Visa and MasterCard both presented at the JP Morgan Chase Technology Conference earlier in the week and addressed several of the big issues that each face. With Russia’s demand to collect millions in collateral to let them continue operating in that country, many around the payments ecosystem wonder what their next steps will be.
In the Russia situation, both companies have six weeks to decide whether to make a full exit from the country. Under a new law, which will be implemented on July 1, both companies would have to pay Russian authorities heavy security deposits to continue operating there – reports Paymnts.
Russian lawmakers wrote up the legislation at Putin’s request after Visa and MasterCard blocked transaction activity at several local banks sanctioned by the U.S. government after Russia reunified with Crimea.
For Visa, Russia was more of an opportunity for growth than a revenue builder, so an exit would not create much of a loss, network CEO Charlie Scharf said during a March 19 JPMorgan Global technology conference call.
“Russia for us is about a couple of points of our total revenue of which the majority of which is cross-border, the minority of which is domestic,” he said. “So even if we lost all domestic processing, it is not that meaningful for us across the whole company.”
The effect would be even less for MasterCard, where Russia accounts for just a little more than 2 percent of its revenue, Ajay Banga, MasterCard’s president and CEO, said on a separate JPMorgan Global Technology conference call. Nearly three-fourths of that revenue came from domestic transaction work, such as domestic assessments and data, he said.
Visa is more concerned about the collateral requirement, which would also set a precedent in other emerging markets, according to analysts. The company is in the process of talking to the Russian government and the local Russian banks that would be most impacted.
“I would hope that we would get to a different conclusion than get to July 1 and us just say we are not willing to participate. It needs to play itself out,” Scharf said.
Under the new law, foreign payment systems would not be able to cut services to Russian clients unilaterally, and they must base their processing center in Russia. They also must pay a security deposit equal to two days of transactions processed in the country.
“It’s unfortunate for us as a company because it was one of the great opportunities and significant percentage growth driver,” Scharf said.