The Central Bank of Russia launched the Mir payment card following sanctions from the 2014 Crimean War. Mastercard and Visa followed U.S. sanctions, which disconnected their global payment acceptance network, and Russia responded with the launch of its own payment network. The payment network uses the strategy of localizing consumer data as a launch point and required the global payment brands to filter transactions through the National Payment Card System (NSPK).
The Mir solution works for domestic payments, but it does not function outside of Russia, except for a handful of Russian allied countries.
In payments, there are four potential strategies for card usage. The card can be used for credit transactions, accessing a bank-affiliated credit line, or it can be used to access current funds within a bank account. From there, the question becomes whether it can be used domestically or globally. Mastercard and Visa established an effective process decades ago.
Payment card transactions clear and settle in a similar logical fashion as checks. The solution allows any customer to transact with any counterparty, assuming they both are registered with a financial institution governed by the local bank authority. The network uses a bank identification number to identify which institution owns the card, and a merchant identifier to match the transaction.
Debit cards work well domestically, but often do not work globally, in contrast to credit cards, which access a credit line rather than deposits in a bank. If you live in New York and have a Chase debit card, you will have an issue using the plastic in London, for example. In contrast, the credit card can be used anywhere in the world.
The issue du jour is that Mir provides a suitable clearance framework for Russian domestic payments, but it does not provide functionality of global acceptance.
Some discussion exists that suggests Russian banks will link to China’s UnionPay to provide global acceptance, but the topic remains open, with conflicting information. The Associated Press reported today that:
China’s credit card processor has refused to work with banks in Russia for fear of being targeted by sanctions over its war on Ukraine, cutting off a possible alternative after Visa and Mastercard stopped serving them, according to the Russian news outlet RBC.
UnionPay’s decision affects Sberbank, Russia’s biggest commercial bank, and smaller institutions, RBC reported Wednesday. It cited five unidentified sources in large Russian banks.
Sberbank and another institution, Tinkoff Bank, announced they were looking at switching to UnionPay, which is operated by Chinese state-owned banks. UnionPay is one of the biggest global payments processors but does all its business in China.
However, Reuters, on the same day, reported from Hong Kong:
Several Russian banks plan to issue payment cards that use the network of China UnionPay as well as that of home-grown payment system Mir, after Visa Inc (V.N) and MasterCard Inc (MA.N) joined other Western firms in suspending operations in Russia. read more
UnionPay and Mir are among few options left for Russians to make payments abroad since Russian banks were isolated from the global financial system following Russia’s invasion of Ukraine. Russia calls its actions in Ukraine a “special operation”.
Several Russian lenders already issue cards with UnionPay. Still, the Chinese payment service is wary of cooperating with sanctioned Russian banks for fear that could lead to itself being sanctioned, the RBC business daily reported on Wednesday, citing five unidentified people at major Russian banks.
UnionPay did not respond to a Reuters request for comment.
While the issue of global payment card acceptance is of limited consequence within the scheme of world events, the cache of international card access is important, particularly given Russia’s floundering banking system. S&P Global recently rated Russian sovereign debt as “default”, as did Moody’s, another rating agency.
Global payment acceptance is critical for personal and business travel. International acceptance may be needed if you are a global company in the process of exiting Russia, which includes most major brands. However, for tourists, the skies are not too friendly these days either for Muscovites, and you’ll need to be traveling on Air Serbia or Turkish Air.
Countries like Cuba, Indonesia, Thailand, and Turkey have welcomed an ever-growing number of Russian tourists. The Maldives, the Seychelles and Sri Lanka have also attracted more and more guests from Russia, as did sun-drenched Cyprus in the Mediterranean, the United Nations Tourism Organization (UNWTO) told DW.
For now, Mir remains a domestic payment scheme. In the long term, it will be interesting to watch whether a bilateral acceptance agreement will be made between China and Russia. But as a tourist, you will miss the opportunity to see Red Square for quite some time, either way.
Overview by Brian Riley, Director, Credit Advisory Service at Mercator Advisory Group
