Report: Russians Find US Payments Sanctions Hard to Sidestep

One year after the world sanctioned their country, Russians have gotten creative in finding payment solutions.

That’s according to a report Sunday (April 9) by the Financial Times (FT), which looks at the challenges of getting around U.S. dominated payment systems in the wake of sanctions related to the Russian invasion of Ukraine.

“Many Russians … crossed the border last year and opened accounts in banks across Central Asia, including Uzbekistan,” Anton Usov, the European Bank for Reconstruction and Development’s chief spokesman for central Asia and Mongolia, told the FT. “Time will tell how much of them will stay in the region, though.”

The report notes that both Mastercard and Visa have cut ties to Russia, while the domestic payment system Mir is accepted only in a few countries. Experts tell the FT it’s an illustration of how difficult it is to do without the U.S. financial system.

Russians who work abroad or wish to travel have had trouble as domestic Mastercard and Visa cards have ceased working outside of Russia.

In addition, political pressure has reduced the number of countries that accept the Mir system. In September, banks in Uzbekistan and Turkey suspended Mir cards, one month after a group of Turkish banks began using Mir.

At the same time, experts tell the FT that the durability of Moscow’s payment system is a sign that there’s not likely to be a shift towards non-U.S. rivals, as costs, technical obstacles and fears of incurring the wrath of the American government barring the path.

“Investors always worry about disintermediation,” said a senior executive at a large U.S. payments firm, “but domestic networks face a challenge in scaling up and keeping up with costs like cybersecurity. The amount they have to invest gets bigger each year.”

Meanwhile, Visa and Mastercard have their own global systems in place, the FT noted, meaning potential competitors would have to overcome geopolitical uncertainty to create the connections needed to do business in the same space.

“Trust is key to cross-country payment systems,” said an executive at a payments FinTech, “and trust is almost impossible to build right now.”

Meanwhile, the payments space will continue to evolve, a concept explored here recently in an interview with PayU Global Payments CEO Mario Shiliashki.

Shiliashki told PYMNTS’ Karen Webster that what he hears from global partners and brands is: “‘Help me localize even more. Help me add the local loyalty cards that are prevalent in that market or loyalty schemes or help me add a buy now, pay later option that I can then participate in, that I can make even more personalized.’”

Personalization is a key part of the next five to seven years in payments innovation as real-time rails and ways of offering credit to consumers become more specialized, thanks to artificial intelligence (AI) and machine learning.

As that activity grows, Shiliashki said he thinks merchants will need more help managing the complexity of integrations across new geographies.

“It means, for retailers and certainly for us in payments that support retailers, a lot more complexity,” he said. “We need to manage that complexity. Things like being able to credit score a lot more smartly so you can optimize the offer to that consumer at the point of checkout in a split second become potentially a game changer. But it does increase complexity, especially if you need to do it, and you do need to do it in every local market differently.”