INTERVIEW: UNISTREAM SAYS CRISIS HASN’T IMPACTED MONEY TRANSFER BUSINESS

Business New Europe
Sept 18 2009

Unistream, the biggest player on the money transfer market in the
former Soviet Union, insists the crisis hasn’t impacted on its
operations to any great degree and it still plans to expand its
network into Germany.

One year ago, as the financial crisis struck, the media was full of
stories about how the Central Asian countries would face a crisis as
the remittances from Russia they depend upon dried up. 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 Tajikistan as workers
returned home empty handed.

However, Suren Ayriyan, president of Unistream, the eastern Western
Union that had a 27% share of the money transfer market for the
Commonwealth of Independent States at the end of 2008, tells bne
that none of these doom-laden scenarios panned out and the volume
of money transfers has remained largely stable on the year. "After
a short blip, transfer volumes are back to their level of one year
ago," says Ayriyan. "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, 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
was that with fuel prices staying high, the cost of transport home
became unaffordable for many migrant workers. "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 out-compete
Russians on the labour market. Tajikistan, 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. The International Monetary Fund forecast in its Regional
Economic Outlook released in May that growth in Central Asia would
drop to around 1% this year.

Unistream’s total volume of transfers in 2008 was $4bn (at current
dollar rates), and in 2009 it’s looking to reach $4.5bn in spite of
the crisis. This is remarkable growth; turnover has grown from $760m
in 2005 to $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 held 57% of the market in Armenia, 45% in Kyrgyzstan, 41%
in Moldavia, 25% in Tajikistan and 22% in Uzbekistan. 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. There’s a "$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 into the EU countries, including the
UK and Greece, but first and foremost Germany. "Today, more than 3m
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 worth more than $12bn annually even in the
immediate post-crisis period, which is absolutely colossal, bearing
in mind that the Russia-CIS corridor was worth a total of $15bn in
2008, with the Germany-CIS corridor’s value at 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 has been the
toughness of the money laundering laws and general supervisory
requirements of the financial sector, which makes obtaining a license
a time-consuming and exhausting process. Despite the 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.

Unistream is owned by its founders Georgii Piskov and 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 Bank of Cyprus in 2008 for â~B¬447m,
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.