Russia Built Parallel Payments System That Escaped Western Sanctions

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https://www.wsj.com/articles/russia-built-parallel-payments-system-that-escaped-western-sanctions-11648510735

Russia Built Parallel Payments System That Escaped Western Sanctions
Crimea sanctions spurred Russia to build its own Mir payments network, taking the sting out of Visa, Mastercard exits
By Alexander Osipovich and AnnaMaria Andriotis
Updated Mar. 29, 2022 5:33 am ET

Western sanctions have disrupted nearly every part of Russia’s financial system, but there is one big exception.

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.

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.

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.