News

Visa, MasterCard mull costs of making nice with Russia

May 27, 2014

A six-week deadline looms for two payments giants. They have until July 1 to decide whether to: a) accede to a new Russian law that would cost them hundreds of millions; b) pull out of the Russian market; or c) try to hammer out a less noxious middle way.

The two networks quit processing transactions for four Russian banks when the U.S. imposed sanctions against them due to Russia’s interference in Ukraine. According to a Businessweek report, Russian prime minister Dmitri Medvedev said this action was a violation of the companies’ contracts — not with banks, but with the Russian people.

On the other hand, Medvedev said, the Russian government wants the two networks to stay. With some conditions.

To make sure that banks won’t be left holding the bag should MasterCard and Visa again discontinue processing in Russia, the government would require that the companies provide upfront collateral (“hundreds of millions,” the companies said) guaranteeing payment.

The same legislation established a new Russian processing network, which would compete head-to-head in Russia with MasterCard and Visa. Whether the three would compete on an even playing field is uncertain, but seems unlikely.

Russia would also fine card companies for any future lapses in service. And it's entirely possible that the U.S. could impose further sanctions against Russia if it continues to meddle in Ukraine's affairs. This situation, completely beyond their control, would be an ongoing source of anxiety for the companies. And their stockholders.

Whether the risk outweighs the profits — potentially $403 million per year — is something the companies will have to weigh carefully over the next six weeks, the Businessweek story said.