This past Friday, the Russian State Duma passed a law to create a national payment card system, the Russian news agency Interfax reported. The law took the form of amendments to existing legislation adopted in 2011.

The new rules will ensure “uninterrupted transfers of monetary funds within the payment system on the territory of Russia,” stated first deputy chairman of the Duma Committee on the Financial Market Vladislav Reznik.

The document outlines a mechanism of sanctions for failures by international payment systems to process payments. It also contains an amendment on ruble settlements in the foreign transactions of Russian companies and one on the right of Russian banks to close the accounts of US residents to protect themselves from sanctions.

Payment systems will be required to pay a security deposit to the Central Bank to guarantee their good behavior. Foreign operators will have to leave a security deposit at the Central Bank equivalent to the value of two days of transactions processed in Russia.

Visa and MasterCard together processed $1.9 billion per day last year, meaning that they will between them be obliged to relinquish about $3.8 billion to the Central Bank.

The issue of a national payment system came to the forefront after the United States imposed sanctions on Bank Rossiya in March, causing Visa and MasterCard to refuse to service its bank card transactions as well as those of its subsidiary Sobinbank.

In response, Russian President Vladimir Putin ordered the creation of a national payment system. He gave the example of Asian countries, especially China and Japan, whose systems were able to compete with Visa and MasterCard both domestically and regionally. In China, UnionPay competes with the American systems and in Japan JCB does.

From “punishment” to “no ban”

“Violations of agreements by international payment systems should not go unpunished,” Russian Prime Minister Dmitry Medvedev threatened on Tuesday, April 22, in his annual report to the Duma on the work of the government.

Later in the week, however, Russian authorities adopted a slightly milder stance. “We do not foresee any steps to punish unconscientious partners. But they undermine faith in them, and that means they will lose the market,” Interfax quoted President Putin as saying.

“I do not support any voluntary self-isolation,” Central Bank Chairman Elvira Nabiullina stated in response to the radical stance of some politicians and officials on how Russia should react to Western sanctions.

According to Nabiullina, the national payment system will be created on a base of Russian development and technology, but will be compatible with Visa and MasterCard.

“International payment systems will not under any circumstances be banned from operating in Russia,” Nabiullina said. “They will stay, and we will create a national payment system mainly for domestic settlements.”

According to Central Bank data, 217 million cards have been issued in Russia. Furthermore, 95% of them are associated with international payment systems like Visa and MasterCard and 90% of the settlements made using the cards are within Russia.

Update April 30

Even if not banned, Visa and Mastercard could be seriously hit by the new legislation. Its requirements could “significantly affect our capacities to offer services on the Russian market and invest in the development of electronic payments in this country,”  Visa stated in a reference to the mandatory security deposit.