QIWI Plc (QIWI) Q3 2020 Earnings Call Transcript

QIWI Plc  (NASDAQ: QIWI) Q3 2020 earnings call dated Nov. 19, 2020

Corporate Participants:

Varvara Kiseleva — Interim Chief Financial Officer

Boris Kim — Chief Executive Officer

Andrey Protopopov — Chief Executive Officer of Payment

Analysts:

Ildar Davletshin — Wood & Co. — Analyst

Chris Kennedy — William Blair — Analyst

Maria Sukhanova — BCS — Analyst

Vladimir Bespalov — VTB Capital — Analyst

Anna Kurbatova — Alfa Bank — Analyst

Presentation:

Operator

Good day, everyone, and welcome to the QIWI Third Quarter 2020 Earnings Conference Call. Today’s conference is being recorded.

At this time, I would like to turn the call over to Mr. Varvara Kiseleva, Interim Chief Financial Officer of QIWI. Please go ahead.

Varvara Kiseleva — Interim Chief Financial Officer

Thank you, operator, and good morning, everyone. Welcome to the QIWI’s third quarter earnings call. I’m Varvara Kiseleva, Interim Chief Financial Officer, and with me today are Boris Kim, our Chief Executive Officer; and Andrey Protopopov, Chief Executive Officer of the Payment Services Segment.

A replay of this call will be available until Thursday, December 3, 2020. Access information for the replay is listed in today’s earnings press release, which is available at our Investor Relations website at investor.qiwi.com. For those listening to the replay, this call was held and recorded on November 19, 2020.

Before we begin, I would like to remind everyone that this call may contain forward-looking statements as they are defined under the Private Securities Litigation Reform Act of 1995. These forward-looking statements about our expectations for future performance are subject to known and unknown risks and uncertainties. QIWI cautions that these statements are not guarantees of future performance. All forward-looking statements made today reflect our current expectations only and we undertake no obligation to update any statements to reflect events that occur after this call. Please refer to the company’s most recent Annual Report on Form 20-F filed with the Securities and Exchange Commission for factors that could cause our actual results to differ materially from any forward-looking statements.

During today’s call, management will provide certain information that will constitute non-IFRS financial measures such as total net revenue, adjusted EBITDA, adjusted net profit and adjusted net profit per share. Reconciliations to IFRS measures and certain additional information are also included in today’s earnings press release.

With that, we’ll begin by turning the call over to Boris Kim, our Chief Executive Officer. Boris?

Boris Kim — Chief Executive Officer

Thank you, Varvara, and good morning, everyone. Thanks for joining us on this call today. I’m glad to share our third quarter 2020 financial results. This quarter, we continued to demonstrate robust performance in our Payment Services segment as well as in our other projects.

Our Payment Services segment showed solid results and delivered 11% net revenue and net profit growth. This growth was largely supported by several factors, including abnormally high density of sport events in the third quarter, as well as growth in our strategic self-employed streams.

This quarter, we also successfully closed the sale of SOVEST and conclude the wind-down of Rocketbank. This helped us to refocus on our core payment business as well as on projects that can be synergetic to our key products, consumer niches and competences.

This being said, we also continue to optimize and improve the efficiency of our operations across all projects.

Moving further, I would like to share with you our several trends that I believe are currently important for our business. Today, we see increasing uncertainty related to the spread of coronavirus.

Moreover, as the result of several other factors, we may expect further deterioration of the consumers bottom and disposable incomes in Russia. We have not yet seen any substantial effects of the decrease of the purchasing power of the population on our operations.

Our diversified portfolio of services and circular growth in our key markets, cushioned the negative trends so far. However, we may expect certain negative effects to be visible going forward and into 2021.

Secondly, we have noted in the past and are likely to continue to see in the future, cost of default of our governmental bodies to adopt more robust and stringent regulations in respect of our key products and markets. These may include, without limitations, more elaborate wallet, KYC requirement, establishment of certain limits for the digital wallet transactions, both in respect of the types and maximum amounts, specific rules and regulations in respect of the cross-border transactions and regulation of the sport betting market.

As of today, a number of legislative initiatives has been discussed by different legislative bodies, formally or informally, that can eventually become legislative proposals or laws, and impose additional pressure on our operations.

As of now, we cannot make any reliable assessment or the impacts that these trends may have on our 2021 results of operations, but we continue to closely monitor the situation and we’ll provide our 2021 guidance in due course.

