There are many flattering articles that had been written about QIWI (NASDAQ:QIWI). But I decided to analyze the risks in my previous article and I was right. One month later, the main risks related to the crisis and the Russian government have occurred.
I hope most of the investors who had read my previous article did not buy this stock. Because there are a lot of risks involved in this Russian company. However, those who bought the stock after the previous QIWI earnings release must have felt little euphoria since then. Because the stock price had risen to $16.4 on April 14th. The reason for that growth was the soaring oil price which had reached $42 per barrel by that time. Has QIWI followed the oil price? According to the company, no.
QIWI have received an award. Pay Awards is said to be one of the most prestigious recognitions of excellence in the worldwide prepaid, mobile and emerging payments industry identifying the best companies and projects. April 12, 2016, QIWI announced that Visa QIWI Wallet, the company's flagship e-wallet product, won 2016 Pay Awards as M-Wallet of the Year and was elected the best in "Payment technologies" category.
I wondered on what grounds the panel of experts based its decision. Because there are a dozen of Mobile-Wallets in Russia and all of them have excellent service. Some of them are also banks, such as: Sberbank, VTB24, Tinkoff, Alfa bank. Which means customer's accounts are insured for 1.4 million rubles ($21,200).
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Then QIWI started to experience the effects of the crisis and political risks. On April 26, the Federal Financial Monitoring Service, the Bank of Russia, the Ministry of Finance, and several large banks started to discuss measures to increase the safety of electronic payments, especially as it pertains to virtual wallets. The entities reported that they were worried about anonymous electronic wallets, even though there are two federal laws regarding anonymous electronic transactions.
There is № 161 "Federal Law on national payment system" of 06.27.2011 (the revised version of the Act was adopted in 2014), as amended and supplemented in 2015.
There is № 115 "Federal Law on Fight against Legalization of Illegal Income and Financing of Terrorism" of 08.07.2001 (the revised version of the Act was adopted in 2015), as amended and supplemented in 2016.
Unidentified electronic means of payment, including anonymous electronic wallets should be linked to personal bank accounts of customers. According to the authorities, new regulations aimed at increasing the transparency of financial transactions on the internet. Pavel Livadnyi, vice president of the Federal Financial Monitoring Service, announced that the relevant bill will be drawn up by the end of 2016. However, experts consider these measures unnecessary.
What does the increasing of regulation really mean?
As I noticed in the previous article, the economic stagnation triggered by the financial crisis, the sanctions and the low oil price is becoming more severe. Russia's GDP fell by 3.7% in 2015. Inflation for the period was 12.9%. These are the official statistics and real numbers are twice as high.
After the oil revenues had fallen sharply, the Russian government did not have any other option than raising taxes, duties, and tariffs to balance the federal budget. Introducing the new law regarding the safety of electronic payments will lead to a changing customers' choice. They will start choosing bank's services, such as Sberbank, VTB24, Tinkoff over QIWI.
The point is that the government owns 61% stake in VTB24 and also 51% stake in Sberbank. Therefore, giant banks' income will contribute more to the federal budget. Under the pressure of the sanctions, and in the context of the disastrous budget deficit the authorities are going after every private business. QIWI is one of them.
I assume that when QIWI loses a critical amount of customers and cannot generate enough cash flow to survive, it will likely be acquired by one of the giant banks. The stock price will fall gradually, but the company might not go bankrupt because QIWI is one of the two largest payment processing companies in Russia. Someone will definitely buy it.
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.