Mir cards expected to benefit in Russia-Ukraine crisis

  • By Zilla Efrat

The Russian card payment market, which has been on a growth trajectory, is now facing a new challenge in the form of international sanctions and reduced consumer spending amid the ongoing Russia-Ukraine crisis.

But the situation will benefit local card schemes as banks are likely to migrate from international schemes to Mir cards, according to GlobalData.

Mir is a Russian payment system for electronic fund transfers established by the Central Bank of Russia in 2017. Mir does not itself issue cards, extend credit or set rates and fees for consumers. Instead, Mir provides financial institutions with Mir-branded payment products that they then use to offer credit, debit, or other programs to their customers.

The United States, the United Kingdom and European Union have excluded some Russian banks from the SWIFT global payments system. SWIFT connects over 11,000 banks and institutions in more than 200 countries and cutting-off Russia from this system would affect international fund transfers and foreign trade for Russia.

Mastercard and Visa have also imposed restrictions on multiple Russian financial institutions from using their network.

Nikhil Reddy, payments senior analyst at GlobalData, says: “This will have a significant impact on the Russian card payments market resulting in reduced e-commerce and POS transactions. Even digital payment solutions like Apple Pay and Google Pay have barred cardholders of the sanction hit Russian banks from using their services.”

While major economies have isolated Russia, China has kept its door open, encouraging Russia to use its payment system called Cross-border Interbank Payment System (CIPS) for international trade as a substitute for SWIFT, by connecting it with Russia’s payment system – the System for Transfer of Financial Messages (SPFS).

“Although CIPS provides a lifeline to Russia for international trade, consumer-level payments are likely to be hit hard,” says Reddy.

He says local card scheme Mir is carving a place in the market as a serious provider. Since its launch, Mir managed to grow its market share in the payment card space in terms of the transaction value.

Reddy explains: “Russia has long-been determined to reduce its reliance on Western payment providers after the onset of international sanctions in 2014 when Russia annexed Crimea. While there has been growing adoption and usage of Mir cards among Russians, it still lags international peers, including Visa and Mastercard.”

As a result, he says Russia is strategically promoting the adoption of Mir via government mandates. It has passed mandates requiring public sector employees receiving state funds and welfare benefits to migrate to Mir payment cards. A similar mandate was imposed on pensioners, making pensions accessible only through Mir bank cards.

“While the sanctions are set to significantly impact the Russian payments market, it will benefit local card scheme as banks are likely to migrate from international schemes to Mir cards, which will result in a further rise in its market share,” says Reddy.