Russia plans launch of payment system after Visa/MasterCard sanction debacle

By:
Duncan Kerr
Published on:

Russia is expected to launch its own nationwide card payment and processing system within months, potentially breaking the dominance of US companies Visa and MasterCard for making electronic payments in the country.

Russia has been planning on implementing its own electronic card payment system for years, but the need has gained urgency in the past few days as Visa and MasterCard suspended, before re-instating, their card services to four Russian banks as a result of US trade sanctions over Russia.

The suspended services affected Bank Rossiya, Sobinbank, SMP Bank and Investcapitalbank.

The US government’s sanctions, in retaliation of Russia’s annexation of Crimea, are targeted at hurting Russian president Vladimir Putin’s inner circle, many of which include oligarchs and businessmen. SMP Bank, for instance, is owned by Arkady and Boris Rotenberg, brothers and billionaires with close links to Putin.

The suspension of Visa services on SMP Bank was lifted earlier this week, as it was with the other banks.

In a statement, Visa said: “Based on clarifications provided to Visa by the US government, Visa has determined that we are not required to block SMP Bank’s and its associates’ access to our network. As a result, Visa has re-established network connectivity with SMP.”

The Russian parliament is reviewing and is expected to pass a law enabling the launch of the payment system, which could happen “in a couple of months”, says German Gref, chief executive of Sberbank, who is quoted by the Wall Street Journal.

Sberbank – state-owned and Russia’s largest bank – Uralsib, AK Bars and Moscow Industrial Bank are backing the new payment system, which is called Universal Electronic Card (UEC) PRO 100. It is not yet enabled for retail purchases and will only be used initially for the payment of public sector and some commercial services.

“The payment system is technologically ready to provide national processing in the near future,” says Andrey Nesterov, director of corporate communications for UEC.

He adds that a “set of rules, tariffs and software” governing the system is working and that those four Russian banks, which account for more than “40% of the market, are already linked to the payment system”.

Consumer credit growth in Russia has grown rapidly during the past decade, but the use of credit cards in particular still lags that of developed economies. Of a population of 143 million, Euromonitor International estimates about 30 million credit cards are in circulation in Russia, the majority of which are Visa and MasterCard branded.

On Wednesday, Reuters reported that Russian finance minister Anton Siluanov said during an interview on Russian TV channel Rossiya 24 that Visa and MasterCard’s suspension of services “made us start thinking very seriously how we can secure ourselves against this kind of cases”.

He adds that the “backup” national payment system would operate only on Russian territory, and that “we believe that there is no serious reason to say that we should abandon the existing systems, especially Visa and MasterCard, but in parallel we will begin to focus more on developing our own settlement system”.