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Russia's Alternative to Western Credit Cards Debuts in London

Jamie Dettmer

   MOSCOW - A Russian-backed bank payment card, introduced after Western
   sanctions upended Russia's financial system five years ago and prompted
   Visa and Mastercard to deny electronic services to some of the
   country's leading banks, is set for its European debut on London
   Wednesday, when a pilot project will be launched in collaboration with
   the Dutch global payment company PayXpert.

   Moscow authorities hoped to get the MIR card accepted eventually in
   foreign markets, but progress has been slow outside Russia for the MIR
   payment system, which operates outside of Western-controlled
   international financial systems such as Swift, which banks use to
   transfer money.

   The pilot project with PayXpert "will lay the foundation for new
   promising trends in the foreign expansion of Russian payment cards,"
   according to Vladimir Komlev, the head of Russia's National Card
   Payment System, which operates the MIR system.

   De-dollarization efforts

   The effort is seen by analysts as part of the Kremlin bid to
   de-dollarize the Russian economy to lessen the sting of Western
   sanctions. A Russian Finance Ministry official this month told Reuters
   that Russia will next year diversify its foreign currency holdings in
   its National Wealth Fund, which supports Russia's public pension
   system, aiming to lower the share of dollars in the fund's reserves.

   Dmitry Dolgin of the Dutch banking group ING said in a report this
   month that de-dollarization efforts are now obvious across most
   sectors, including local business loans and bank-held international
   assets, although he said the dollar's role has actually increased in
   company and household savings and cash assets, partly because dollar
   interest rates have been higher than those offered for euros.

   U.S. authorities have been able advance sanctions by targeting
   companies that use dollars, and the establishment of electronic payment
   systems not tied to the dollar or largely controlled by U.S. businesses
   is one way for the Kremlin to reduce the impact of the West's serial
   punishment of Moscow. Washington and the European Union have imposed a
   wave of sanctions since 2014 to punish Russia for the 2014 annexation
   of Ukraine's Crimean peninsula, alleged meddling in the 2016 U.S.
   elections, and the poisoning of a defected Russian spy in England.

   Komlev told Reuters this year that "In the next three years we want MIR
   cards to be operational in countries where Russians are used to
   traveling." He projected MIR cards would be operational at some banks
   in at least a dozen countries by the end of this year. Turkish banks
   started to conduct transactions this year with MIR, which means both
   "peace" and "world" in Russian.

   MIR was launched initially as a national payment system, with the first
   cards issued in December 2015. Russia's leading bank, state-owned
   Sberbank, started issuing them in October 2016, and by the end of last
   year more than 70 million MIR-based cards had been issued by 64 Russian
   banks. The Kremlin has mandated that state welfare and pension payments
   must be processed through the system by next year, along with salaries
   paid to civil servants.

   The card has a long way to go before it rivals VISA our Mastercard
   internationally. It is not accepted by international shopping platforms
   or major online booking services for airlines and hotels, although
   APEXX Fintech, a British start-up global payment company, said Thursday
   it would now start working with the MIR system. Among smartphone
   applications only Samsung has concluded an agreement with the MIR
   system.

   Meanwhile, de-dollarization has been moving quickly. Russia's Central
   Bank has currency swap deals in place with Iran, China and Turkey,
   allowing direct trade to be conducted in local currencies instead of
   U.S. dollars. Russia reportedly lost $7.7 billion in its bid to reduce
   dollars held in its reserves. Some of the dollars were turned into
   gold, and since January the bank has purchased 96.4 metric tons of
   gold.

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