251,287 cables indexed
Reference ID: 10MOSCOW228
Subject: RUSSIAN DRAFT BILL WOULD REQUIRE ON-SHORE CREDIT CARD PROCESSING
Origin: Embassy Moscow, Russia Classification: CONFIDENTIAL
Created:01 Feb 2010 Released:08 Dec 2010
Tags: EINV, ETRD, RS

This is the cable as released by WikiLeaks, compared to the unredacted source.

This cable has been published by The Guardian (UK), Le Monde (France) and El Pais (Spain).

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C O N F I D E N T I A L SECTION 01 OF 02 MOSCOW 000228 SIPDIS STATE FOR EUR/RUS, EEB
TREASURY FOR TORGERSON/WRIGHT
NSC FOR MCFAUL
WHITE HOUSE FOR USTR EHAFNER E.O. 12958: DECL: 01/28/2020

TAGS: EINV, ETRD, RS

SUBJECT: RUSSIAN DRAFT BILL WOULD REQUIRE ON-SHORE CREDIT
CARD PROCESSING REF: MOSCOW 00079 Classified By: ECONMINCOUNS Matthias Mitman for Reasons 1.4(b) and (d)

1.(C) SUMMARY: The latest version of the Russian draft law
"On the National Payment System" contains several provisions
that would disadvantage U.S. businesses. The draft law would
set up a National Payment Card System (NPCS) including its
own payment card that banks and payment card companies could
join voluntarily. Most likely to be a consortium of
state-owned banks, the NPCS operator would process the
domestic payments for all members and collect processing fees
estimated at $4 billion per year. The draft also forbids
sending abroad any payment data for domestic transactions.
Should international payment card companies such as Visa and
MasterCard chose not to join the NPCS they would have to set
up the infrastructure to do their Russian payment processing
domestically. END SUMMARY.


2.(C) On January 27, the Russian newspaper Kommersant
reported that it had received a copy of the "final" version
of the draft legislation "On the National Payment System."
Visa's Public Relations Head Dmitriy VishnyakovXXXX XXXX, who along
with MasterCard representatives met Ministry of Finance
officials on January 22, told us that MinFin is still seeking
consent from the various ministries and agencies involved in
the legislation. VishnyakovXXXX reported that Deputy Finance
Minister Svyatugin leads MinFin's effort on this legislation,
including shepherding the bill through the GOR interagency
process. VishnyakovXXXX passed a copy of the latest draft law to
econoff.

To Join or Not To Join
-----------------------

3.(C) According to Visa's VishnyakovXXXX, the latest version
follows the "China model" of payment card systems. The law
would set up a National Payment Card System (NPCS), which
VishnyakovXXXX reported would likely be run by a consortium of
state banks as either a non-profit entity or a joint stock,
profit-making company. Banks and credit card companies would
have the option of joining the NPCS. If they joined, banks
in Russia would issue cards under the NPCS brand, with its
own logo. Payment processing for these cards would be done
on-shore by the NPCS entity. According to the Kommersant
article, the fees for these services are estimated at Rb 120
billion ($4 billion) annually. As VishnyakovXXXX pointed out,
the vast majority of Visa's business in Russia is done with
cards issued and used in Russia; with earnings from
processing going to NPCS, Visa would no longer profit from
these transactions.

4.(C) While joining the NPCS would be optional for both
banks and international payment card companies, membership
has its privileges. If Visa and MasterCard choose to join
the NPCS, they would not have any role in domestic
transaction processing, but the bank-issued NPCS cards could
be "co-branded" with Visa or MasterCard. When the cardholder
used his card abroad, the transaction theoretically would go
through the normal Visa or MasterCard processing that takes
place outside of Russia. While VishnyakovXXXX said such a deal
is a possibility, it would require negotiations to specify
this approach in the draft law.

ON-SHORE PAYMENT PROCESSING REQUIRED
------------------------------------

5.(C) In the proposed draft of the law, if international
payment card companies choose not to join the NPCS, they will
have to set up on-shore processing centers. But neither Visa
nor MasterCard representatives, which together have 85% of
the Russian payment card market, are willing to say whether
they would be willing to do so. MasterCard's Head in Russia,
Ilya RiabyXXXX XXXX, said MasterCard would have to "build and assess
the business model of setting up on-shore processing" before
it could reach a decision. The draft law stipulates that
international payment card companies will have one year to
establish processing centers inside of Russia. (Note:
Currently no international companies have processing centers
in Russia.) A ban on sending abroad payment data for purely
domestic transactions will become effective two years after
the law enters into force.

6.(C) According to VishnyakovXXXX, MinFin understands that this MOSCOW 00000228 002 OF 002 would entail so much expense and difficulty for Visa and
MasterCard that the two companies might quit the Russian
domestic market. VishnyakovXXXX believes that, at least at the
Deputy Minister level, MinFin's hands are tied. Implying
that Russian security services were behind this decision,
VishnyakovXXXX said, "There is some se-cret (government) order
that no one has seen, but everyone has to abide by it." As
described reftel, credit card company and bank
representatives have told us that GOR officials apparently
assume that US payment systems routinely share data
associated with payment transactions by Russian cardholders
with intelligence services in the US and elsewhere.

STATE EMPLOYEES ALL GET NPCS CARDS
----------------------------------

7.(C) The current draft of the law would require all
stated-owned enterprises and all state employees to be issued
NPCS cards and to receive their salaries via electronic
deposit into NPCS member-banks. (Note: Eighty percent of
payment card holders have what are called "salary cards," a
type of debit card negotiated between the employer and a
bank. Historically, employees have used their salary cards
almost exclusively to withdraw their salaries at the
beginning of each month, though they can also use them as
debit cards.) One positive aspect of the latest version of
the law is that vendors are not required to accept NPCS
cards, as was required in earlier versions.

COMMENT
-------

8.(C) This draft law continues to disadvantage U.S. payment
card market leaders Visa and MasterCard, whether they join
the National Payment Card System or not. If they join, the
NPCS operator will collect the fees, leaving them to collect
processing fees only when card-holders travel abroad -- a
tiny section of the market. If they do not join but choose
to compete with NPCS cards, they will have to set up payment
processing centers in Russia, a very large investment in
itself, and compete against a system likely backed by the
largest Russian state banks. While the draft legislation has
yet to be submitted to the Duma and can still be amended,
post will continue to raise our concerns with senior GOR
officials. We recommend that senior USG officials also take
advantage of meetings with their Russian counterparts,
including through the Bilateral Presidential Commission, to
press the GOR to change the draft text to ensure U.S. payment
companies are not adversely affected. END COMMENT. Beyrle