Despite uncertainty and challenging economic and operating environment, we see diverse opportunities for growth in mid- and- long-term, including through general digitalization trends, new niches and services for self-employed as well as certain B2B products and services. I do believe that we are well-positioned to continue developing our business and strengthening our ecosystem to provide our clients with the best-in-class digital solutions.

Now, on some operating highlights. Third quarter 2020 total net revenue increased 11% to reach RUB6.6 billion, up from RUB6 billion in the third quarter of 2019. The increase was mainly driven by Payment Services segment and Corporate and Other category net revenue growth, as well as by positive contribution of Rocketbank, as opposed to negative effect on total net revenue for the same period of the prior year.

Andrey will discuss the performance of our Payment Services segment in a minute, while I walk you through the results of our other projects and segment.

Corporate and Other category net revenue was RUB449 million as compared to RUB268 million in the third quarter of the prior year. Net revenue growth in Other category was primarily driven by factoring net revenue growth. Factoring Plus net revenue grew to RUB182 million as compared to RUB55 million in the third quarter of the prior year. Factoring net revenue growth was driven by the scaling of the project, including the expansion of bank guarantees and factoring portfolios.

In the third quarter of 2020, factoring portfolio increased by 15% to reach RUB3.8 billion. Bank guarantee portfolio grew by 26% to reach RUB16.7 billion. Most products performed well and continued to maintain low NPL level.

Given the results of the project and the trends we currently see, we aim to further develop this product by scaling our current products, as well as by expanding Factoring Plus product proposition.

Tochka net revenue for the third quarter 2020 was RUB126 million compared with RUB199 million in the third quarter of the prior year. Tochka net revenue declined, primarily resulted from a decrease in revenue generated from cash and settlement services due to lower number of active clients in QIWI Bank.

At the same time, the consolidation of the Flocktory project, starting from December 2019, also contributed to the net revenue growth. As I already mentioned, in the third quarter, we successfully completed the sale of SOVEST project, and included the Rocketbank winddown process. Thanks again to the team for an outstanding job done.

So then, I’m happy to share that in October 2020, we placed the first ever QIWI rouble-denominated bond entering Russia debt market. Varvara will give you more details shortly, but I would like to mention that the placement enjoys a strong interest from both institutional and retail investors, which we believe is a good sign that general market as well as QIWI customers value our story and believe in our business.

Moving on, I’m glad to announce that following the determination of the third quarter 2020 financial results, our Board of Directors has approved a dividend of RUB0.34 per share. We remain committed to the target dividend payout ratio of at least 50% of the adjusted net profit for 2020, approved by the Board in March.

The Board of Directors reserves the right to distribute the dividends quarterly as it deems necessary, so that the total annual payout is in accordance with target provided. However, the payout ratios for each of the quarter may vary and maybe above or below provided target.

Finally, I would like to announce the appointment of Pavel Korzh as the Chief Financial Officer of QIWI, effective December 1, 2020. Pavel has over 20 years of experience in finance. He joined QIWI in August this year and has served as a CFO of QIWI Bank since then. Given Pavel’s extensive financial knowledge, impressive background and strong focus on delivering results, I’m convinced that Pavel will be able to support our product growth, strategy execution and help us extend our business further.

With this, I will turn the call over to Andrey, for an update on our Payment Services business. Andrey?

Andrey Protopopov — Chief Executive Officer of Payment Services

Thank you, Boris, and good morning, everyone. Thanks for joining us. Moving onto the result of our Payment Services segment. For the third quarter 2020, our Payment Services segment volume increased by 11% to RUB435 billion, driven primarily by growth in eCommerce and Money Remittances market vertical, offset by decline in Financial Services and Telecom market verticals.

As we discussed on a number of occasions, we started to see volume recovery in June as the quarantine restrictions were eased and the majority of sports events were back on-track.

Different self-employed use cases also started to recover once the lockdown was over. Hence, our eCommerce volumes were driven to a large extent by a normally opened sport events, as well as by growth of different other digital entertainment subcategory.

The continued growth in Money Remittance verticals at the same time was largely driven by the strong performance of the Contact Money Remittance system, primarily resulting from the growth of the Tajikistan corridor, underpinned by the development of the Contact mobile application.

