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Putin to MasterCard And Visa: “Pay Up”

Russian President Vladimir Putin has signed into law legislation that puts major constraints on foreign card brands doing business in that country, especially Visa and MasterCard. What’s the deal? Billions in security deposits if they want to do business in the country.

This story has been updated.

As many familiar with the situation had expected, Russian President Vladimir Putin has signed into law legislation that puts major constraints on foreign card brands doing business in that country, especially Visa and MasterCard.

Under the new law, international payment systems, such as Visa and MasterCard, reportedly must pay Russian authorities heavy security deposits if they want to continue operating in Russia beyond July 1, according to The Moscow Times. Russian lawmakers wrote up the legislation at Putin’s request after Visa and MasterCard blocked transaction activity at several local banks sanctioned by the U.S. government after Russia reunified with Crimea.

According to the report, under the new law, no foreign payment system may unilaterally cut services to Russian clients, and they must base their processing center in Russia. They also must pay a security deposit equal to two days of transactions processed in the country.

Visa and MasterCard process about 90 percent of card payments in the country. Combined, they processed $1.9 billion per day last year, meaning they must pay twice that amount to the country’s central bank, which itself is building its own national payment system to compete with the two U.S.-based payment networks, Moscow Times said, noting the brands may make the amount payable in eight quarterly payments.

It reportedly could take six months to up to two years for Russia to establish its own payment system, which would include some 100 million cards.

Reuters, however, reported that the law also requires foreign payment systems to make interim quarterly contributions to a special account in the central bank of Russia starting July 1 equal to 25 percent of the average daily turnover.

A Visa representative would only say in reaction to Putin’s signing that “several provisions in the law are unprecedented and will have a severe impact on the payments market in Russia – particularly for cardholders, financial institutions and merchants.  We intend to work closely with the Russian government to address these issues.”

In its own statement, MasterCard said it has been working to deliver electronic payments to the Russian people for over 20 years and has done so in close partnership with government, financial institutions and merchant partners. “We share the Russian government’s goal of moving more transactions from cash to electronic payments, which we believe will also drive economic growth,” MasterCard said.  “While we are still assessing all the elements of the new law, there are provisions that would not only create serious complications for the way that we can operate in that market but could also be damaging to the long term development of electronic payments in Russia.”

MasterCard “has a long heritage of creating leading solutions in Russia, and we are evaluating our future options to secure the best possible outcome for our partners, customers and cardholders.”

During last week’s first-quarter earnings call with analysts, Ajay Banga, MasterCard president and CEO,  said MasterCard’s operations in Russia account for a little less than 2 percent of its revenues, with the vast majority coming from domestic activity and some from cross-border transactions.

Last week, both card brands followed White House sanctions against Russia by discontinuing handling transactions involving SMP and InvestCapitalbank. They earlier stopped handling transactions for Bank Rossiya and Sobinbank because of earlier sanctions.

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