The most sanctioned country in the world. How is russia’s payment infrastructure being destroyed?
February 24th is a turning point for Ukraine. But today the aggressor country itself bears devastating losses. The world community is undergoing tremendous changes. Today, the business has risen to the defense of peace and democracy. I am analyzing the case of the russian federation, which cut itself off from the payment markets of almost the whole world during 2 weeks of the war.
In February alone, the volume of cash in the russian economy grew by 2 trillion rubles (or 14.7%). Although back in 2020, russia ranked 2nd in the world in terms of the number of users of the Apple Pay payment system, and various NFC pay services accounted for 17% of non-cash payments in the country. But today such international players as Visa, MasterCard, American Express, JCB, PayPal, Western Union, MoneyGram, Payoneer, Wise, and many others have left the russian market. What does this mean for the “neighbour”?
The refusal of international payment systems to service cards issued by russian banks means that russian users will not be able to pay with them abroad or in foreign online stores. Also, cards such as Visa and MasterCard will not be reissued in the country after the expiration date. Further, russian banks were disconnected from the SWIFT system, and a ban was imposed on the transfer of euro and dollar banknotes to the country. However, all these efforts leave loopholes that open up opportunities for the russian payments sector.
Firstly, the internal russian payment system “Mir”. Yes, her cards only work in Turkey, Vietnam, Armenia, Belarus, Kazakhstan, Kyrgyzstan, Tajikistan, and unrecognized South Ossetia and Abkhazia. “Mir” itself does not issue cards, provide loans, or set tariffs or fees for consumers. The PS rather provides financial institutions with payment products under its brand. But the main thing is that it offers the user a full-fledged payment infrastructure within the russian federation. Accordingly, within the borders of russia, users will be able to make online payments. What about international payments?
The second loophole is the strengthening of Chinese UnionPay’s positions in the russian market. Its geography is 180 countries of the world. Possibly the Chinese system can take advantage of the situation to become russia’s main payment system. But given China’s integration into a global business, there is a chance that even UnionPay will not make long-term investments in russia.
Another important point is the disconnection of russian banks from SWIFT. Yes, some banks turned off. But not those who trade oil and gas with the EU. Sberbank, russia’s largest creditor, and Gazprombank have received minimal sanctions as they are the main payment channels for russian oil and gas that EU countries still buy.
But no matter what steps are taken to avoid the sanctions, the level of technological progress, the percentage of non-cash payments, and the innovativeness of the market in russia are constantly moving towards zero. What is happening in the Ukrainian market of payment services at this moment?
President Volodymyr Zelensky signed the Law on Virtual Assets, that is, he legalized the crypto industry in Ukraine. Perhaps this step was taken against the backdrop of attracting multimillion-dollar funding in cryptocurrency for the needs of the Armed Forces of Ukraine. Over 3 weeks of the war, they raised more than $50 million in crypto assets. Ukraine, in principle, is one of the leaders in terms of the number of users of crypto assets in the world.
Now foreign and Ukrainian companies will be able to officially work with cryptocurrencies, and cryptocurrency owners in Ukraine will be able to exchange assets, contribute to tax returns, open blockchain businesses and use them in everyday life. The National Securities and Stock Market Commission (NCSM) and the National Bank of Ukraine will regulate the virtual asset market.
The russian user also insists on legal regulation of the crypto market in the country. Recently, this issue has become particularly relevant in the russian federation and has caused heated debate between the Ministry of Finance and the Central Bank. However, today this country is too controlled for citizens to have the right to own something like that. We conclude that the aggressor state is now experiencing a revolution in the payment market, which most likely will not bear fruit, but rather will shut the curtain. Well, in the struggle for freedom and independence, Ukraine still manages to discover new areas of the economy.