22 July 2014

Visa and MasterCard face heavy price for Russian business

06 May 2014  |  6194 views  |  5 Moscow skyline

Visa and MasterCard will have to cough up nearly $4 billion in security deposits to Russia's central bank if they want to continue operating in the country, under a new law signed by president Vladimir Putin.

In March, Visa and MasterCard stopped processing transactions for several Russian banks because of US sanctions designed to put pressure on Putin after he moved to annex the region of Crimea.

The Russian president has responded with a new law that will create a national payments system to compete with the American-owned giants, which currently process around 90% of all card transactions in the country.

In addition, the pair have been told that if they wish to carry on working in Russia they will need to deposit collateral with the central bank equivalent to the value of two days of processing volumes - around $3.8 billion.

According to the Moscow Times, the amount will be payable in eight quarterly payments starting from July.

The new law also means that the companies will face fines of up to 10% of the deposit per day if they unilaterally cut off services to a Russian bank - which could prove costly if the US government makes anymore sanctions moves.

In addition, Visa and MasterCard will have to keep all of their transaction data within Russia's borders, in a nod towards data privacy concerns Putin has raised.

Comments: (5)

Ketharaman Swaminathan - GTM360 Marketing Solutions - Pune | 07 May, 2014, 17:14

It takes an oligarch to break an oligopoly! The ultimate irony would be if the security deposit is used as capital for creating the local alternative. Wonder if this strategy will be copied by other nations.

Ketharaman Swaminathan - GTM360 Marketing Solutions - Pune | 13 May, 2014, 15:58

@PaulL: TY for sharing this article. Since RuPay has been around for over two years in India, I never got the "launch" part of the news when I read it a few days ago. Not one of my banks has approached me to replace / supplement my existing V/MC debit-cum-ATM cards with a RuPay card. There's still no credit card on RuPay. V/MC don't need to maintain a security deposit to continue to operate in India. On the ground, the "taking on global players" part of the article sounds hollow and is a far cry from what's happening with V/MC in Russia. 

Paul Love - Compass Plus - Nottingham | 13 May, 2014, 16:21

Ketharaman

I too had heard of RuPay, but thank you for filling in the gaps in the PR and showing where the offerings differ.

Is there any cost incentive for banks to issue RuPay rather than V/MC cards? Will V/MC permit RuPay co-branding?

Ketharaman Swaminathan - GTM360 Marketing Solutions - Pune | 13 May, 2014, 16:38

@PaulL: I don't know the exact figures but even V/MC debit interchange rate has been low in India - our regulator-cum-central bank RBI seems to have done a a Dodd-Frank-Durbin on the industry long ago! That said, RuPay's sponsor, NPCI, is a not-for-profit government corporation, so we can never underestimate its pricing power. Given that RuPay has placed overseas acceptance on its own roadmap, it'd appear that co-branding with V/MC is either not permitted or not desired or both, but I'm not sure.

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