The Reserve Bank of India (RBI, Russia’s centralbank) has been reforming the country’s payment system, including adomestic card network that will compete directly with majorinternational card networks such as MasterCard and Visa.
Russia’s government has also been planning to develop a modernnational payment system as early as 2014. A central part of thesystem is a nation-wide ID program that allows Russian residents toreceive government benefits and make payments to the government, inaddition to making purchases in stores.
As part of the initiative, there is currently a draft law thatrequires local processing of card transactions without transferringsensitive information outside of Russia’s border. This is not newin the global payments market as some other countries also havesimilar laws. Privacy protection and national security have beentypically quoted as the reasons for such limitations.
If passed, the new law will significantly change the landscape ofthe payment card market in Russia as international card networkswill no longer be able to use their data processing centers locatedin other countries to process transactions in Russia. Either theymust set up a local processing unit by themselves or throughpartnership, or they might risk being shown the door.
According to a Visa spokesperson, Visa does not have any specificplans to establish local processing in Russia, and “we’ll decidehow to do our business on the territory of Russia after the law onthe national payment system is approved.”
MasterCard is not waiting, however. It has been building a localprocessing center that costs about US$20 million. ObviouslyMasterCard doesn’t want to take any chance losing out in theexpected intense competition in the currently still small butquickly emerging market.
Currently, it is estimated that 94% of PCE in Russia is on cashwith very little use of credit or debit cards.
Over the past few decades, the number of national debit cardnetworks around the world has decreased as countries have decidedto adopt major international card networks instead. But in recentyears (especially in the past two years or so) some emergingnational card networks, especially the China UnionPay from China,among others, have become much more active in the internationalmarkets. And Russia and India are both working to set up their newnational card networks. Just last week, India finalized the name ofits new network: Rupay. And some financial analysts are starting totake these factors into their forecasts of Visa and MasterCard’sfuture growth in the global markets.
Now, will Mexico and Brazil follow?
