I would like to see financial ecosystems and platforms to concentrate on primary capital investment. The country set a course for technological development and industrial modernization; therefore, platforms should refocus and take part in the process,” Vladimir Gamza says.
Forum participants noted the challenge of ecosystem ‘slavery’.
“At a certain point, ecosystem users risk finding themselves in a ‘hostage’ situation. Ecosystems are convenient and well-organized but risks for consumers grow in many respects,” explains Yulia Prikhodina, Deputy Chair of the Russian Chamber of Commerce and Industry’s Council on Financial, Industrial and Investment Policy.
Users get accustomed to digital services very quickly, which increases the risks of overpaying, including because users can’t compare rates and experience hard-selling.
“Drawing users into their orbit, tying them to as many services as possible is the essential goal of ecosystems. There may be a loophole for manipulating the offer, including the offer of products and services that do not always have the advertised features and parameters, something that should be watched out for,” says Roman Prokhorov, Board Chair of the Financial Innovation Association.
Regulate not prohibit
Regulating digital ecosystems themselves undoubtedly remains the key challenge. For example, it is not fully clear which government institution is supposed to control the new market and whether this market needs its own legal status and its own regulation at all. Ecosystem as a term requires clarifying as well.
“It is necessary to work on the issues related to identifying common approaches and methods for selecting and accounting digital market volume indicators, and providing them for the monitoring and assessment of competition,” notes Konstantin Begidzhanov, Deputy Director of the Department of Anti-Monopoly Regulation of the Eurasian Economic Commission.
The multi-vector nature of ecosystems creates difficulties as ecosystems offer a wide range of services, from selling groceries to training, freight operations, tourism and financial services. It means that regulating may require creating an inter-agency group involving representatives of industry associations, according to Roman Prokhorov.
“The least we can do is start an active dialogue between the state and businesses that would help develop approaches and adjust them from time to time,” notes Lyudmila Kharitonova, Managing Partner of Zartsyn and Partners law firm.
Cooperation between state and private digital ecosystems is also possible, for instance, in the PPP format as part of the promotion of a central bank digital currency. For instance, it will allow ecosystems to retain part of their loyal audience by offering it innovative services and avoid significant financial losses. But most importantly, a well-considered regulation of the new market will help neutralize the risk of the politization of economic interaction between the ecosystem participants, especially when dealing with foreign platforms.
“This risk is still quite high. I think that the regulation of the new market should be also aimed at preventing this risk from being materialized,” Artem Genkin concludes.