VISA/MasterCard stop transacting in Russia.

The recent series of events as are shaping up with Ukraine & Russia pertaining to Crimea has invited US sanctions being imposed on Russia. The Crimean parliament recently voted in a referendum to annex itself from Ukraine and rejoin with Mother Russia. 

Such turn of events in Russia have invited the wrath of US sanctions which President Barak Obama said would come. 

The immediate so called sanctions that have hit Russia are in the banking sector. Both VISA and MasterCard have officially ceased operations in Russia and are not processing any transactions originating from a large group of Russian banks. For those who would try to charge their VISA or MasterCard enabled cards… transaction decline. 

Add to this the 100,000s of Russians who are traveling overseas, their plastic is now essentially worthless. President Putin with a hand wave has dismissed that any sanctions by US would have any noticeable effect on Russia. However, the pinch is being felt. 

POS transactions, VISA/MasterCard enabled ATMs, Online acquiring, etc. are all being affected. 

With the sanctions fire now fully lighted, there are two important points that are worth debating:

  1. VISA and MasterCard both have autonomous Non-US Offices, yet, because both companies are essentially US based, they have to comply with US orders. The only other time this happened was when the US pressured all acquiring banks associated with VISA and MasterCard to stop providing processing facilities to Wikileaks. 
  2. This push against the wall, how will Russia react? Will it consider this action by the US to be the equivalent of financial bullying? Will Russia now go ahead and push for a competitive payment network that is US agnostic? (a move that would be welcome by many countries, including Iran)? Has the time come for an alternative payment network that would essentially rival VISA/MasterCard?

Not so long ago, Polish banks decided to huddle up and implement their own mobile payments standards, a move that irked the likes of VISA and Mastercard. India is walking down a similar path, build autonomous payment networks that are native to India (think RuPay).

These sanctions (even in their mild form) are something the Big Bear is not likely to forget anytime soon. The banks in Russia are crying foul and with 100s of Billions of US Dollars riding on their network, you can bet that they will push President Putin to either build a separate financial network or give their blessing to a financial network, one in which the US influence is negligible (think China Union Pay, et. al.)

Whilst VISA/MasterCard sanctions are inconvenience on a larger scale to the Russian consumers, it is not something they cannot live without. What would be truly damaging to the Russian economy is if SWIFT were to stop providing services to the Russians.

Even though SWIFT is Belgian, with EU voting to implement economic sanctions against Russian, you could almost see a parallel case of Iran and how SWIFT has essentially broken the back of the Iranian banking system.

In this proximity war between the two giants, Russia is not the timid Russia it was 2 decades ago. It will not be bullied. In this war, bullets are not to be used. Economic sanctions is the new and improvised ammunition of choice. 

 

Faisal Khan is a Payments Consultant for Banks and Startups around the world.
Faisal Khan is a Payments Consultant for Banks and Startups around the world.

 

 

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