THE PRIDE of Russian nationalists was sorely wounded as the Soviet Union crumbled. Russia without communism was not just more like its foe the West, but the country also became beholden to Western financial architecture as it adopted capitalism. Visa and Mastercard established a comfortable bank-card duopoly. And SWIFT, a Belgian interbank-messaging network, was enlisted for domestic trans actions as well as cross-border ones.
Yet it was not until the annexation of Crimea in 2014 that these indignities came to be seen as acute vulnerabilities. America and Europe imposed sanctions that were designed to hurt misbehaving Russian banks and President Vladimir Putin’s cronies. Visa and Mastercard briefly blocked cards issued in Crimea or by blacklisted banks. American senators and the European Parliament called for Russia to be cut off from SWIFT (though it remains connected). The ensuing economic crisis “triggered innovation and what-if thinking”, says Tom Keatinge of the Royal United Services Institute, a think-tank. The central bank now publishes regular reports about its strategy for “payment sovereignty”.
Central to that plan is a homemade rival to Visa and Mastercard. The central bank set up a payments system (NSPK) with its own card, named Mir (“world”, or “peace”, in Russian). Legislators passed a law forcing Visa and Mastercard, in effect, to have their payments processed at a clearing-house owned by the Russian payments system. In 2019 the NSPK made 11.9bn roubles ($160m), or three-quarters of its revenue, from charging clearing fees to foreign card brands. These proceeds have allowed it to lower Mir’s commission rate to 0.8%, well below the typical credit-card interchange fee of 1.2-2% in Russia.
Pensioners and civil servants are required to receive their incomes on a Mir card. Businesses must accept payments from it. Seven years after its launch Mir accounts for 30% of cards issued in Russia (and 24% of total transaction value). Last month it had about 100m cards in circulation. On July 20th Mir announced that it was connected to Apple Pay—a big deal, given that mobile phones make up 60% of contactless payments in Russia.
Mir wants even more. It bombards Russians with promises of special treatment if they switch cards. A ride on the St Petersburg metro is roughly half price when the commuter taps a Mir card at the gates. A “cashback” scheme offers a 20% discount on any holiday inside Russia booked with Mir. On August 17th Wildberries, Russia’s answer to Amazon, began charging Visa and Mastercard users an extra fee of 2%.
Outside of Russia, though, Mir does not fulfil its worldly ambitions. Most banks abroad do not accept it (Turkey, the most popular tourist spot for Russians, is an exception). Efforts to produce a version of the card co-badged with Mastercard’s Maestro brand, which would see it accepted more widely, have not solved the problem. Similar obstacles abound for another central-bank creation, SPFS, the analogue for SWIFT. It manages just a fifth of the domestic traffic that SWIFT handles. And only a measly 12 foreign banks, including ones based in Belarus and Kazakhstan, are linked up (compared with 11,000 worldwide for SWIFT), making it all but useless for foreign transactions. Banks must bear the costs of adopting SPFS, but have little incentive to do so while SWIFT still works.
Nonetheless, both have their value at home. They reduce the risk of chaos if Russia loses access to Western plumbing. Mir also serves to protect the banks and businessmen that sanctions were meant to hurt. Take Bank Rossiya, “a huge linchpin in the Russian patronage network”, according to Brian O’Toole, a former sanctions architect with the American government. The bank was cut off from the Western financial system in 2014, including from Visa and Mastercard. That hurt. But Mir helps keep the bank humming away.
Observers argue that America faces a blacklister’s bind: the overuse of sanctions as a tool of foreign policy might prompt targets to develop a parallel financial system, undermining not only the sanctions but Western power itself. Russia’s payments innovations certainly suggest some truth to the first bit of the theory. Still, the global might of the West’s financial architecture remains daunting. ■
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This article appeared in the Finance & economics section of the print edition under the headline “Homegrown fare”