Sanctions against Sanctions: Sovereign Financial Systems, Russia

Visa

International payment operators Visa and MasterCard have started processing domestic payments inside Russia’s new national processing system, launched in response to U.S. sanctions against Moscow that saw cards from several Russian banks blocked in 2014. Observers see the creation of the National Card Payment System as the first step towards an autonomous financial system in Russia.

“The national system has already been introduced, quickly and at a little cost, and it has fully resolved the problem of payments inside the country,” says Sergei Khestanov, professor of finance and banking at the Russian Presidential Academy of National Economy and Public Administration.  If Visa and Mastercard do not fulfill the requirements of the Central Bank, they will have to pay a security deposit, whose size will be linked directly to the turnover of the credit card systems. Morgan Stanley estimated the figure at $950 million for Visa and $500 million for MasterCard.

According to Khestanov, processing Visa transactions through the national system should be viewed as a compromise: The Russian government’s control of the transactions will strengthen, but the international systems will continue to operate in Russia.  “The potential of the development of the Russian cashless payment market is still enormous,” explains Anton Soroko, an analyst at Finam Investment Holding.,,,For the time being, experts are avoiding any clear-cut predictions of success, and say that Visa’s protocols are more complex than MasterCard’s. “We will see if this will be successful only after the infrastructure assumes the full burden,” says chief analyst at UFS IS Ilya Balakirev.

The next stage should be the Russian national payment system’s issuance of plastic cards, which is slated for December 2015.The picture is further complicated by the emergence of Asian operators as an alternative to western payment systems. Immediately after the introduction of sanctions against Russia by the U.S., the Chinese bank card system UnionPay entered the Russian market in April 2014, followed in March 2015 by Japan Credit Bureau (JCB). By 2017 Russia is planning to issue about two million UnionPay cards and three million JCB cards.

Excerpts from Alexei Lossan, Visa and MasterCard join Russia’s National Card Payment System, Russia Beyond the Headlines, Apr.  2, 2015

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