Global economic sanctions hit the payments system in Russia
With Russia’s ongoing invasion of Ukraine territory, the major global powers mostly consisting of G7 and European Union have hit Russia with various economic sanctions, while major card networks have exited the country.
A particularly powerful measure is the exclusion of Russian institutions from the SWIFT system.
SWIFT, Society for Worldwide Interbank Financial Telecommunications, Belgium headquartered interbank payments consortium said that the European Union, United Kingdom, Canada and United States were ‘requiring us to disconnect select Russian banks from our financial messaging services’ and further noted it would comply by the applicable sanctions laws.
EU Council President Ursula von der Leyen noted that “Today’s decision to disconnect key Russian banks from the SWIFT network will send yet another very clear signal to Putin and the Kremlin”. As per the SWIFT statement, the regulations require them to ‘disconnect the identified entities on 12 March 2022’.
Also, as per the EU statement, it also imposed ‘restrictive measures that will prevent the Russian Central Bank from deploying its international reserves’ in ways that undermine the impact of EU’s sanctions.
As an alternative to SWIFT, Russia has its own network, the System for Transfer of Financial Messages (SPFS) but its scale is small.
On the other major payment rails, Mastercard said it has suspended its network service in Russia. This would include blocking multiple institutions from the company’s payment network and by this action, the cards issued by the Russian banks will no longer be “supported by the Mastercard network regardless of where they’re used – inside or outside of Russia”. Moreover, any Mastercard issued outside of the country will not work at Russian merchants or ATMs.
In the Securities and Exchange Commission 8K current report filings, the company noted that about 4% of its net revenue was derived from Russia while in the case of Ukraine it was about 2%.
Visa, also in its SEC filings noted that about 4% of its revenue which includes domestic as well as cross-border activities and for Ukraine is about 1%. In its statement too, the company noted that all ‘transactions initiated with Visa cards issued in Russia will no longer work outside the country and any Visa cards issued by financial institutions outside of Russia will no longer work within the Russian Federation’.
Similarly, American Express also announced that it would suspend its operations in Russia, its services will no longer work at merchants or ATMs in the region and Russian banks issued cards will no longer work outside the country. Apart from this, the company is also suspending its operations in the neighbouring nation of Belarus.
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