Viewing cable 10MOSCOW228, 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)
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VZCZCXRO2635
OO RUEHDBU RUEHFL RUEHKW RUEHLA RUEHNP RUEHROV RUEHSL RUEHSR
DE RUEHMO #0228/01 0320441
ZNY CCCCC ZZH
O 010441Z FEB 10
FM AMEMBASSY MOSCOW
TO RUEHC/SECSTATE WASHDC IMMEDIATE 6119
INFO RUEHZL/EUROPEAN POLITICAL COLLECTIVE PRIORITY
RUCPDOC/DEPT OF COMMERCE WASHDC PRIORITY
RUEATRS/DEPT OF TREASURY WASHDC PRIORITY
RHEHNSC/NSC WASHDC PRIORITY
RHEHAAA/WHITE HOUSE WASHDC PRIORITY
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 XXXX 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. XXXX reported that
Deputy Finance Minister Svyatugin leads MinFin's effort on
this legislation, including shepherding the bill through
the GOR interagency process. XXXX passed a copy of the
latest draft law to econoff.
To Join or Not To Join -----------------------
3.(C) According to Visa's XXXX, the latest version
follows the "China model" of payment card systems.
The law would set up a National Payment Card System (NPCS),
which XXXX 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 XXXX 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 XXXX 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, XXXX 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 XXXX, 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. XXXX believes that,
at least at the Deputy Minister level, MinFin's hands are tied.
Implying that Russian security services were behind this
decision, XXXX 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
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