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What to do about Russia amid ever increasing crisis & what’s Putin up to?

Conversations between corporate treasurers today are very similar to the discussions when euro and Greece crisis was at its height. Most corporate treasurers have: already minimised their cash balances in Russia; minimised money sent into Russia; now only fund local operations with the cash needed to operate; have prepaid what inter-company debt they can; tightened up on payables due, etc. Also, just like in the Greece crisis, some corporates have been asking local banks whether they can increase their daylight overdrafts. 

The focus is now on how to keep the operations running as crisis continues, e.g. how to continue to pay employees and how to cope with travel restrictions; and just waiting to see what happens. However, this crisis is very different from the euro crisis and is probably going to get worse. There are already tit-for-tat sanctions on imports, the Russian parliament may have a law prepared to seize assets, and Putin has shown he is prepared to change the basic payment system infrastructure to avoid being dependent on US based schemes.

Setting up a rival card scheme

Last week, Visa and MasterCard stopped processing transactions for customers of Bank Rossiya after it was placed on a sanctions list by the US government in response to Putin's move to annex the region of Crimea. They also temporarily cut off SMP Bank because its owners - brothers Arkady and Boris Rotenberg - were on the sanctions list. 

A national card scheme in Russian has been discussed for many years. There has been no real progress, until Putin’s televised meeting with the lawmakers last week. The president commented that Japan's JCB and China's UnionPay cards ”work very well" concluding: "Why should we not do it? We should definitely do it and we will do it."

Putin will lose face if the national debit card scheme does not happen, so it will happen. It won’t be overnight, but it will happen. Comments on finextra today suggested that the new card should be called the Cossack card.

What next?

The new debit card scheme will fundamentally change how retailers can expect to be paid at the point of sale in Russia. However, what if Putin wants to really get his teeth into the global card schemes, and:

  • promotes MyBank type systems for payments on the internet direct to the local banks in Russia
  • develops a Faster Payments Service (VocaLink could install such a system within 18 months) and wouldn’t be concerned if they call it ‘Better Payment Service’
  • uses the new Russian Better Payments Service to develop a mobile payment service like the new UK ‘Paym’ service that is launching later this year
  • persuades China and UnionPay to join these new services.

This will really hurt VISA and MasterCard. 

And what if he doesn’t stop there, he insists that all state and large companies in Russia introduce e-invoicing and e-ordering as he has had enough of western inefficiencies? The EU and e-invoicing suppliers, such as OB10 and Ariba, can only dream of a breakthrough in e-invoicing. Sadly, dictators like Putin can make breakthroughs really happen. 

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CTMfile take: Just like Europe and Germany are realising how exposed they are to Russia on energy supply, Putin is realising how exposed he is to the West on payments and cash management. This crisis could be a watershed in the development of payment and cash management systems/services in Russia and beyond…

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