Unistream money transfer network expands despite crisis

Graham Stack in Hamburg for Business New Europe (bne)

 

Unistream, the biggest player on the money transfer market in the CIS, tells bne the crisis has not impacted on operations, and the network is set to expand into Germany.

 

One year ago, as the economic crisis struck, it seemed the Central Asian countries would soon plunge into crisis as the remittances from Russia they depend upon dried up.  However, Suren Ayriyan, president of Unistream bank, the biggest operator of money transfers in the CIS region, tells bne that the money transfer volume has remained stable on the year. “After a short blip, transfer volumes are back to their level of one year ago,” says Ayriyan.

 

Unistream is the Western Union of the East, with a share of 27% of  the money transfer market for the CIS corridor at the end of 2008, according to the Russian Central Bank. With remittances from Russia accounting for 20-45% of GDP for the countries of the Caucasus and Central Asia, the severity of the crisis descending on Russia at the end of 2008 seemed to bode ill for Eurasia. Alarmist scenarios predicted even state collapse in Tadzhikistan as workers returned home empty handed.

 

“Nothing like this has happened,” says Suren Ayriyan, president of Unistream. “Money transfers did fall at the start of 2008, but recovered by the spring. People simply did not return home even if they lost their jobs,” Ayriyan explains. “They stayed in the country, and found other work, even if only in the informal economy. No one went anywhere.”

 

Another factor supporting money transfer volumes during the crisis: with fuel prices staying high, the cost of transport home has become unaffordable for many migrant worker. “That’s why, although the average amount of a single transfer has fallen, the number of transfers has risen,” explains Ayriyan.

 

This means that despite the 30% dip in the market in the first quarter, money was quickly flowing again as things stabilised. With Russian companies looking to cut costs, cheap immigrant workers outcompete Russians on the Russian labour market. Tadzhikistan, Uzbekistan and Kyrgyzstan are among the few CIS countries to have experienced growth this year, not least due to the stable level of remittances facilitated by Unistream.

 

Unistream’s total volume of transfers in 2008 was $4bn (at current dollar rates) and in 2009 is looking to reach $4.5bn, despite the crisis.

 

The Unistream network has snowballed. With a turnover of $760m in 2005, the company reached $1.85bn volume in 2006, and $3.7bn in 2007, with the number of customers soaring from 870,000 in 2005 to 3.7m in 2007,

 

In 2008, the company took 57% of the market in Armenia , 45% in Kyrgyzstan , 41% in Moldavia , 25% in Tajikistan , and 22% in Uzbekistan.

 

Unistream is not just about remittances: Russia being the size it is, and the banking system still underdeveloped, Unistream’s Russian in-house network adds up to more than 40% of the system’s total turnover.

 

The particularly strong showing in Armenia is not coincidental. Both Ayriyan and co-owner of the bank Gagik Zakarian are of Armenian origin, one of the historic diaspora nations. “$4bn flow to Armenia from Russia annually,” Zakarian tells bne, “and about another  $500m from the US.”

 

Going German

 

The awareness of the West as a source of remittances is now prompting Unistream to roll out its system in the EU countries, including Britain and Greece, but first and foremost Germany.

 

“Today more than three million of the country’s residents are economic migrants from the CIS, which, given the decidedly high standard of living in Germany , is inevitably a dynamic growth driver for the money transfer market,” says Ayriyan.

 

Analysts at Unistream estimate that Germany’s money transfer market in all directions will be annually worth more than $12bn even in the immediate post-crisis period, which is absolutely colossal, bearing in mind that the Russia-CIS corridor added up to a total $15bn in 2008. The Germany-CIS corridor’s value is around $4bn. Unistream is looking to take 10% of this corridor’s volume in the mid term, according to Ayriyan.

 

A particular challenge to setting up in Germany is the toughness of the money laundering laws and general supervisory requirements of financial sector, that make obtaining a license a time-consuming and exhausting process. Despite strictness of personal identification rules for money wires, the extent of Internet coverage here means Unistream is developing an online service. “At the same time, taking into account that many migrants in Germany from the CIS are of the older generation, it is important to have a physical presence including Russian speaking staff,” says Ayriyan.

 

Powerful backing

 

Unistream is owned by its founders Georgii Piskov and Gagik Zakarian, with a 26% stake spun off to Aurora private equity group in 2006. Piskov and Zakarian were the founders and owners of Russia’s Uniastrum Bank, until selling 80% of the bank to the Bank of Cyprus in 2008 for 447m euros, months before the financial crash. This means the Unistream owners have deep pockets with which to finance the further expansion of the system, which was not included in the deal.

 

“Unistream is a highly solvent, highly liquid system,” Piskov tells bne, “which does not need any extra financial support presently. However, any funds it requires for business purposes will be forthcoming.”

 

Piskov makes no bones of his ambitions in the money transfer business. “We want to go global, and expand beyond the CIS corridor. When you have created such a system, it’s simply logical to roll it out in country after country,” he says.