Russia Payment Sanctions

While much of the world has been united in opposition to Russia’s invasion of Ukraine, fears about expanding and escalating the conflict have limited the ways in which other countries can respond. At this time, economic sanctions are the main form of leverage that pro-Ukrainian countries are willing to use against Russia.

Sanctions have been imposed against businesses, individuals, even entire sectors of Russia’s economy—including banking and payment processing services. This will have both immediate and long-term impacts on many international merchants and consumers, regardless of their proximity to the war. How exactly have payment systems in Russia been affected by recent sanctions?

In recent history, a great deal of foreign policy has been constructed around the sole objective of avoiding direct warfare between nuclear-armed powers. Although there was great hope that the end of the Soviet Union also meant the end of the Cold War, Russia’s hostilities toward Ukraine have drawn only a cautious and non-combative response from the US, EU, and NATO-aligned countries.

However, the launch of a full-scale invasion last month has brought down severe and unprecedented sanctions from all corners of the globe.

These latest sanctions have targeted Russia’s oil and gas industries, individual oligarchs and their families, and the banks and payment systems that enable Russia to participate in international commerce.

It’s probably too soon to speculate with confidence about the long-term effect this will have on Russia’s economy or the ultimate outcome of the war, but in the meantime, the businesses caught in the middle of this global conflict must study the new payments landscape and learn to adapt as it shifts around them.

How Have Russia’s Banks and Payments Systems Been Sanctioned?

The NATO countries were not all in full agreement at the start of the invasion about how far to escalate the sanctions, but over time a consensus began to build around imposing harsher and more extreme measures than had previously been considered.

At the time of this writing, the US, EU, UK, Switzerland, South Korea, Japan, and other allied countries have frozen assets and restricted transactions with Russia’s largest banks, including the Central Bank of Russia, and have cut Russia off from SWIFT, a messaging system for banks that allows for international money transfers.

In addition, many private companies have decided to stop doing business in Russia—including the world’s largest credit card networks, Visa and Mastercard.

What Are Visa, Mastercard, and Other Credit Card Networks Doing?

Early in March, Visa and Mastercard announced that they were voluntarily suspending all operations in Russia. Soon after, American Express and Discover joined them, terminating their operations in Russia’s ally Belarus as well.

In concrete terms, this means that payment cards issued by Russian banks would no longer be connected to the card network, and that cards issued outside of Russia would no longer be accepted by Russian merchants or ATMs.

The card networks did allow a brief window of time for transactions in progress to be presented and settled, and for refunds to be processed. While this may cut many Russians off from international e-commerce, the impact on their domestic markets may be small. Russia has already built an alternative card network, Mir, in response to the sanctions that were levied back in 2014. Within Russia, existing cards should be able to function normally on this network for the time being.

How Will This Suspension of Operations Affect Chargebacks?

Mastercard is allowing chargebacks to be filed on sanctioned cards until April 9, 2022, with the usual pre-arbitration and arbitration rules applicable.

Visa has provided information to acquirers about how to handle disputes affected by the sanctions, but has not yet specified a cutoff date for filing chargebacks. Because Visa’s window for settlement was less than two days, they may receive a higher number of disputes, particularly with respect to expected refunds that never got a chance to be issued.

Merchants who think they might receive chargebacks from customers in Russia or Belarus should contact their acquirer for the latest information.

What Will the Impact of the SWIFT Ban Be?

SWIFT is a service used by thousands of banks around the world to communicate with each other. A SWIFT code functions sort of like an international routing number, allowing direct transfers of funds from anywhere on the globe.

SWIFT is one of the primary ways that Russian banks communicate with the rest of the financial world, and many small financial service providers and alternative payment systems rely on SWIFT as the underlying protocol for their services.

While there’s no question that many in Russia will feel the impact of this loss, there are a number of workarounds. China has its own financial messaging system, and Russia has developed similar systems internally.

Scaling back SWIFT’s global reach and allowing alternative systems to emerge is one reason why some countries were reluctant to include it in the sanctions. Ultimately, the direct sanctions against banks and international trade are more likely to strain the Russian economy than the severance of any particular payment system, but the message sent by cutting Russia off from these long-standing institutions could not be clearer.

Conclusion

The countries that want to help Ukraine are limited in the tools they can use without entering into open aggression with Russia and inviting greater regional conflict. Sanctions are one of the few options on the table, and they are being used to a fuller extent than ever before. As many experts note, sanctions alone aren’t going to be enough to turn back the invasion—which means that these sanctions could be in place for a long time.

Some merchants may be untouched for the moment by the effects of these sanctions, but merchants that do a high volume of business with Russian customers are already experiencing tremendous disruption.

Some customers may be lost for the foreseeable future, but others may try to use workarounds—such as geolocation spoofing or VPNs—that can trigger fraud filtering software. Merchants should prioritize compliance with local laws and card network regulations and stay on top of any news or developments that may affect their payment environment or their customer base.

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