The isolation of Russia by the West because of the war of aggression against Ukraine has reached a new dimension: Over the weekend, the US credit card companies Visa and Mastercard announced that they were withdrawing from the country. The financial service provider Paypal, which specializes in payments over the Internet, also went out of business in Russia. This means that neither transfers nor payments for goods and services are possible. The announcements by the payment companies unsettled the population so much that queues formed in front of ATMs. Russia’s central bank felt compelled to call for calm; most payments are still possible.
Western sanctions had already brought Russia’s financial system to the brink of functionality. Business with most Russian banks is no longer possible, which makes the exchange of goods extremely difficult. The fall in Russia’s currency, the ruble, is emblematic of the loss of confidence the country has suffered in relation to the rest of the world.
The public’s confidence in their own banking system is also dwindling. For days now, Russians have been unable to withdraw money with foreign credit cards from ATMs in banks that the West has imposed sanctions on. Therefore, long queues formed in front of ATMs that still worked. Many people also waited at bank counters to stock up on cash or to close their accounts straight away.
Mind you, that was the situation before Visa and Mastercard announced their withdrawal from Russia. The move is likely to exacerbate the uncertainty. Specifically, for Russian customers of the world’s two largest credit card providers, it means that they can only pay domestically with Visa and Mastercard, which were issued by Russian banks, but no longer abroad. Credit cards issued by foreign banks also no longer work in Russia.
Mastercard continues to pay wages
Visa and Mastercard announced the move on Sunday night. Visa CEO Al Kelly said we regret the impact the measure will have on employees, customers, partners, merchants and cardholders in Russia. “This war and the ongoing threats to peace and stability require that we respond in accordance with our values,” he said. They will work with customers and partners in Russia “to stop all Visa transactions in the coming days.” Mastercard announced identical steps. The decision was not easy, Mastercard has been active in Russia for more than 25 years. The almost 200 employees will continue to be paid their wages. If it is “reasonable and legally permissible”, they want to resume operations. According to media reports, Visa and Mastercard accounted for three quarters of all credit card payments in Russia in 2020.
Russia’s central bank tried to calm the population in a statement on Saturday: All Visa and Mastercard cards issued by Russian banks continued to work in Russia. Their use is processed in the national payment card system, the sanctions do not affect them. Cross-border transactions are not possible, such as purchases in foreign online shops or using the cards abroad.
Russia’s largest bank, the not yet sanctioned Sberbank, also pledged on Sunday morning that Russian Visa and Mastercard customers will be able to use their cards to pay and withdraw money within the country even after the shutdown in stores, online commerce or transfers. The banking transactions could be done independently of the international systems, it said. But those who live abroad should now quickly withdraw money with the cards or pay for larger expenses before the systems stop working, the bank said.
Although the appeal was only aimed at people living abroad with Russian Visa and Mastercard cards, long queues formed at ATMs in Moscow on Sunday morning. According to Sberbank, the money cards with the Mir logo should continue to work in Turkey, Cyprus and some other countries. Mir is a payment system of the Central Bank of Russia.
Since the outbreak of the war, Russia’s central bank has repeatedly announced that the situation is under control, ATMs are being refilled with money, and deposits in the accounts are secured. The ruble has lost up to 40 percent against other currencies in the past few days. The financial markets have already passed judgment on Russia’s economy, the rating of the government bonds has been downgraded to CCC-, the second worst rating, and the financial world speaks of “junk”. The population also does not seem to trust the promises made by the central bank. Queues are expected to form again at the counters on Monday, when the banks open.