After the Russian army invaded Ukraine, many countries and international companies imposed sanctions on Russia. Among these, two of the most closely watched companies were the US-based financial services companies Visa and Mastercard.
The international payment system Mastercard announced that, as of February 26, it had disconnected the Western-sanctioned Russian banks from its system. Visa later made a similar decision.
In a statement from Visa, it was reported that the company would work together with its customers and partners in Russia in the coming days to halt all Visa transactions.
The statement noted that once this process is complete, all transactions initiated with Visa cards issued in Russia will no longer work outside the country, and that Visa cards issued by financial institutions outside Russia will also no longer work in Russia.
Visa’s Chief Executive Al Kelly, whose comments were included in the statement, said that they had been compelled to act following Russia’s unprovoked invasion of Ukraine and the unacceptable events that have been witnessed.
Kelly remarked, “We are saddened by the impact this will have on our valued colleagues and on the customers, partners, merchants, and cardholders we serve in Russia. This war, and the ongoing threat to peace and stability, demand that we respond in a manner consistent with our values.”
A statement from Mastercard likewise indicated that, taking into account the unprecedented nature of the current conflict and the uncertain economic environment, it had decided to suspend its network services in Russia.
The statement said, “Cards issued by Russian banks will no longer be supported by the Mastercard network. Any Mastercard issued outside the country will not work at Russian merchants or ATMs.”
So what will be the effects of this sanction by Visa and Mastercard, and how should we evaluate it?
First of all, I believe we all agree that there is no acceptable aspect to war. Similarly, corporations are imposing sanctions against war in the hope that pro-war countries will abandon this stance.
Countries generally set up their own domestic systems to manage the core structures of card transactions, such as authorization, clearing, and end-of-day batch processing. This way, no problems occur with domestic payments.
For example, in our country, the payment acceptance, authorization, and reconciliation structure is operated by BKM. For this reason, when a transaction is made with cards issued by our country’s banks and e-money institutions at POS terminals in our country, these transactions are completed through BKM without going to Mastercard or Visa.
Therefore, if a similar sanction were imposed on our country as on Russia, we can say that transactions made with domestic cards at domestic POS terminals and ATMs would not be affected; however, transactions made with cards issued domestically at POS terminals and ATMs abroad, or with foreign cards at POS terminals and ATMs within our country, would be affected. We can see here that BKM’s strategic position is very critical.
Another matter that would eliminate dependency on Mastercard and Visa specifically for our country is that banks and e-money institutions offer customers cards bearing the TROY logo. In this case, since transactions abroad can be made with TROY-logo cards that are part of the Discover network and carry Discover-Diners-Pulse logos on the back, this can be considered an alternative way out in the event of a possible restriction. There is a point here that should not be overlooked. Not all TROY cards work abroad. For a TROY card to work abroad, it is required to have the Discover-Diners-Pulse logo on the back.
We can summarize the problems Russia will face as a result of the Mastercard and Visa sanctions as follows;
- Foreign Mastercard and Visa cards being unable to transact at POS terminals and ATMs within the country’s borders
- Mastercard and Visa cards issued by Russian financial institutions being unable to transact at POS terminals and ATMs outside the country’s borders
- Money transfers abroad via Visa and Mastercard not being carried out
- Global payment systems such as Apple Pay and Google Pay being unusable for domestic payments.
On this matter, a written statement from the Central Bank of Russia stated that transactions made with Visa and Mastercard in the country are carried out through the National Payment Card System (MIR) and are not affected by the sanctions.
The statement, which noted that transactions related to ATMs, payments, and money transfers with these cards would continue to be carried out in Russia, included the following: “Visa and Mastercard cards issued by Russian banks will continue to work normally in Russia until their expiration dates.”
A statement from Sberbank, Russia’s largest bank, emphasized that the country’s national payment system Mir could be used in Turkey, the United Arab Emirates, Vietnam, and Central Asian countries.
So, in this situation, what can Russia do to solve the problem of its citizens being unable to transact abroad?
It could partner with a payment scheme that has a strong network outside of Mastercard and Visa. UnionPay stands out here as one step ahead.
A statement to this effect came from Sberbank, Russia’s largest bank. The statement from the bank indicated that work had begun on issuing cards on which the Russian payment system Mir and UnionPay would work together.
Alfa-Bank, another major bank in the country in terms of market volume, stated in its own announcement that work had begun on issuing cards that work with the Chinese national payment system UnionPay, and that payments could be made in 180 countries with that system.
Russia’s Tinkoff bank also announced that work on “Mir-UnionPay” cards was proceeding rapidly.
Let’s take a brief look at the history of MIR and UnionPay.
MIR
The word MIR means World and Peace. The MIR payment system, established by the Central Bank of Russia in May 2017, is used for card payments through the bank’s system called the National Card Payment System.
MIR is currently accepted at the merchants and ATMs of 269 banks, with 89 million cards issued by 153 banks.
Credit cards built on the MIR infrastructure can be used in Turkey, Vietnam, Armenia, Belarus, Kazakhstan, Kyrgyzstan, Tajikistan, as well as South Ossetia and Abkhazia.
In Turkey, transactions can be made with MIR cards at the ATMs and POS terminals of Isbank and Vakifbank.
UnionPay
UnionPay International (UPI) is a subsidiary of China UnionPay established in November 2012. Together with more than 1,000 institutions worldwide, UPI provides international card acceptance in 160 countries and card issuance activity in more than 40 countries and regions. While providing high-quality, cost-effective, and secure cross-border payment services, it offers local services that provide convenience for cardholders and merchants, and as a result has a steadily growing cardholder base. UnionPay, established in 2002 through the coming together of more than 500 financial institutions, is recognized as the largest payment system in the global payment market, with a card count reaching 5 billion. UnionPay also operates the international clearing system in China. UnionPay cards, which have a particularly extensive network in China and Asian countries, are used in more than 40 countries outside China, such as Hong Kong, South Korea, and Russia.
Through new partnerships, UnionPay is a global card scheme that is growing worldwide, and its card acceptance network is widely used in more than 170 countries and regions outside China. UnionPay has more than 500 institution and bank partnerships. In addition to the special privileges it offers cardholders in many countries, the easy and secure payment service it provides also plays an important role in its rise to a position of world leadership.
In conclusion, it is important for a country to integrate with alternative payment methods in order to reduce its dependency in card payments. Even more important, if possible, is for it to create its own payment method and expand the networks in which it is valid.
With the wish for a world without wars and with minimal external dependency in card payments…
