26 March 2014, 16:25

Russia to create national payment system to rival Visa, Mastercard

Russia to create national payment system to rival Visa, Mastercard

Russia is considering launching its own payment system in response Visa and Mastercard's recent blocking of the bank card operations of several US-sanctioned Russian banks. Russian officials are debating whether to base it on Sberbank’s PRO100 or to cooperate with the Chinese UniPAY.

It should be noted that these sanctions were essentially that proverbial straw that broke the camel’s back. Back in 1998, when the Russian economy was in dire straits, it didn’t take long for both Visa and Mastercard to block all transactions carried out on cards issued by Russian banks. Both companies also stubbornly refused repeated requests by the Russian authorities to create a processing center in Russia, so that their bank card transactions could be processed locally. The proposal to create an alternative to the capricious Western credit powerhouses has now been debated by the Russian government for several years and these financial sanctions might just have provided the right incentive to make that dream come true.

While at the moment Visa and Mastercard effectively dominate the markets in Russia (over 85 percent of all card transactions are being carried out via them), the services they provide are hardly unique. Twelve years ago, several Chinese banks, backed by the People’s Bank of China, launched their own payment system called UniPAY. And the cards from the Japanese Credit Bureau (JCB) are being issued in 20 countries, numbering almost 9 million in total. In fact, the current situation in Russia did not escape JCB’s notice, as company considers expanding into this previously untouched market. The Russian banking system establishing closer ties with either of these two companies would probably not sit well with Visa and Mastercard, not to mention the fact that a potential alliance of any nature between Russia and China is something of a nightmare for many US politicians and interest groups.

Back in 2010 Sberbank deployed its own payment system, named PRO100, as part of Russia’s Universal Electronic Card (UEC) program. While PRO100 is based on international banking standards and can be deployed on the same infrastructure, all payments made through it are processed in centers located in Russia. And even though very few Russian banks have been connected to PRO100, their number may increase soon thanks to these latest political developments. “I believe that we need to create a national payment system, the kind that exists in many other countries,” Sberbank CEO German Gref said. “As for national processing and hosting, the PRO100 system based on the Universal Electronic Card is one of the options being considered.” He also added that after a few legislation changes, it would only take about six months to implement the system.

So far it remains to be seen how this situation will unfold, though it would appear that the grasp of the American companies on the global economy may not be as strong as some believed, as the challenge issued by D.C. policymakers was met with defiance rather than compliance. And the creation of viable alternatives, like this payment system in question, may in the long run undermine the efficiency of the much feared US economic sanctions.

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