Significant increase in payout resulting from the scaling of our strategic self-employed stream also contributed to the performance of Money Remittance category. For example, in the third quarter 2020, we connected to our platform over 480 taxi companies, continued to improve our services for taxi park and our self-employed use cases in order to support further growth in the stream, and started to develop several new missions.

At the same time, some of the categories primarily connected to our physical distribution, such as travel and ticketing or loan payments continued to be adversely affected by the restriction related to the COVID-19 and the overall economy slowdown.

As Boris mentioned, so far, we have not seen any significant slowdown in our volumes or revenues resulting from lower purchasing power of population in Russia, thanks to our diversified product mix and resiliency. At the same time, we believe that further deterioration of the situation can negatively affect some of our categories, including not only our physical distribution but our core categories like, for example, eCommerce.

At the moment, we remain cautious and closely monitor how the situation evolves, doing our best to mitigate key risk and uncertainties. In order to maintain our growth, we continue to look for use cases and develop useful product. For example, we are piloting certain projects in our Payment Services segment, such as debit card program for our partners and the employees, earlier developed in Rocketbank, all payday loans for our QIWI users groups as well as certain B2B-focused service. We believe that such products will help us expand our B2B2C product proposition and provide more demand and diversified and relevant services for our clients, cementing our market position and growth.

Going back to the third quarter results. Payment Services segment net revenue increased 11% to reach RUB6.1 billion compared to RUB5.5 billion in the prior year. Payment Services payment adjusted net revenue increased 13% to RUB5.3 billion, up from RUB4.7 billion in the prior year, primarily due to the volume growth supported by the slight improvement of the payment average adjusted net revenue yield.

Our payment average adjusted net revenue yield was up by 2 basis points year-over-year to 1.22%, driven by increasing share of eCommerce of Money Remittance volume in total volume. At the same time, eCommerce and Money Remittance verticals adjusted net revenue yields have declined year-over-year due to change in product mix with higher proportion of lower yielded product, such as, for example, acquiring in this category.

Payment Services other adjusted net revenue was RUB806 million as compared to RUB880 million in the prior year. Fees for inactive accounts and unclaimed payments increased 5% to RUB506 million from RUB484 million in the prior year. Interest revenue decreased year-over-year, mainly due to lower central bank rate.

This quarter, we continued to see decline in the number of active QIWI Wallet from RUB22.3 million as of September 30, 2019 to RUB19.7 million as of September 30, 2020. We believe that the key factors that resulted in such decline, related primarily to the regulatory and operational reasons, rather than any substantial changes in the consumer preferences or economic slowdown. Such declines did not substantially impact our financial operating performance due to increasing diversification of our product proposition and operating models.

At the same time, we believe that certain regulatory initiatives that are being discussed from time to time, as well as continued economic slowdown, have potential to negatively affect our operating performance in the future.

Our growth this quarter was supported by the robust performance of our key products in corporate. Although at the moment we see many challenges ahead and remain cautious, we believe that we are well-positioned to continue to grow our business, enrich our suite of services, develop new niches, and create new use cases for our users, merchants, and partners.

Simultaneously, we are looking to improve and optimize our operations in order to lay a groundwork for sustainable long-term growth.

With this, I will pass over to Varvara for more details on the financial performance of the Group. Varvara?

Varvara Kiseleva — Interim Chief Financial Officer

Thank you, Andrey. Moving on to expenses. This quarter, our Payment Services segment continued to demonstrate robust operating performance and generated strong cash flow, supported by good performance of our other projects.

In the third quarter, we have significantly increased overall efficiency of our operations, as well as our margins through successful divestiture of the key investment intensive projects as well as other cost control and optimization measures that we have started to implement in the beginning of this year.

Before we move on, I would like to highlight that going forward, I will refer to the segment numbers that includes the effect of both continued and discontinued operations under IFRS. For the avoidance of doubt, as of September 30, 2020, SOVEST and Rocketbank projects are presented as discontinued operation in our IFRS financial.

This being said, adjusted EBITDA increased 60% to RUB4 billion. Adjusted EBITDA margin was 61% compared with 42% in the prior year. Adjusted EBITDA margin growth primarily resulted from total net revenue growth, underpinned by a decrease of selling, general, and administrative expenses resulting from a decrease in marketing, advertising, and client acquisition expenses, but even mainly by the termination of SOVEST and Rocketbank marketing activities.

