Legislative changes in Russia
have led to uncertainty around the future for card processors in
the country. With rumours that MasterCard is building a processing
plant in the country, Louise Naughton discovers how these changes
are likely to affect the country’s payments sector.
Go deeper with GlobalData
Russia is
widely considered a land of opportunity for the cards and payments
industry. Is it any wonder with the country seeing total spending
on payment cards increasing at a compound annual rate of 30.9% in
the five years to 2009, as reported in last month’s country survey
(CI455-456)?
But it seems they will have a fight
on their hands if they want to keep their foot in the door of this
fast-moving and lucrative country. They also may need to work a lot
harder than first envisaged to further penetrate the market.
Tension
building
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By GlobalDataFriction between Russian
authorities and the card networks stem from the planned switch to a
national payment and universal electronic card system in 2012.
When the plans were announced in
2009 there was a general feeling that it was a step in the right
direction. The Universal Electronic Card (UEC) is intended to
replace all regional and national forms of ID and will provide a
central database through which Russian consumers can access a wide
range of services, from medical insurance to ATMs. From 2012,
consumers will be able to link the card to their bank accounts and
credit cards, and most businesses will be required to accept
it.
But storm clouds gathered when
Russian authorities tabled an amendment to the law that effectively
brought a stop to Russian card processing taking place abroad. The
changes are said to be designed to protect national security, but
this would mean big changes for both MasterCard and Visa’s
operations in the country.
MasterCard chose to speak to
CI to quash rumours that have been circulating regarding
its strategy in Russia. A report by Russian news website
Vedomosti cited a source “close to the system” and several
bankers who were said to confirm that MasterCard is in the process
of building its own processing centre at a cost of $20 million,
almost half its annual profits in Russia.
Ilay Riaby, country manager for
MasterCard Russia, says he is currently investing in local
infrastructure in the country but that this is independent of the
proposed amendment by authorities to restrict processing on a
geographical basis. He dismissed claims that MasterCard is in the
throes of building an isolated processing centre.
“I would have kept silent about it
right up until the very last moment but unfortunately there was a
leak that we are doing something in Russia,” says Riaby.
“What we are building in this
country would not let me cut off my activity within the
geographical borders of Russia. It is true that we are investing in
a local facility but this forms part of MasterCard’s global
infrastructure.
“The products we will be making
available in Russia will not just be made available to Russian
consumers but for existing and potential customers all over the
world.”
A payments iron
curtain
Riaby believes the provision to
restrict domestic processing is one that will prove harmful to the
market as a whole.
“When this iron curtain comes down
and prevents information from flowing freely in and out of the
country, Russian consumers will be separated from quite a few
services that are not available in Russia today and that is my main
concern,” says Riaby.
He believes the reason for the
rapid pace of growth in the Russian cards market is attributable to
the fact that the products offered in the country are fully
integrated into the global payments infrastructure.
In a further bid to distance his
strategy in Russia from the rumours, Riaby has echoed Visa’s stance
in that he has a tough decision to make if the proposal is to
become law but it will only be made once Russia’s national system
law has been passed and its ambiguities have been ironed out.
Yuri Topunov, head of credit cards
at CitiBank Russia, agrees with Riaby and says the restriction on
processing will have a negative impact on the Russian payments
market. He believes these negative effects will “heat up” as time
goes on but will hit the card associations first.
“If the law says the transaction
data cannot leave Russia, MasterCard and Visa will have to decide
whether they are going to build processing houses, partner with
other companies or disconnect with the Russian market,” says
Topunov.
“If they do decide to build
processing centres, the heat that the card associations felt will
then fall onto the banks as they will be looking to recover costs.
They will probably bill the banks for this because banks are
commercial organisations, and we will have to cover those
costs.”
This may then lead to added costs
to the end-consumer – a harmful and potential barrier that could
impede adoption of card and electronic payments in the country.
Citibank Russia is one of the banks
that joined Visa and MasterCard to lobby against the amendments to
Russia’s national payments law. It is difficult to determine what
their chances are in getting the restrictions removed but there is
optimism among the industry that the benefits of the cards schemes’
international operations will be taken into consideration.
“We are being heard and we highly
value the fact we are able to talk to the lawmakers and get our
message across,” says Riaby.
“I sincerely hope that the country I live and work in will take
the path that will let it become more of a developed market.”
