State Duma deputies intend to prohibit international payment systems from unilaterally refusing services and want to force them to build processing centers in Russia

Russia’s response to the refusal of international payment systems to carry out transactions of four Russian banks was not long in coming. Chairman of the National Payment Council, State Duma deputy Vladislav Reznik prepared amendments to the law “On the National Payment System”. The amendments, if adopted, will lead to a deterioration in the business conditions for foreign payment systems.

On Friday, March 21, as part of international sanctions imposed by the United States, the international payment systems Visa and MasterCard stopped conducting payment transactions for four Russian banks. The sanctions included AB Rossiya and its subsidiary Sobinbank, as well as SMP-Bank and its affiliated Bashkir Investcapitalbank. The total balances on card accounts of these banks as of March 1 amounted to 14 billion rubles, turnover - 61 billion rubles.

“The sanctions were imposed without warning. This is beyond good and evil,” Reznik is indignant. According to him, serious trouble awaits cardholders of these banks who find themselves abroad. Those of them who do not have cash will not be able to pay for a hotel, buy a ticket, pay for medical services, etc. Those who are in Russia will face inconvenience; they will be able to withdraw cash only at bank cash desks and ATMs, as well as in a network of 23,000 ATMs included in the United Settlement System.

Prohibit and oblige

The proposed amendments to the law, notes Reznik, prohibit payment system operators from unilaterally refusing services necessary for uninterrupted payments. This requirement must be reflected in all contracts and rules of payment systems.

In addition, the amendments establish a ban on the transfer to the territory of foreign states of information about the transfer of funds. This does not apply to cross-border transactions. In other words, Visa and MasterCard will be required to build in Russia the entire infrastructure for making payments, including processing centers. “For money transfers within payment systems, operational centers and payment clearing centers must be involved, which comply with the requirements of the law on the national payment system and are located on the territory of the Russian Federation,” Reznik added.

Market participants preliminary estimate these costs at $30-50 million for each of the two international payment systems.

“Processing costs of $50 million are justified if the international payment system builds it in Russia from scratch. However, Russia already has enough capacity that allows it to process existing transactions and savings could be made. If desired, international payment systems could build Russian infrastructure using based on processing centers already certified by them, that is, on the principles of outsourcing,” notes a source close to the management of one of the Russian payment systems. According to him, until recently the global management of Visa was not happy with this option. It is possible, he adds, that Visa and MasterCard will still follow this path: in any case, MasterCard has shown more flexibility in this matter.

The press services of Visa and MasterCard were unable to promptly comment on Reznik’s initiatives.

Natalya Burykina, Chairman of the State Duma Committee on the Financial Market, told Forbes that payment systems must ensure uninterrupted payments on cards issued by Russian banks. “It is unclear why these systems violate the laws of the country in which they operate,” she is indignant and awaits legal proceedings. “If we don’t get an explanation and the law continues to be violated, we will have to refuse the services of these companies,” says Burykina.

Warning

The law on the national payment system was adopted in the summer of 2011; during its development, Deputy Reznik already proposed obliging international payment systems to locate their entire infrastructure on Russian territory. Representatives of the Central Bank four years ago warned about the potential threat of blocking payments by the Visa and MasterCard systems. However, lawmakers then abandoned the idea because they took into account the high costs that would be incurred by Visa and MasterCard processing transactions through global centers.

The future of Visa and MasterCard, which did not want to create a payment infrastructure in Russia, was then decided at the highest level. From correspondence between American diplomats published by WikiLeaks , it follows that former US Ambassador Michael McFaul was involved in solving the problem. In 2010, he reported to his superiors that, on the initiative of the Russian intelligence services, Visa and MasterCard could lose the market, while the American intelligence services would not be able to receive data on transactions on the cards of Russians.

“Unfortunately, then the amendments on the localization of the payment infrastructure were not adopted. But now, after the sanctions, they can start working quite quickly. It is possible, as early as October 1,” said Reznik. He believes that the sanctions taken by the United States will strike not so much the clients of the banks subject to the restrictions, but rather the payment systems themselves, Visa and MasterCard.

The banks themselves reported that card transactions had been blocked since Friday morning. “We are conducting a dialogue with payment systems to resolve the current situation,” said the press service of Rossiya Bank. SMP Bank is also discussing the current situation with payment systems. Sobinbank, owned by AB Rossiya, informed clients about possible interruptions in servicing bank cards. Sanctions were also imposed against Investkapitalbank, 40% of whose shares are owned by the Rotenberg brothers.

The Visa press service reported that according to US law, the Visa International Service Association is required to suspend access to the Visa network for these banks. Visa confirmed that as of March 21, 2014, the list of these organizations includes four named banks.

“It is possible that these banks will face an outflow of customer funds. Suffice it to remember how Master Bank’s payroll workers behaved after their cards were blocked. In such a situation, depositors gut ATMs and take funds from the bank,” says the boss Analytical Department of BKF Bank Maxim Osadchiy.

After the sanctions against these banks were supported by international payment systems, it can be assumed that international rating agencies will also join them. According to Osadchy, it is logical to expect that in this situation, bank ratings may not only be reduced, but also withdrawn. AB Rossiya has an S&P BB- rating, Sobinbank and SMP-Bank have a B3 Moody's rating. “However, these banks do not place Eurobonds, and the lack of international ratings is unlikely to be tragic for them,” says Osadchiy.

The Central Bank stated that transactions subject to sanctions do not have a significant impact on the financial stability of the credit institution. “Bank Rossiya continues to fulfill its obligations. If necessary, appropriate measures will be taken to support the credit institution and reliably protect the interests of its depositors and creditors,” the Central Bank said in a statement.

Russia counterattacked Visa and MasterCard