This was partially offset by an increase in personnel expenses, primarily related to Payment Services segment personnel expense growth, as well as consolidation of Flocktory.

Group adjusted net profit increased 73% to RUB3.3 billion from RUB1.9 billion in the third quarter of the prior year. The growth of adjusted net profit was primarily driven by the same factors impacting adjusted EBITDA as well as by an increase in foreign exchange gain that was offset by an increase in income tax.

Payment Services segment net profit increased 11% to RUB3.6 billion, driven primarily by Payment Services segment net revenue growth, offset by an increase of payroll and related taxes, excluding effects of share-based payments, predominantly driven by higher bonus accruals and expenses related to the cash-based LTI compensation program.

Consumer Financial Services Segment net loss was RUB137 million in the third quarter 2020, as compared to a RUB424 million in the same period of the prior year, resulting primarily from a decrease in personnel expenses, excluding effect of share-based payments, and selling, general and administrative expenses due to the project sale as well as credit loss recovery compared to credit loss expenses for the same period in the prior year.

Rocketbank Segment Net Loss was RUB165 million compared to RUB632 million in the prior year, resulting primarily from better net revenue performance as well as decrease in personnel expenses and selling, general and administrative expenses resulting from the project wind-down.

As Boris have already mentioned, in October 2020, QIWI has placed a RUB5 billion unsecured bond due in 2023. The final coupon was 8.4%, significantly below the initial range, and the placement enjoyed strong interest and was oversubscribed.

At the moment, the main purpose for raising debt is funding the development of a number of current projects, primarily funding the growth of Flocktory portfolio of Factoring PLUS project. At the same time, we do strongly believe it was a good opportunity to optimize our capital structure.

Now, onto our guidance. Firstly, I would like to remind everyone that at the moment we have limited visibility regarding the potential impact of the outbreak of COVID-19 strain of coronavirus, as well as certain other factors on our business. In addition, it is currently unclear how much consumer demand will be negatively affected from the outbreak of COVID-19 and what effect such outbreak will have on the macroeconomic environment as a whole. The full impact remains uncertain and will depend on the length and severity of the effect of the coronavirus on economic activity in our markets.

Our outlook reflects our current views and expectations only and is based on the trends we see as of the date of this earnings call. If such trends were to deteriorate further, the impact on our business and operation could be more severe than currently expected. We continue to monitor the situation closely.

Having said that, we reiterate our guidance in respect of 2020 outlook. We expect group total net revenue to increase by 7% to 15% over 2019. Payment Services Segment net revenue to increase by 3% to 10% over 2019, while adjusted net profit is expected to increase by 35% to 50% over 2019.

Although we see our nine months results as a solid foundation for our 2020 performance, certain other factors remain beyond our control and we reserve the right to revise our guidance in the course of the year.

With that, operator, please open up the call for questions.

Questions and Answers:

Operator

Thank you. We will now be conducting a question-and-answer session. [Operator Instructions] Our first question comes from the line of Ildar Davletshin of Wood & Co. Please proceed with your question.

Ildar Davletshin — Wood & Co. — Analyst

Good afternoon and thank you for the opportunity to ask questions. Congratulations for good strong results. So I just wanted to ask one question on your core payment business, in particular the eCommerce segment. So, we noticed this decline in net revenue yield, which is partially understandable. And so, the question is, do you see that there’s a sort of sustainable new level going forward or is there still downside risk to this around 2.2% yield?

And then separately on the self-employed, it seems like you’re also making good progress, at the same time other competitors like Sberbank and Yandex have also plans in that segment. Do you see any direct competition or if you could talk a little bit maybe more about the niche that you operate, if it’s kind of safer for your operations?

And maybe just on Other revenues, seems like it’s also making very good progress. Could you maybe speak a little bit more about the prospects that you see there, like in terms of maybe contribution overall to the revenue in the next — I don’t know — couple of years, in terms of the potential? Thank you.

Varvara Kiseleva — Interim Chief Financial Officer

So, thank you for your question. I will cover first one, regarding the eCommerce yield and self-employed. So, for eCommerce, the reasons, as we described, that we announced that a more broader range of the product, including online acquiring and the share of online acquiring to bigger versus our traditional growing versus our traditional QIWI Wallet. So, I would say that we might see certain continue this trend, though, we believe that those yields will be generally on quite high levels, because our eCommerce with digital entertainment, where yields are normally high versus traditional eCommerce.

