This is seriously fascinating in the business case sense. I do not think any country in recent history has faced such a rapid change in the way its fintech and banking system operate. Global sanctions towards Russia were and still are unprecedented in terms of scale, sheer numbers, and implications for the immediate global ‘exclusion’.

Let’s talk about what the world thinks happened versus what actually happened.

Visa, MasterCard ban

Tagline: Visa and MasterCard stopped working in Russia.

Reality: Visa and MasterCard indeed stopped the global support for the cards issued by Russian banks. Meaning that Visa and MasterCard issued in Russia will not work outside of Russia in stores and ATMs. Inside the country, existing Visa and MasterCards keep on working just fine. No new ones being issued.

How is this possible?

Russian Central Bank has isolated domestic operations by Visa and MasterCard back in 2015 after the Crimea sanctions. Visa and MasterCard agreed to work through the local switch called National Payment Card System, and use Russian Central Bank as a settlement center for domestic operations.

This worked out just as it was designed when 2022 happened. Local banks can no longer issue new Visa and MasterCard bank cards but can prolong the existing ones indefinitely. They did just that.

Those who need to make purchases overseas had to physically travel to nearby countries and open bank accounts and cards. They call it ‘bank card tourism’. One by one countries that experienced the largest waves of such tourism started to deny card issuance to Russians. However, this is still a very viable option here and there.

There was a lot of hope placed on UnionPay's shoulders, many banks believed the Chinese scheme will take over the lost dominancy of Visa and MC. However, UnionPay decided not to rush after the obvious commercial gain, stopping all negotiations with the Russian banks.

So far no other global or foreign bank card scheme took the empty chair. The local one did. MIR, the local bank card scheme is now a monopoly. All new bank cards issued in the country are MIR cards. MIR has been issued for years since 2015. It had about 15% of the bank card payment share domestically at the end of 2021, getting to 25% by the end of 2022. Overseas MIR card adoption and co-branding initiatives faced multiple hurdles, leaving the hopes for the anti-Visa/MC alliances high and dry.

SWIFT ban

Tagline: Russian banks got switched off from SWIFT.

Reality: It is true that many banks have lost access to SWIFT. But not all of them. Those that still have it either keep it under the radar or severely censor the access to international bank transfers for their clients.

SWIFT ban by itself was not a crucial event. A real crushing force came with the closure of the Russian banks and Central Bank accounts in the US/EU banks, followed by the freezing/seizing of their client funds. This has happened both formally due to sanctions, and informally. Far reaching out of the banking business into any Russian company business with foreign bank accounts.

Why does it matter more than SWIFT?

It cut off the whole banking system from the vital USD, EUR. There are very few top Russian banks that have direct corresponding accounts in the foreign banks. Most of the smaller banks were getting their USDs and EURs from the larger RU banks. Closing of accounts meant the loss of access to funds, money transfers for the whole Russian banking system.

It cut off Russian businesses from international payments and money transfers. Vendors, contract payments, income. In terms of the general public, it meant that they lost access to easy, cheap international money transfers in USD or EUR. However, there are still ways through certain banks, just more expensive and complex.

It hurt the international movement of funds in/out of Russia immensely. To the point of collapse.

Up to this day, no new routes have been found. Only temporary solutions via nearby country banks, other currencies, or crypto. None of them work well. The only viable solution now seems to be the age-old system of hawala. Or a two-pocket system, where money enters one pocket and gets out of the other.

Crypto was heavily expected to take the empty space, and it kind of did in person-to-person money transfers. However, it is not sustainable when it comes to large amounts and corporates. At least yet.

ApplePay, GooglePay ban

Tagline: Apple and Google stopped the support for contactless payment technology in Russia.

Reality: Yes, they did.

Immediately after this, the national Faster Payment System skyrocketed. It was developed by the Central Bank a few years back following the success of the Chinese fintech. It was not perfect and had little to offer to people used to contactless payments via Apple of Google. Until 2022 happened.

Now there is a boom of contactless payments to businesses or government via QR-codes — national QR-code system (SBP) or local system from the preferable bank. For those paying from a mobile device: deep-link directly to the online bank application. There are various Pay’s now from the banks and internet giants: TinkoffPay, SberPay, YandexPay, MIRPay. Large banks have even introduced stickers and wearables like rings.

Offline payments are quickly shifting from Visa/MC through ApplePay/GooglePay to direct and immediate bank transfers. Naturally, the intermediary fess were cut down, not necessarily reflecting in the payment fees downsize yet.

In total

No doubt that the impact of sanctions towards banking and fintech in Russia are colossal. They worked out well on the global isolation scale. However, domestically it seems that they did the opposite, allowing the fintech and banking system to reshape itself utilising the most recent technologies and new consumer habits. Russian fintech is reborn and will develop further in a unique and innovative way unlike any other. Unless the following recession and governmental monopoly kills it with their own hands.