Visa and Mastercard have about six weeks to decide if they will continue operating in Russia. A new Russian law will go into effect that requires the card providers to pay hundreds of millions just to continue doing business there. As it stands, Visa does not believe they will continue operation within Russia.
The legislation was a reaction to U.S. sanctions against Russia that halted processing of payments to Russian banks by Visa and Mastercard. The new law creates a national payment system and imposes new rules on foreign firms, including fines for denying services. It also requires a security deposit from the firms by July 1st. The security deposit has to be made to the Russian Central Bank, and will automatically be drawn from in the event more transactions are blocked.
The combined revenue of Visa and Mastercard in Russia is about $638 million a year, which is just a small fraction of their overall global revenue.
Charlie Scharf, CEO of Visa, said Russia's proposed fees and demands "just go beyond what we'd be willing to do." He hopes Russia would be willing to negotiate on their demands, saying “I would hope that we get to a different conclusion than to get to July 1 and just say we’re not willing to participate.”
Dmitry Medvedev, Russia’s prime minister, has urged the card providers directly to stay in Russia, regardless of the July 1st fees, “What Visa and MasterCard did was a direct violation of their contract with Russian clients, not banks, but individuals who trusted these payment systems."
While Russia is trying to pull a power move, it is unlikely that Visa and Mastercard will play ball. If they agree to the terms of the legislation, they succumb to Kremlin manipulation. Smittipon Srethapramote, an analyst at Morgan Stanley, said, “It’s not just the fees that they have to pay, it’s that it potentially sets a precedent."
If Visa and Mastercard leave Russia, the most affected users will be the 15 percent of Russian citizens who regularly travel abroad and use these cards. It will leave a major hole in the market, and alienate Russia from the Western world even further.
This article is from the archive of our partner The Wire.