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article imageRussia takes revenge on Visa and Mastercard

By Ken Hanly     May 8, 2014 in Business
Moscow - Both Visa and Mastercard claim that a new law that requires a security deposit of $3.8 billion for them to operate in Russia will have a "severe impact" on their Russian operations.
The law will also create a competing Russian national payment system. The new national system is to be created by July 1 this year, The law was likely a response to the decision by Mastercard and Visa last March 21 to stop servicing payments for clients at Rossiya and the associated Sobinbank after the first round of US sanctions. Rossiya Bank is owned by a close Putin associate and also the bank used by senior Russian officials. The two companies also blocked transactions at SMP Bank owned by associates of Putin.
The law now bans international payment systems from unilaterally cutting off services to Russian clients. It also requires that companies have their processing center in Russia. The security deposits will be equal to the average amount of two days transactions. Taken together VIsa and Mastercard process $1.9 billion a day yielding a security deposit for the two to $3.8 billion. A fine of 10 per cent of the security deposit could be imposed for each day a company withdrew services from a Russian client. The security deposit will be paid in eight quarterly payments beginning this July 1.
A statement by Visa said: "Several provisions in the law are unprecedented and will have a severe impact on the payments market in Russia – particularly cardholders, financial institutions and merchants. We intend to work closely with the government in order to resolve these issues."
Analyst Vladimir Tikhonov said that for the national payment cards to work abroad there would need to be agreements signed with foreign payment systems and he did not see the system as replacing foreign credit cards: "The creation of a national payment system is not a replacement for Visa and Mastercard, If Visa and Mastercard leave Russia, it will of course be a serious blow for both citizens and for businesses."
At present Visa and Mastercard together process 90 per cent of credit card transactions in Russia. Both companies hope to negotiate with the Russian government for less severe restrictions on their operations.
Mastercard Chief Executive Ajay Banga said: "There are provisions (in the legislation) there that I believe would create serious complications for the way that we can operate in (Russia), Russia will be tough to work through," Russian operations account for just two per cent of Mastercard revenues. Nevertheless Visa said that the sanctions were already having a negative effect on their revenues from Russia and revenue growth was expected to be even slower in the present quarter.
More about Visa in Russia, Mastercard in Russia, US Russia relations
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