Last September, a day after Uzbekistan stopped accepting bank cards that relied on the domestic card scheme Mir, middle-class Russians were already discussing ways to get around the ban.
“[Accounts] Comes with a card and can be opened in 3-5 days [most] A telegram channel that advertises how easy it is to travel to Uzbekistan, open an account and get an international credit card said. It opened less than two weeks after the start of the invasion and persuaded Russians to move to Uzbekistan for business.
According to the Uzbek Central Bank, deposits in the country will grow by 60.5 trillion UZS ($5.3 billion) in 2022, twice as fast as the previous year, and show how Russians are getting into international commerce despite international sanctions. It suggests that access has been maintained. Data from other ex-Soviet countries also show a significant increase in demand for banking systems. Armenia recorded a sharp increase in non-resident deposits in 2022.
“Many Russians . “However, time will tell how many of them will stay in the area.”
“data [on Russian deposit inflows] Chatham House Associate Fellow Timothy Ash said: “Alongside remittances, we saw an inflow of Russian deposits, including checking accounts.”
It is clear that there is a need for creative payment solutions at home and abroad. Not only has Visa and Mastercard suspended services in Russia, but Mir, which helped keep payments flowing in the country, is also accepted in a handful of countries, including Belarus and the separate regions of Abkhazia and South Ossetia. .
And a year after the invasion began, Russia’s need to constantly innovate to keep payments flowing is an indication of its existence outside the U.S. financial system, much less the U.S. financial system, experts say. It shows how difficult it is to replace the current financial system.
Russia has begun preparing to pull out Visa and Mastercard following sanctions imposed after its annexation of Crimea almost a decade ago.
The Kremlin launched the National Card Payment System (NSPK) in 2014, creating an alternative financial plumbing system for processing card transactions in Russia. With the threat of hefty fines, Mastercard and Visa have signed an agreement allowing NSPK to process all domestic payments.
A year later, Russia launched Mir and quickly built up market share as it was mandated for use by civil servants and pensioners.
“With 161 million cards in circulation as of September 2022, just over Russia’s population of 147 million, Mir has become a viable card. [domestic] It is an alternative to Western payment systems,” said Ola Oyetayo, chief executive of payment platform Verto.
When Visa and Mastercard withdrew from Russia in March 2022, cards issued in Russia simply continued to run domestically under the NSPK.
Private banks have also reacted to the withdrawal of Apple Pay and Google Pay, which accounted for about a quarter of Russia’s digital wallet market in 2020, according to GlobalData.
Kartik Chakla, Senior Analyst, Banking and Payments at GlobalData, said Sberbank, Russia’s largest financial institution and subject to sanctions since April 2022, is a QR payment operator jointly operated by NSPK and the Central Bank of Russia. You said you were successful with the system. Consumers have to pay at his over 1 million merchants.
According to Sberbank, out of the 75 million customers who use the app each month, more than 28 million users have taken advantage of QR payments, launched in April 2022.
Meanwhile, digital bank Tinkoff, named by the EU for the 10th round of sanctions at the end of February, has built a physical alternative to Apple Pay. It’s a sticker with a near-field chip attached to their account. When attached to the front of the phone, it becomes a contactless device.
“The user experience is great, same quality service. [as a digital wallet]said a fintech executive familiar with the Russian market.
With Russian-issued Visa and Mastercard cards no longer usable outside the country, Russians traveling and working abroad face more difficulties.
Political pressure is also affecting the number of countries where meals are accepted. In September 2022, Turkish banks suspended meal cards, as did Uzbekistan, the same month NSPK chief executive Vladimir Valerievich Komlev was targeted for sanctions.
UnionPay, the Chinese rival of Visa and Mastercard, once seen as a potential backbone of Russian payments, has not seen meaningful expansion, with experts citing concerns over the US response. According to GlobalData, banks offering joint badge cards are now only two more than before the invasion, bringing the total to 11.
Two executives said the easiest way to get an international card to receive a salary or to spend internationally is to head to neighboring countries.
“For people who need to travel out of the country to get a bank card from a neighboring state, [UnionPay] It’s a card that only works in some card vending machines,” said one.
The Uzbek Telegram channel weighs the pros and cons of banks in an October post. Some require the foreigner to stay in Uzbekistan for her 15 days before obtaining the card, the same length of time a Russian citizen can stay in Uzbekistan without registering. Other branches, such as smaller branches, can get cards faster, but they have their drawbacks.
But experts say the relative resilience of Moscow’s payments system heralds a pivot to non-U.S. rivals as technical challenges, costs and fears of retaliation from Washington still stand in the way. He says he hasn’t.
“Investors are always worried about disintermediation,” said a senior executive at a major US payments firm. The amount they have to invest is getting bigger every year. “
Importantly, Visa and Mastercard already have global systems in place. Potential rivals will have to overcome geopolitical uncertainty in order to build the connections they need to compete.
“Trust is the key to any cross-country payment system,” said a payment fintech executive, adding, “It is almost impossible to build trust today.”