Talking about the self-employed, we are targeting specific, I would say, markets, and not targeting whole self-employed that we have, so it’s — and on those markets where we are playing, including for example the taxi companies and taxi drivers, scrap metal pickers, web marketers and some others, we have some — we have certain competitive advantages, because we build kind of tailor-made activities for those markets, and with tailor-made solutions that fit exactly our partners on those markets.

At the same time, I would say that overall focus of the industry and increase in our competitors on those market is a reflection that this market is interesting and growing. And at the same time, in those market we are playing in, and some others, we are not yet, I would say, a lot competing with each other. We are more competing with the cash payment, because even in the scrap metal pickers market, the majority of the market is cash-based.

On the taxi market, a big portion of the market is how taxi companies are paying to the drivers with cash base. So, there is still, I would say, huge opportunity to grow, to move from those cash-based payment to the online payments; and the more players are there, the faster this will be — this move will go. So, in a way, in those market, we are — it’s good to have competition.

While our, I would say, competitive edge would be to not to try to have a — the broad market products, but to have this, I would say, laser focus on the specific niches where we can provide the strongest proposition.

Ildar Davletshin — Wood & Co. — Analyst

All right. I think maybe just to double check on your first comment. Do you expect this third quarter revenue yield in the eCommerce to be sustainable or — I didn’t get the answer, because the line wasn’t quite clear.

Varvara Kiseleva — Interim Chief Financial Officer

Could you please repeat it? I have some — something in the — with the voice.

Ildar Davletshin — Wood & Co. — Analyst

Yes, I was trying to ask about if the answer to the first question on the net revenue yield, so the level which we saw in the third quarter, do you think this is sustainable or is it — can still go — can go down from this level?

Varvara Kiseleva — Interim Chief Financial Officer

Yes, as I said, it can — it still can go down a bit. Though, I think it will stay on some quite high levels overall. So, it may go down a bit in the next quarters as well.

Ildar Davletshin — Wood & Co. — Analyst

Thank you. Thank you.

Operator

Thank you. Our next question comes from the line of Chris Kennedy with William Blair. Please proceed with your question.

Boris Kim — Chief Executive Officer

Sorry, sorry. I think we have — we had one more question regarding our new businesses. So, I could comment, if it’s possible. So the question was about contribution of new businesses on mid-term and long-term perspective. You know that after closing — selling SOVEST project and winding down of Rocket, we have two business verticals left, Flocktory and Factoring PLUS. And as we discussed during our previous call, they performed very well and they performed — they performed even better than we expected at the beginning of the year, especially during this COVID pandemic we have.

We still — we’re still working on our strategy and mid-term business plan, but I could say that in long-term perspective, say, on the horizon on ’23 — 2023, we could expect that these new businesses could bring us like 20%-25% of our net revenue on a group level.

Ildar Davletshin — Wood & Co. — Analyst

Thank you very much.

Operator

Okay. Apologies. Our next question is coming from the line of Chris Kennedy with William Blair. Please proceed with your questions.

Chris Kennedy — William Blair — Analyst

Great. Thank you for taking the questions. Boris, one follow-up on the B2B initiatives. Can you talk about the long-term profitability of those?

Boris Kim — Chief Executive Officer

Yes, I believe that the question is about Factoring PLUS and their business model, how sustainable it is. So, at the moment, we see very good profitability in this segment. And talking about the long-term and mid-term perspective, we think that also we could expect some decrease in profitability and in margin.

In general, it — we expect that the margin will be rather high because of two-reason; we work in a special — very special segment of small and medium-sized enterprises, which have contracts with big, reliable companies. And for them it’s not the question of margin; for them it’s a question of time. So, we could enjoy a rather high margin.

And on the other hand, the NPL, the cost of risk in such operations is rather low, obviously compared to the loans for small and medium-sized enterprises in which we have practically the same NPL as for retail loan, around 10% to 15%. In Factoring operation with these companies, we have a cost of risk less than 1%, even in this — during this crisis.

Chris Kennedy — William Blair — Analyst

Okay. That’s very helpful. Thank you. And then just can you give a little bit more color on the potential regulatory changes in Russia and how that would impact QIWI business and how you would navigate potential changes? Thank you.

