New regulations drafted by the Central Bank of Russia drastically reduce the scope of influence wielded by Visa and MasterCard in Russia.
The new rules relegate Visa and MasterCard as international card payment systems (CPS) carving their respective roles as financial processors in a market which they now control over 90% of all card transactions.
Under the new regulations, Visa and MasterCard would act in a capacity providing supplementary services, rather than trying to operate on a level of national significance.
“Under these circumstances, it will be easier to stay in business simply processing the Russian systems and receiving less income, without becoming a nationally significant system and having to refocus on Russian technology, incurring significant costs, and even building a processing center inside Russia,” according to a source affiliated with one of the international payment systems cited by the newspaper Kommersant.
This move comes as no surprise after the annexation of the Crimea led to a wave of financial service outages which put many financial institutions in Russia in very uncomfortable quarters; having to rely on the service of the two credit card behemoths, which are closely bound to the financial regulation of the United States Government.
The cascade effect of this dislocation roiled the banking lobby in Russia. These new banking regulations are visible evidence of this financial cold war being waged through proxy now with corporation instead of country.
Russian President Vladimir Putin has admitted that with no payment system of its own, Russia is dependent on its partners. Putin said, “We have always believed that our partners, both Visa and MasterCard, are depoliticized economic entities and companies. However, as it turned out, they, too, are under strong political pressure and influence and give in to it right away.”
“From the economic point of view, this is a big mistake because MasterCard and Visa control 90% of the Russian market, which we gave to them of our own free will, and all payments inside the country go through these systems and to a large extent through serves located in the United States. But that’s nonsense! Why did Japan do it and can use a national payment system now, but we are using their (American) systems inside the country, I am not saying abroad where you go on a business trip or vacation,” Putin said
“This is a very big business for these companies. By acting the way they are acting in Russia, they are undermining trust in themselves and therefore will certainly lose the market,” he said. At the same time, he noted that the Russian authorities were not planning any retaliatory sanctions against MasterCard or Visa. “However not only have we thought about it but we have also started creating our own national payment system,” Putin said.
Back in March Putin said that Russia would create its own payment system. “These systems work successfully in such countries as Japan and China. They started off as national systems for domestic needs only but are now becoming increasingly popular,” he said. “The Japanese system now operates in over 200 different countries. Why shouldn’t we do the same? We should and we will,” Putin is quoted to say during a speech at the Federation Council, the upper house of parliament.
The new regulations momentarily ease the cloud of confusion surrounding Visa and MasterCard’s role in Russia; but portend many additional changes to the existing order of card processing.