Russia to vastly increase use of Chinese credit cards
Russia is planning to vastly increase the use of China UnionPay credit cards to compete with Visa and Master Card which provide almost all credit card services in Russia at present.
Visa and MasterCard froze accounts associated with several Russian banks last March without any notice. In response to these actions Russian President Putin signed a law that would create a national payment system and also allow a security fee of up to 10 percent of a foreign companies' daily turnover.This would be to compensate banks for any service disruption. The law takes effect on January 1 next year. The percentage is much lower than the original 25 percent contemplated at first. The concession was made at the St. Petersburg International Economic Forum. Even so Visa said it did not rule out leaving the Russian market as it found the security deposit demand unacceptable.
China's UnionPay could easily replace Visa if it departs. The company hopes to have 2 million cards in Russia within three years. Although UnionPay emerged in China only in 2002 as a domestic alternative to Visa and MasterCard it is now number one in terms of the number of cards issued in the world. Since then UnionPay has had a huge international expansion:
Now UnionPay cards can be used in 141 countries and regions around the world (second-largest payment network by value of transactions processed, behind Visa.). Some UnionPay Credit Cards are also affiliated with either American Express, MasterCard or Visa, and they can be used abroad as an American Express, MasterCard or Visa. UnionPay Debit Cards, however, can only be used in the UnionPay network and other networks that have signed contracts with UnionPay. Since 2006, China UnionPay cards can be used in over 100 countries outside China.
Russia's biggest banks are already making technical preparations for use of the UnionPay cards and running tests on them. Denis Fonov, Deputy Chairman at LightBank(LaitBank) a small bank based in Moscow said;
“Visa and MasterCard have 100 percent trust, but right now, there is no trust in the system, and many, even our clients, have shifted their transactions from American dollar and Euro to Yuan. They are eager to receive this card- we already have a big list of people waiting to get this card instead of MasterCard and Visa,”LightBank has been working with UnionPay for some time and had ordered 10,000 cards for its clients already. There are already 20,000 cards in Russia and another 100,000 are planned for September. LightBank reportedly is to issue 10,000 cards next week.
UnionPay claims to have about 30 partner banks in Russia. While many large Russia banks are planning to begin issuing the UnionPay cards the huge Sberbank is planning to concentrate on developing the Russian "Pro 100" payment system. UnionPay will be required to pay a security deposit at the same rate as Mastercard and Visa.
Russia is also seeking to become less dependent on dollars and Euros by increasing its gold stock. At the end of July it held gold stocks worth $45 billion. Yaroslav Lissovolik, chief economist at the Deutsche Bank in Moscow said:
"The fact that Russia has intensified its diversification process reflects the fact that a fairly high proportion of reserves were held in dollars and euros, while the share of gold was low,”In the first half of this year Russia has reduced its foreign currency reserves by 2.5 per cent. It is also buying Chinese yuan, and the Japanese yen rather than US dollars and Euros. I wonder if a US PR firm produced the enclosed promotional video for UnionPay.