Boris Kim — Chief Executive Officer

Yes. Well, as I mentioned earlier, we have a few initiatives from the government and legislative bodies regarding two key markets. The first one is betting. And I mean the speed at which they change the registration is astonishing, even for Russia, because they just adopted two new rules in July, changing the registration for bookmakers in terms of taxation and offshore beneficiary ownership.

And now, we prepare two new law, which now are being discussed at the level of the government. This law is about further increase in quite different taxation of bookmakers. And the second law is about changing the whole regulation of bookmaker companies, including creating unified TSUPIS.

Now, I remind you, we have two TSUPIS. One of the TSUPIS is QIWI. So, it’s very early to predict any material effect on QIWI business. But for sure, that’s very important change in the regulation. And the second law is about foreign e-Money wallet. At the moment, it’s about — I mean they tried to introduce a special form of reporting of owners of this wallets for Federal Taxation Office and for Central Bank, above the operations.

It wouldn’t directly impact our operation, but of course, that show — that’s a sign of the level of attention of the regulator to the e-money and to the electronic wallets, especially in transborder payments. So, it’s a sign of this attention and potentially they could leave it, such operation, and that could have an impact on our business in this case.

Chris Kennedy — William Blair — Analyst

Very helpful. Thank you, guys.

Operator

Thank you. Our next question comes from the line of Maria Sukhanova of BCS. Please proceed with your questions.

Maria Sukhanova — BCS — Analyst

Yes, good afternoon. I just wanted to ask you to elaborate little bit more on the circulation part, specifically about tax initiative. You mentioned about creating single TSUPIS. Could you please tell us, have there been more developments on this front so far, just — I’m just wondering like this press release, you still have stressed, specifically regulator risk. And we know that regulator risk is general background risk for the business in general. So I wonder, the fact that you’re stressed now, is it because you are really concerned about what’s going on regulatory front, or it just like reflects that have been so many initiatives so far, which together might be — if proved negative?

So just to understand if you are feeling that regulatory environment is indeed more like — could be potentially more harmful at this point? Thank you.

Operator

I’m sorry. Unfortunately, one of the lines may be muted. We can’t hear your response.

Boris Kim — Chief Executive Officer

Sorry. I was on mute. Thank you for the question. So talking about single TSUPIS. The situation has changed since September or since August, when we had the last earning call. Because in August, that was just a proposal from Boxing Federation, which was discussed at the level of government. And now, it’s a draft law, which is now in parliament. And so they started to consider these draft law. That’s a huge progress in this. That’s why we put this census in our press release even, because the situation is changing.

At the moment, it’s — I mean it’s difficult to predict whether this draft law will be adopted eventually, and what will be the final test and who will be the single TSUPIS. We also have chunked the single TSUPIS, and that’s going to be much better for us even, because we serve the whole market instead of half of them — half of it.

But the truth is here, the situation is changing and is becoming more — more uncertain.

Maria Sukhanova — BCS — Analyst

Thank you. And just a quick follow-up on Flocktory. Do you still confirm your plan to double portfolio of like half-half to RUB8 billion at the end of the year or the recent slowdown in this respect?

Andrey Protopopov — Chief Executive Officer of Payment Services

[Speech Overlap] yes, I’m sorry. Boris, go ahead.

Boris Kim — Chief Executive Officer

No, go ahead. Go ahead.

Varvara Kiseleva — Interim Chief Financial Officer

Yes, Maria, thank you for your question. I wanted to outline that, of course, Flocktory business is quite seasonal, and we always see significant increase in the portfolio numbers in Q4. However, of course, given the current levels, the portfolio would probably be slightly less than RUB8 billion, though more or less on — in this I would say approximation.

Maria Sukhanova — BCS — Analyst

Understood. Thank you.

Operator

[Operator Instructions] Our next question comes from the line of Vladimir Bespalov of VTB Capital. Please proceed with your questions.

Vladimir Bespalov — VTB Capital — Analyst

Hello. Congratulations on good numbers and thank you for taking my question. I would also like to follow-up on the regulatory issue, probably you do some stress case scenarios, and this we assume that this situation developed according to worst-case scenario. You are not the founder of this new single 2% to imply this. Could you give a very rough maybe estimate what kind of hit your adjusted net revenue or whatever metric could take in this event?

