VISA AND MASTERCARD OR NATIONAL PAYMENT SYSTEM: PRINCIPLES BEFORE PROFITS?
Is it true that a plastic card in your wallet is safer than cash in your pocket?
It has really been so until recently, but the latest events in Ukraine have called this idea into question. The complicated situation in the southeastern Ukraine, as well as investors’ anticipations about a new package of sanctions against Russia have contributed to raising the level of uncertainty about the future situation. It has also spurred negative expectations about the possibility of a new list of banks to be included in the EU and the U.S “sanctions list”.
Previously, the world’s leading payment systems – VISA and MasterCard – had already stopped servicing banks such as Rossiya, Sobinbank and SMP Bank. As for now, none of the VISA and MasterCard official representatives can actually guarantee that new banks would not be added to the sanctions list. All these signals make Russian citizens seriously concerned about funds safety, as well as about the possibility to use payment cards, etc. in their daily life.
Legislative and executive authorities of the Russian Federation have already responded to the VISA and MasterCard’s move by enacting a law that establishes a national payment system (entered into force on July 1st, 2014). In accordance with later amendments to the NPC law, such foreign payment system operators as VISA and MasterCard would have to place a security deposit on a special account with the Central Bank of Russia (CBR), which should be funded by quarterly transfers to the tune of 25% of the average money transfers amount processed by a payment system per calendar day (on the territory of Russian Federation for the previous quarter). According to estimations provided by the Central Bank of Russia, both payment systems’ annual contribution would amount to around 90 billion rubles (2.5 billion dollars). In case transactions are unilaterally suspended by VISA and MasterCard, the CBR will charge a fine amount of 10% of the security deposit daily, which is a more significant blow to these companies rather than introduction of the fee itself.
What would be the consequences for the Russian citizens in case VISA and MasterCard decide to leave the Russian market? First, it would be impossible to pay for goods and services using the plastic cards issued by these systems, and making a non-cash payments would only be possible by visiting a bank branch. Second, one would have to take cash while travelling abroad, because these cards would be useless to get cash from ATMs. Third, the funds’ turnover rate within the Russian economy would slow down considerably, leading to reduced economic and GDP growth rate.
Nevertheless, there is still nothing to fear about funds safety on the debit and credit cards. The fact is that the process of setting up a national payment system in Russia that could replace VISA and MasterCard is extremely slow, primarily due to various technological constraints. Moreover, it would still be necessary to use international payment systems for various international transfers, because the national payment system would use Russian ruble in cash settlement.
All these factors suggest that the VISA and MasterCard would not rush to curtail their business in Russia since it would not be beneficial for both parties. Even in case of a sudden decision to get rid of these payment systems, the whole process would take no less than 1.5 years. According to our estimates, the probability of VISA and MasterCard leaving the Russian market is not higher than 5%. However, we believe that VISA and MasterCard would remain in Russia due to aforementioned reasons and would be looking for any possible ways of cooperation with the financial authorities.
We are wishing you profitable investing!