Ukraine still stuck in paper world, limiting e-commerce
It’s been a good year for Ukraine’s electronic commerce market. The rollout of third-generation mobile telecommunications technology, which has increased smartphone use, means there are more e-customers online to sell to. And Ukraine’s first law on e-commerce, which entered force in September 2015, has made it considerably easier to run an online business in Ukraine.
The most recent annual report by the National Bank of Ukraine shows that e-commerce is on the rise: in 2015 goods and services worth nearly $700 million were sold online, with 300,000 transactions being conducted – 23 percent more than in 2014.
“Nowadays it is pretty easy to start operating on the local e-commerce market,” Irina Kholod, the CEO of e-commerce consulting company Ukrainian E-commerce Expert, told the Kyiv Post. “It’s neither hard nor expensive. But it’s also easy to be shut down – stop paying for hosting and that’s it.”
But while an e-business that only operates in-country can sell its wares over the Internet easily, avoiding excessive bureaucracy, any company that wants to sell products to customers abroad over the Web quickly runs into a legal firewall.
That’s because any e-commerce transaction that is made from abroad is defined by Ukrainian legislation as foreign economic activity, so any e-business in
Ukraine that sells to foreign buyers is subject to Ukraine’s currency controls.
Foreigners who buy Ukrainian goods over the internet and the Ukrainian sellers have to provide documents – an invoice and a purchase/sale agreement – signed by both sides and verified by a bank. After that, the bank receiving the payment from abroad has to convert 75 percent of the incoming payment from foreign currency into hryvnias, using the central bank’s official exchange rate. The remaining 25 percent goes to a reserve account, and is held in foreign currency, but when withdrawn must also be converted into hryvnias. The banks charge commission on the withdrawal.
That’s not all: All the documents for the e-transaction have to be in paper form, and signed and sent by post by the buyer to the vendor, totally negating the whole point of e-commerce’s convenient, paperless business model.
“Who would do all that?” Kholod asked, and answered herself: “A very few people – the most persistent ones.” Big foreign e-commerce marketplaces, like Amazon or ebay, and most European and U.S. companies use internet-based money transfer services such as Paypal, but this service is still limited in Ukraine.
Ukrainians can send other Paypal users money, but they are not able to receive payments back, so any Ukrainian e-business that wants to sell products on a foreign virtual marketplace and be paid using Paypal has problems to overcome.
Some Ukrainian banks now offer to cash money from a Paypal account, automatically converting the money into hryvnia, but they charge an additional 1540 percent commission for the service.
Kholod said Ukrainian e-businesses that sell to foreign customers often establish offices in other countries, export their products to those offices, and then work under those countries’ e-commerce legislation.
That allows Ukrainian e-businesses “to gain benefits from the payment systems” available in other countries, Kholod said.
“This is the reason some Ukrainian companies move abroad” or establish their main headquarters there, leaving the office in Ukraine as an outsourcer with an affordable labor force, she said. The solution would be to create a similar law to the one that governs domestic e-commerce, but for e-commerce that is carried out with foreign buyers.
The current law on e-commerce business was drafted in 2013, but approved by parliament and signed by Ukrainian President Petro Poroshenko September 2015.
“And it works well within the country,” Kholod said. “It has fully legalized the operation of Internet shops here. The same law, but for foreign operations, would make selling Ukrainian goods abroad easier.”
The first step towards establishing an e-commerce foreign payment system was taken earlier this year, when the National Bank of Ukraine introduced regulations that allow citizens of other countries to transfer electronic money to accounts in Ukrainian banks.
That’s when the banks were allowed cash money from Paypal users’ accounts.
The amendments, according to Ilia Kenigshtein, an advisor to Lviv Mayor Andriy Sadovyi who is lobbying Paypal to offer a full service in Ukraine, were a “little step closer” to attracting the international online payment system to the country.
Meanwhile, Ukrainians will continue to use the present workarounds, or find new ones, experts said.
Ukrainian E-commerce Expert’s Kholod said the Ukrainian market was used to “existing in the realities we have – our people are inventive.”
She said an e-commerce section was something every modern business “must have,” and said she hoped Ukraine would soon learn how to do business over the Internet with buyers that are outside the country.
After all, more and more Ukrainians are getting used to buying online, and the market is only going to grow from now on.
“Those who start buying online usually continue,” Kholod said.
Irina Kholod, the CEO of e-commerce consulting company Ukrainian E-commerce Expert, speaks with the Kyiv Post at her company's Kyiv office on May 23. (Volodymyr Petrov)