Central regions | Finance, business

Russia considers switching to national payment system after Visa, Mastercard block US-sanctioned Russian banks

27 Mar '14
Last week saw the international turmoil around Ukraine and the Crimea affect Russia’s banking system, as the bank card operations of several US-sanctioned Russian banks were blocked by Visa and Mastercard.

Seven Russian banks were involved in the suspension, reported Russia Today, citing Timur Batyrev, head of the national payment system department at the Central Bank of Russia.

Washington’s move was meant to put pressure on 20 Russian individuals seen as members of President Vladimir Putin’s inner circle. These included Yury Kovalchuk, owner of Bank Rossiya and Sobinbank, and the Rotenberg brothers, who control SMP Bank and InvestCapitalBank.

One of these banks – Bank Rossiya – was directly targeted by the US government, which characterized it as “providing material support to these individuals,” East-West Digital News, the first all English-language online resource dedicated to Russian digital industries, reported earlier this week.

On Sunday, however, Visa and Mastercard resumed payment transaction services for clients of InvestCapitalBank and SMP Bank. Even though their main shareholders were affected by the sanctions, the banks as such were not targeted by the US government, their spokesmen maintained, which made the decision to block their bank card transactions unlawful.

“We are glad that the two biggest international payment systems have heard our arguments and reversed their decision to block [SMP Bank transactions],” SMP CEO Dmitry Kalantyrsky said in a statement reported by Reuters.

Transferring Putin’s bank account

When the blocking of Bank Rossiya’s bank card transactions became known, President Putin reacted by announcing his intention to open an account at the bank himself as soon as this Monday. He also ordered Russia’s Central Bank to take the sanction-hit lender’s clients under protection and provide all possible assistance to them, the Associated Press reported.

Russia’s response could go much further, however, with an amendment proposed on Friday to change the country’s payment legislation.

Supported by Vladislav Reznik, first deputy chairman of the State Duma’s Financial Markets Committee, the amendment would forbid unilateral service-provision stoppage by operators of payment services and their infrastructure – except in cases of violations of the national payment system’s rules or of Russian law.

Reznik also suggested that payment operation and clearing centers be required to locate exclusively on Russian territory, and that transmission of related payment information to other countries be banned – a clear reference to Visa and Mastercard, whose centers are located outside Russia. The two operators would either be excluded from the domestic payment scene or be forced to set up new operation centers in Russia.

Reznik plans to have his amendment come into force by Oct. 1 of this year.

Reviving a national payment system project

“The current situation is rather nonsensical,” said Vladimir Grankin, president of leading Russian payment group Ocean Bank, in an exchange with East-West Digital News. “Russian citizens who receive their salaries through their Russian bank accounts and shop in Russian supermarkets have their bank card transactions processed by US companies in the USA or other countries.”

While Russia perceived the abnormality of this situation “long ago,” Grankin noted, “building a national payment processing system is a complicated task – though last week’s events will accelerate Russia’s moves in that direction.”

Sberbank is in the running. In 2010 the national savings bank deployed its own payment system, named PRO100, as part of Russia’s Universal Electronic Card (UEC) program. PRO100 is based on international banking standards and can be deployed on the same infrastructure, but all payments made through it are processed in centers located in Russia.

So far the UEC program has failed to reach its originally planned dimensions overall. Very few Russian banks have been connected to PRO100 – but the latest political developments “could bring a significant impetus to the project,” Sberbank vice president Alexey Popov told the Russian daily Izvestia on Saturday.

“It is too early to say whether these short-lived and limited US sanctions will bolster the creation of a national payment system,” said Victor Dostov, president of the Electronic Money association, to East-West Digital News. ”But in order to be as popular and universally accepted as Visa or Mastercard, such a system will need a preferential regime. It seems very likely that the state will grant reasonable preferences to PRO100, UEC and, hopefully, to such Russian payment service providers as QIWI and Yandex.Money.”

“At the same time Visa and Mastercard will face additional requirements to continue their operations in Russia (for example, to set up their operation centers here). And they will very likely comply,” Dostov believes.
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Tags: Visa (7) / sanctions (4) / MasterCard (2) / Nabk Rossiya (0) /

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