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Russia prepared for 8 years to be cut off from the West. Meet the payment system that’s still processing its credit card transactions

April 1, 2022, 11:23 PM UTC

Since the start of the Ukraine War, a barrage of western sanctions has crippled the Russian economy and wreaked havoc on its financial system.

The country has been largely cut off from the international payment system SWIFT, seen its access to $630 billion in foreign exchange reserves restricted, and watched as more than $17 billion in assets were seized from Russian oligarchs.

But for the past eight years, Russia has been preparing for the worst.

In June of 2014, just three months after its invasion of the Crimean Peninsula, the country established its own payment system to help process credit card transactions domestically. Russia’s National Payment Card System—known to Russians as NSPK—has continued to process credit card transactions during the latest fighting in Ukraine. 

Even though Mastercard, Visa, American Express, PayPal, and Discover have all suspended their operations in Russia, its citizens aren’t experiencing the type of disruption many might expect.

Mastercard told Fortune via email that credit cards issued by Russian banks are no longer supported by its network. Instead, credit cards being used in Russia are now processed over something called a “switch,” run by the Central Bank of Russia. 

Dr. Leo Lipis, the CEO of the payments industry consulting firm Lipis Advisors, said that a switch is “a hub for communication that connects the various banks involved in a payments network.”

This means Russian consumers relying on locally-issued cards bearing the Mastercard logo can still use their cards like they normally would, Lipis noted.

A spokesperson for Mastercard confirmed in a separate email to Fortune that the company doesn’t have the ability to block domestic transactions in Russia, but it receives “no benefit” from them. This is because Mastercard, along with other Western companies, signed an agreement for their transactions to be processed by NSPK in 2015.

Russians are still blocked from using Western credit cards outside of the country, but that’s only helped the Kremlin’s goal of keeping assets from moving abroad. The sanctions also boosted Russia’s own credit card company, MIR, which is built on the back of NSPK and owned by the Central Bank of Russia. 

When MIR debuted in late 2015, Russians were slow to adopt the card. Then, the government mandated that public sector employees receiving state funds and welfare benefits use MIR payment cards, spawning new growth for the firm.

“When you go back to 2015, Visa and MasterCard pretty much shared the Russian market 50-50,” Lipis said. “And by the time you get to 2020, the market is shared three ways.”

Today, there are more than 100 million MIR cards issued, according to the company. And with U.S. card companies leaving Russia, MIR can more easily grow its market share.

In recent years, other countries, including Turkey, India, and China, have also developed their own payment systems to limit the influence of U.S. credit card companies and limit the pain caused by any sanctions. 

After the recent invasion, Russia’s largest bank, Sberbank, turned to China’s Union Pay and the so-called Cross-border Interbank Payment System (CIPS) in an effort to circumvent Western sanctions and issue new cards.

Union Pay has agreements with many European and U.S. credit card networks that allow foreign cards to be processed through its payment system and accepted in some Western countries, particularly in tourist destinations, Lipis said. 

The payment systems expert noted that China’s Union Pay could be opening itself up to “secondary sanctions” from the West if it knowingly helps Russian banks circumvent sanctions.

Still, when it comes to processing transactions abroad, Russia’s MIR and the Chinese payment systems aren’t “adequate substitutes” for U.S.-based payment systems like Visa and Mastercard, Lipis said. And they carry less than 0.5% of the total value of payments made via SWIFT.

“There is some truth to the Visa slogan of it’s everywhere you want to be,” he added.

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