And my — I have also a question on what Andrey mentioned during the prepared remarks on Tajikistan, maybe you could elaborate a little bit on this project and what is the contribution of this approach to your performance? Thank you.

Varvara Kiseleva — Interim Chief Financial Officer

Let me probably start from Tajikistan part of your question. So, Tajikistan stories are following, so starting from the, let’s say, end of the last year, there was a new regulation from the Tajikistan Central Bank for companies, for money-remittance companies to operate. And not all of the players, key players in Russia were able to do so. So, we get the kind of competitive advantage there and our volumes grew significantly in this quarter.

Moreover, in the second quarter of this year, we launched Contact mobile application that enrich our product proposition from being able for clients to send money from our partners, retail and bank, to be able to do it directly from mobile app, and it’s growing quite successfully as well.

So all of this, help us to grow the volumes and revenues of the Contact money-remittance this year quite significantly. So, it’s, I would say, now close to doubling growth of last year, so that’s impacted our Money Remittance vertical quite strong, specifically in terms of the volumes.

Boris Kim — Chief Executive Officer

Yes, so I will answer to your question regarding betting. At this stage, it’s very early to make such a stress scenario, just because the legislation itself, it’s not even on the first reading, and statistics of Russian laws shows that only 80% — 80% of the loan, which could be inter-parliament — enter the parliament, only 20% grows further from the first reading, and there are two competitive laws at the moment. One from the government, but it’s still not in the parliament, because it’s being still discussed at the level of the government; and the second one about single TSUPIS is already in the parliament but not on the first region even.

So, I would say that, at the moment, it’s a very theoretical discussion, what will be the real hit on our net revenue if and when this legislation will be adopted. So, at the moment, we couldn’t just give you any numbers. But we have to warn you and we have to discuss that there could be probably an impact on our net revenue in the future.

Vladimir Bespalov — VTB Capital — Analyst

Okay. Thank you very much.

Operator

Thank you. Our next question comes from the line of Anna Kurbatova with Alfa Bank. Please proceed with your question.

Anna Kurbatova — Alfa Bank — Analyst

Good afternoon. Thank you for taking my questions. Two minor questions about operations. First of all, on Rocketbank front, could you give some guidance or provide us some expectations, should we expect further scaling back in the work within the — until end of the year or the purchases that you are making now with this efforts are likely to produce more or less the same result on the net EBITDA by profit basis in the fourth quarter?

And second question, I note that telecom part of your payment volume business has significantly reduced volumes, transactional volumes in the third quarter. So could you make some color on the trends there? Thank you.

Andrey Protopopov — Chief Executive Officer of Payment Services

Hello, and thanks for your question. So, on the first question regarding Rocketbank and SOVEST expectations, as Boris mentioned, we already sold and closed both transactions, and we have substantially winded-down Rocketbanks operations. We don’t expect any cost associated with — any material costs associated with two of the projects in our Q4 2020, and all costs associated with the pilots that they’re being in our Payment Services business, are part of the Payment Services business cost and as well do not represent any material amount.

So, in this respect, the total losses that we have earlier guided for Rocketbank and SOVEST, and that have been already booked in Q1 to Q3. And this is everything we expect to record on our books for this year.

Boris Kim — Chief Executive Officer

Regarding the telecom question, this is in line with our performance on the physical distribution that we already mentioned, so meaning our self-service kiosk network and retail network, that those channels are still, I would say, under pressure during the third quarter. So, the telecom volume there as well for the same reasons as for loan repayment for some other categories that majorly represent it in the physical distribution.

Anna Kurbatova — Alfa Bank — Analyst

Thank you very much for this comment, and do you see any — on the other side, gains in digital online payments [Technical Issues] I mean, when you lose some of the physically-based transactions, do you transact part of them from maybe eCommerce? Thank you.

Boris Kim — Chief Executive Officer

Yes, we obviously see the growth in eCommerce, and physically in the digital entertainment and that’s reflected in our numbers, because majority of our growth is coming from those categories. At the same time, we have some volumes of Telecom as well with our bank segment — partners, and with the wallet where there is more, I would say, positive trends in both categories. However, proportionally, those channels for the telecom is smaller versus physical distribution. That’s why on the overall numbers, we see the decline.

Anna Kurbatova — Alfa Bank — Analyst

Okay. Thank you very much.

Operator

[Operator Closing Remarks]