MegaFon Starts Offering Cash Card to Expand Beyond Phone Service

(Bloomberg) -- MegaFon PJSC started offering banking cards to its customers as Russia’s second-largest wireless carrier seeks to expand in financial services amid stalling telecom revenue.

Customers in Moscow, St. Petersburg and some other cities can get the card for free now and it will be offered nationwide starting in October, the company said Tuesday in a statement. The product isn’t a credit card -- users load it up by topping up their mobile-phone balance and can use it in all places that accept MasterCard, for example a grocery store or online shop.

MegaFon is trying to lure customers away from banks and other wireless providers while adding a new source of revenue -- the carrier will earn a commission on purchases made with the card. The company’s profit is under pressure as competition in the wireless market weighs on call and data prices.

While carriers including Rogers Communications Inc. in Canada, O2 in Europe and Mobile TeleSystems PJSC in Russia are expanding in mobile banking, MegaFon’s approach is new as it links the banking card with the balance of the users’ phone-service account, Yan Kukhalsky, the company’s head of new businesses, said in an interview. Users get 8 percent annual interest on the account balance, free money transfers to other MegaFon users and up to 10 percent cashback on purchases.

The carrier is seeking to gain several million users for the card in the next three years, Kukhalsky said. MegaFon has about 75 million wireless customers in Russia.

Shares of MegaFon fell 0.5 percent to $10.35 at 2:26 p.m. in London.