The domestic-payments system continued to work smoothly after Visa Inc. and Mastercard Inc. pulled out earlier this month. While the card giants’ exit from Russia was viewed as a significant move by many in the West, the reality on the ground was anything but. Most Russian consumers never lost the ability to use their Mastercard- and Visa-branded cards to pay for things within the country.
There were roughly 197 million Mastercard or Visa cards in Russia at the end of 2020, according to the Nilson Report, a trade publication. But behind the scenes, the cards don’t rely on the U.S. networks’ systems to process payments in Russia. For years, they have used a homegrown system overseen by Russia’s central bank.
The National Payment Card System—known by its Russian initials NSPK—runs the financial plumbing that underpins card transactions in Russia, even for cards bearing Visa and Mastercard logos.
The system was part of Moscow’s eight-year effort to insulate the Russian economy from Western financial pressure. The Kremlin also has aggressively promoted Russia’s own card company, called Mir, which is built on NSPK’s infrastructure. More than 100 million Mir cards have been issued since its launch in 2015, according to Mir’s website.
The resilience of Russia’s payments system is a rare win for President Vladimir Putin in his financial war with the West. Russia failed to break its dependence on Western imports, leaving the country in dire need of key parts for manufacturing. Before the war, Russia amassed $630 billion in reserves to ensure it could protect the ruble, but that effort was undermined when the U.S. and European Union froze Russian central-bank assets.
“We provided for our national security in the payments space,” said Alma Obayeva, head of the National Payments Council, a Russian trade association.
The retreat of Visa and Mastercard did have one big consequence for Russians: In many cases, their cards now don’t work outside the country. The Mir network extends only to a small number of countries besides Russia, most of which are former Soviet republics. Russian officials have been in talks in recent days to expand it to Venezuela and Iran, according to reports from the TASS state news agency. Some Russian banks have said they are exploring partnerships with China’s UnionPay to issue cards that their customers can use more widely.
Still, Russians’ inability to use their cards to withdraw cash or make purchases abroad is aligned with the Kremlin’s goal to keep assets in the country. Some Russians who have fled have said Visa and Mastercard’s cutoff played into Mr. Putin’s hands.
On a February call to discuss potential Russia sanctions, executives from Visa, Mastercard and other payments companies told Treasury Department officials that banning U.S. networks from handling Russian bank transactions wouldn’t be especially painful, according to people familiar with the matter. Sanctions, they said, would simply push more transactions onto Mir.
Representatives for Visa and Mastercard declined to comment.
More countries have developed their own payments infrastructure, limiting the clout of Visa and Mastercard and, by extension, the ability of the U.S. to influence countries’ behavior through sanctions that target their banking systems. China’s state-owned UnionPay handles most domestic transactions on cards issued by Chinese banks. Turkey and India started their own networks in recent years to wean the countries’ banks off Visa and Mastercard.
Russia tried to reduce its vulnerability to Western financial pressure after it was stung by sanctions over its 2014 annexation of Crimea.
Visa and Mastercard at the time accounted for nearly all card network activity in Russia. Their networks serve as a link between merchants and banks that issue debit and credit cards, and they handle the routing of card transactions.
In March 2014, hundreds of thousands of Russians discovered that their cards had been rendered useless overnight. U.S. sanctions over Crimea had prompted Visa and Mastercard to block services to several banks linked to associates of Mr. Putin.
For Russian officials, the move highlighted a vulnerability. Within months, Mr. Putin signed a law establishing NSPK. A later amendment to the law effectively forced Visa and Mastercard to transfer processing of transactions to NSPK. The two U.S. companies at first opposed the law and suggested they might leave Russia. But by early 2015, both had agreed to use NSPK’s system.
Later that year, NSPK launched Mir. The name means both “world” and “peace” in Russian. It was chosen after an internet naming contest, in which some of the rejected alternatives were “Kometa” (Comet) and “Patriot.”
Initially, Russians saw little reason to swap their Visa- and Mastercard-branded cards for Mir cards. Then the Kremlin put its thumb on the scales.
In 2017, Russia passed a law requiring banks that handle pensioners’ payments and salaries of public-sector employees such as teachers and military personnel to make those funds available through Mir cards. Mir usage surged, with card issuance rising to 95 million by the end of 2020 from about 2 million in 2016, according to NSPK. The law also mandated that Mir be accepted at point-of-sale terminals used by many merchants.
NSPK invested heavily in marketing Mir, sponsoring the Russian national soccer team and promoting incentives such as cashback programs.
By taking over payment processing, NSPK became a moneymaker for Russia’s central bank, collecting fee revenue that otherwise would have flowed to Visa and Mastercard. In 2020, the payments system earned 8.2 billion rubles in net profit, or about $87 million at current exchange rates, according to its annual report.
Issuance of Mir cards has boomed in recent weeks after the exit of the foreign card giants. Russian lender Rosbank has reported that demand for debit cards that run on Mir’s network more than doubled between January and March from the same period last year.
“There is simply a huge, frenzied demand for Mir cards,” Ms. Obayeva said. “There is a long queue.”
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