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As U.S. card giants announce they are pulling out of Russia, they also reveal they are more exposed to the Russia-Ukraine war than had previously been predicted.
In what appeared to be a coordinated response, both Visa and Mastercard announced on Saturday they were suspending all operations in Russia, following the country’s invasion of neighbours Ukraine.
According to respective statements, cards issued by Russian banks will no longer be supported by either Visa or Mastercard networks. In addition, any Visa or Mastercard cards issued outside of the country will not work at Russian merchants or ATMs.
Effective immediately, Visa said in a statement, it will work with its clients and partners within Russia to cease all Visa transactions over the coming days.
“We are compelled to act following Russia’s unprovoked invasion of Ukraine, and the unacceptable events that we have witnessed,” said Alfred Kelly, chairman and chief executive officer of Visa.
With over 200 employees in Russia, Mastercard said “we don’t take this decision lightly. Mastercard has operated in Russia for more than 25 years.”
The statement continued: “These have been and will continue to be very difficult days — most of all for our employees and their families in Ukraine; for our colleagues with relatives and friends in the region; for our colleagues in Russia; and for the rest of us who are watching from afar.”
PayPal was also reported to have halted its operations in Russia and American Express announced it was following suit on Sunday.
“In light of Russia’s ongoing, unjustified attack on the people of Ukraine,” American Express CEO Stephen J. Squeri said in a memo to staff, “we announced that we are suspending all operations in Russia.”
In addition, the card company said that it is suspending operations in Belarus.
Revenue warning
News that Visa and Mastercard are pulling out of Russia follows a recent revenue warning issued to the U.S. Securities and Exchange Commission, which was higher than some analysts had predicted.
“While our global business fundamentals remain strong, Russia and Ukraine are important contributors to our overall company net revenues,” Mastercard said in its filing.
In 2021, about 4 percent of the company’s net revenues were derived from business conducted within, into, and out of Russia, and around 2 percent of their net revenues were related to Ukraine.
Mastercard’s total net revenues were $18.9bn last year, meaning the two markets added around $1.1bn to the company’s results.
Meanwhile, Visa said it is “difficult to reasonably estimate the full potential financial impact of this situation on Visa at this time.”
The card giant derived 4 percent of its total net revenues from Russia last year, which included revenues driven by domestic as well as cross-border activities. Its total net revenue from Ukraine was approximately 1 percent.
Taking into account Visa’s $24.1bn total revenues last year, the measures could result in a potential loss of $1.4bn.
American Express had previously said its business in Russia is “small, consisting of one partner that issues cards and a handful that acquire merchants for payment transactions.”
Russia’s card payment landscape
Despite the removal of Visa and Mastercard from the Russian market, the impact on the country is largely going to be felt in terms of cross-border transactions rather than upsetting domestic payments.
Russia established its National Payment Cards System (NPCS) in 2014 after the first sanctions imposed by the Western societies had disrupted its payment transactions.
The NPCS enabled the country to launch its national card called Mir in 2014. Later in 2019, Russia also launched a real-time payments system called Faster Payments System (FPS).
To boost the usage of the domestic networks, Russia adopted legislation that effectively prevents the U.S. card giants from processing domestic transactions, leaving the central bank-controlled NPCS as the only entity allowed to process card payments domestically.
This means that all domestic Russian payments, even cards branded with the international schemes, are switched and processed through the NPCS.
Although the card giants have confirmed they are in the process of complying with all applicable global sanctions, and have announced they are pulling out of Russia altogether, the impact on domestic payments is likely to be limited.
According to a statement by Russia’s central bank: “All bank payment cards issued by all banks operate and will operate all over Russia to facilitate payments for goods and services, money transfers and transactions in ATMs without limitations.”
Not just cards
Following the release of Mastercard and Visa revenue warning, it was reported that some analysts were initially stumped as to why Mastercard’s exposure to Russia and Ukraine was higher than Visa
Apart from enabling traditional card payments in Russia and Ukraine, both Visa and Mastercard also offer their own versions of a quasi real-time money transfer service called Visa Direct and Mastercard Send respectively.
“One of the reasons why Mastercard might be slightly more exposed compared to Visa is that its Send service has been particularly successful in Russia and Ukraine,” said managing editor of VIXIO, Andrew Neeson.
Neeson, who joined VIXIO six months ago, spent eight years at Mastercard and one of its acquisition companies, Vocalink.
“Send is like an alternative to the traditional account to account rails, it enables individuals to make P2P payments, while companies and the government can disperse payments over the card network back to cardholders,” he explained.
Russia and Ukraine are “by far” their biggest markets for Mastercard Send, and although the product does not generate as much revenues as traditional merchant payments, it is still a sizeable contribution, he added.
“In the Ukraine, the country’s account-to-account payments infrastructure is relatively basic, so Send has played an important role in helping Ukrainians transfer money,” said Neeson.
Although Russia has historically also been a key market for Mastercard Send, the recent modernisation of the country’s retail payment infrastructure means that the long term viability of its product was potentially in doubt anyway.
“The launch of its real-time payment system, which includes support for mobile P2P, means that Send would likely lose share in the country over time,” Neeson said.
Visa Direct, by contrast, may not be as affected by current events.
“It is my understanding, although I have not seen hard data on this, that Visa Direct is not as big as Mastercard Send in Russia and Ukraine. This might partly explain the differences in exposure announced,” said Neeson. “However, Visa Direct is a bigger product globally with a significant presence in more markets around the world by comparison.”
Mastercard declined to comment and Visa did not respond to requests for comment at the time of publication.
