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Visa digs in its heels against Russian demands

Will the largest network in Russia tell Putin's Duma what they can do with their new payments system rules, or will Putin back down in the face of losing first-world payment status?

June 19, 2014

Will the largest payments network in Russia tell Putin's Duma what they can do with their new new payments system rules?

According to a Bloomberg report, Visa isn't showing signs of acceding to the Russian government's extraordinary demand that all foreign networks operating in the country provide a surety of amounting to hundreds of millions of dollars — the equivalent of two days' worth of transactions.

The legislation is retaliation for a stoppage of Visa and MasterCard service to banks sanctioned by the U.S. over Russia's actions in Ukraine. The same legislation also calls for the networks to set up processing centers in Russia. The companies would stand to lose 10 percent of their collateral each day that they stopped accepting transactions from any Russian bank.

The new rules were to go into effect on July 1, but that deadline was postponed as a concession to the companies, which have strongly objected to rules that would tie up — and place at significant risk — huge amounts of capital.

The companies also worry that bowing to Russia's demands might turn the rules into an operating template for governments in other countries where the networks operate — or would like to, Bloomberg reported.

“As we have stated consistently since the national payment system amendments became law, the guarantee deposit is unworkable and goes beyond what we are willing to do,” Bloomberg quoted the company as saying. “Visa is actively engaged with the Russian government to find a mutually satisfactory modification to the national payment system law.”

The outcome will depend on which side has the most to lose: Visa and MasterCard would stand to lose about 2 percent of their respective incomes by pulling out of Russia.

Russians would lose a valuable tool that helps them travel freely outside their home country, using plastic to make purchases or obtain cash at ATMs. And, of course, vice versa for any tourist visiting Russia.

Russia itself might lose face among first world nations if it chooses to set back its payment system clock by decades.