Russian Payments Law Takes Effect, but Questions Remain for Visa, MC

As a new Russian law took hold July 1 to help support a new national payment system, Russian media outlets are saying the country has extended an olive branch to Visa and MasterCard regarding planned security fees to be imposed on foreign credit card operators.

Visa characterizes these reports as conflicting, saying in an e-mailed statement that the security fee aspect of the Russian payment system has not yet been finalized. The card network says it is in close contact with the Central Bank of Russia and the Russian government regarding the National Payment System law.

The new law tells foreign card network operators that they can no longer block Russian card transactions, but adds that Visa and MasterCard can avoid the fees by finding Russian partners to process all payments by the end of October, according to a report by Russia Today.

The Voice of Russia reports that even though the new law initiates the creation of the Russian National card and payment system, the security deposit issue with Visa and MasterCard remains unsolved.

Visa and MasterCard were to have transferred security deposits by July 1, but the Russian government's offer to avoid the security fees amounts to a postponement until the end of October, the Voice reports.  It remains unclear if the option to avoid the security fee deposit would stay in place if the card networks established ongoing processing partners in Russia.

MasterCard did not respond to inquiries about the deposit stipulation prior to deadline.

Last month, Visa declared that Russia's call for a deposit was still unacceptable. Russia established the deposit concept in May in the aftermath of Visa and MasterCard blocking transactions from cards issued at four Russian banks in compliance with U.S. sanctions at the height of the Ukraine crisis.

A stipulation to avoid the fees could save Visa and MasterCard billions of dollars in security deposits if they continue to do business in Russia.

Russia based the networks' deposit collateral with the Russian central bank at a value equal to two days of processing volumes, or an estimated $2.9 billion, according to reports.

A week ago, Russia Today reported that Visa plans to build a processing center in Russia within two years and that MasterCard is seeking Russian partners for interbank processing.

In late May, Visa and MasterCard said they plan to continue doing business in Russia as the country gave its first indications it would consider easing the deposit demands.

Even before the situation between Russia and Ukraine worsened, MasterCard CEO Ajay Banga said it was likely Russia would establish a situation in which the card brand would have to operate with processors "on Russian soil." He indicated MasterCard was open to any ideas and felt committed to doing business in Russia through its operating center in the country.

Russia plans to have its new national payment system in operation by late 2015 or early 2016.