National Payment Systems in ECA Show Resilience in Crisis Times

For most working migrants in Eastern Europe and Central Asia (ECA), financial inclusion starts with access to international remittances, as many of them need to send money home. Russia is the fourth largest migrant hosting country globally and hosted up to 12 million migrants in 2020, according to the UN. Over the past decade. Russia has been the largest source of remittances for countries in the Southern Caucasus and Central Asia, comprising as much as a third of national GDP in the Kyrgyz Republic and Tajikistan in 2021. As such, the existence of well-functioning remittances channels is vital for the well-being of millions of low-income families in the ECA region. In Tajikistan, for example, 30-40% of households depend at least to some extent on remittances income. 

The February 2022 Russian invasion of Ukraine led to the imposition of sanctions on Russia’s financial sector (including the exclusion of several key Russian banks from SWIFT) as well as the complete halting of operations for MasterCard and Visa which not only served domestic payments in Russia but were also used by migrants to send card-to-card remittances. The payment processing giants were required by sanctions to stop processing payments from certain Russian banks, but went beyond that mandate and suspended their services in Russia altogether. Other payment systems and services followed suit, including American Express, PayPal, JCB and Western Union. These changes have seriously affected the ability of anyone living or working in Russia to make cross-border transactions, including money transfers and remittances abroad. For migrants, it has also meant they can no longer use their international payment systems cards issued in their home countries.

An obvious conclusion, therefore, would be that migrants’ ability to transfer funds home has been severely impacted as well. Some channels have indeed been disrupted. For example, transfers from accounts opened in sanctioned banks aren’t possible in most currencies since they were switched off from SWIFT. The same is true for use of Visa and MasterCard-issued cards abroad, including card-to-card payments and remittances, which enjoyed increasing popularity before the sanctions took effect. However, Russia is different from many other countries in that it offers migrants alternative payment systems that are still working.

Russia’s domestic card scheme, Mir, launched in 2015 and accounts for a quarter of all card transactions in the country and about one-third of new card issuances in 2021. It is accepted throughout Russia and in eight other countries – Armenia, Belarus, Turkey, Kazakhstan, Kyrgyzstan, Tajikistan, Uzbekistan, and Vietnam, as well as the territories of Abkhazia and South Ossetia.

Thanks to the Mir card integration with national payment systems in these countries and territories, as well as Mir card acceptance by money transfer systems popular in the region (Golden Crown, Unistream, Contact), working migrants can still send online remittances to their families. As for Russians, including those who fled the country in fear of political persecution and in search of safety and economic certainty, their local currency accounts in Russian banks are still accessible from the above countries and their Mir cards are still functional for currency withdrawals at ATMs and even POS payments in some countries. 

In terms of domestic payments, ordinary Russians have not noticed much change after the withdrawal of Visa and MasterCard operations as servicing of their domestically issued Visa and MasterCard-branded cards got picked up by the National Payment Cards System – the same one providing the infrastructure for the Mir card. Unable to reissue Visa and MasterCard cards or to replace them all at once (as they represented about 68% of all new cards before the war) most Russian banks extended the validity period of these cards regardless of the dates printed on them, with some banks even going as far as granting indefinite validity – “as long as the plastic lasts.” 

Initially driven by its mandatory use for government payments made to pensioners, civil servants, public sector employees and those receiving budget payments (such as public welfare recipients or students) – all together, about 42% of the population, the Mir card is now gaining popularity in the absence of international competitors.  

A recent World Bank note indicated that one potential impact of Western sanctions may be to “undermine the credibility of the international payment systems” and create a more “multipolar and fragmented” global payments environment. In Russia, the expansion of Mir’s adoption and its use across borders, along with the national payment systems in neighboring countries, appear to validate this argument. 

A move away from international systems inevitably reduces a country’s dependence on external networks and mitigates against shocks such as complete discontinuation of services, though potentially at the expense of increased costs of cross-border fund flows. There are many other countries that have been developing their national payment systems – notably China – to reduce their dependency on international payment systems for reasons of national security.

For now, the presence and integration of national payment systems in Russia and neighboring countries – while not able to bridge all gaps – can at least ensure smooth execution of payments and settlements domestically, as well as effectively mitigate disruptions of cross-border transfers and remittances in neighboring countries affecting groups of people that were not targeted by the sanctions – such as migrants from Central Asia.