Russia to Develop Payment System

Global Business

Well Russia’s also taking steps to offset harsh economic sanctions from the West– meant to punish Moscow’s moves in Crimea. Russian President Putin is planning a self-sufficient domestic credit card industry. CCTV’s Daria Bondarchuk reports.

Russia to Develop Payment System

Russia to Develop Payment System

Well Russia's also taking steps to offset harsh economic sanctions from the West-- meant to punish Moscow's moves in Crimea. Russian President Putin is planning a self-sufficient domestic credit card industry. CCTV’s Daria Bondarchuk reports.

Russian President Vladimir Putin said a national payment system would help reduce Russia’s reliance on U.S. financial services companies and limit any disruption to Russia’s economy resulting from foreign sanctions.

Putin Said, “It is a pity that some companies made a decision about some well-known restrictions. I think this will simply lead to the loss of certain market segments for them-a market which is very profitable. Well, this is not our decision. We have to protect our interests, and we will do it.”

Last week, Visa and MasterCard stopped payment services for clients of Bank Rossiya, its subsidiary Sobinbank and several other Russian banks whose shareholders are on the U.S. sanctions blacklist.

Russian political analysts say Putin’s decision is, in part, a response to his domestic critics who complain about Russia’s excessive reliance on foreign payment systems, claiming they enable foreigners to hold Russian banks hostage.

Fyodor Voytolovsky, Head of Political Section, Center for North American Studies Institute said, “Russia is also interested in developing its own infrastructure for using electronic payments and card system. I do not think that contacts with Visa and MasterCard will be cut off in the close future, I think all contacts will continue, but I think this decision has very strong symbolic meaning.”

Efforts to set up a Russian bank payment system have been in the works for over three years. Financial analysts here say the system will not be easy to create or implement, but they consider it is essential to diversify Russian banking, which relies on Visa and MasterCard to settle payment transactions-especially those that require conversion into hard currencies such as U.S. dollars and euros.

According to Semyon Novoprusky, Banki.ru, information Website Deputy Editor, “It will be a burden for the federal budget, which will possibly be shared the banks participating in the system, though their share will be minimal, and of course it will cost the Central Bank some of its own money. And certainly it will cost tens of millions of dollars, and more, depending on the scale of reach.”

Russia’s central bank and Russian lawmakers estimate the demand for such a system, with a domestic processing center, will be high because eventually it would handle up to 90 percent of all transactions in Russia.

Semyon Novoprusky, also said, “With due promotion people will begin using it, especially if the service costs will be lower, which the government can, in theory, ensure. If the government creates the situation in which this national payment system will be cheaper than others to use, then people will go in and start using it.”

The draft bill establishing a national bank card payment system is expected to be finalized by October this year. International credit card companies – such as Visa, Master Card or Union Pay – will have a new local competitor. Russian consumers will get more freedom of choice and a homegrown option that will help protect them from banking disruptions due to political conflicts.