OF CARD BUSINESS
It has not been for a long time that
the initiators of replacing paper money payments with electronic transactions began to
develop the vast expanses of Russia. Surprisingly, the domestic plastic card mar-ket
marked only its tenth anniversary in 1999. In 1989 Sberbank
members. The former achieved this goal largely thanks to its monopoly position
and big size while the latter - thanks to its enthusiasm, decisiveness and ambitious plans.
also started earlier issuing its VISA
cards already in the autumn of 1991.
At that time, the payment systems pursued an unofficial
policy of containing the admission of new Russian banks. However, Russia gradually overcame the
cautious attitude of international payment associations and the ranks of principal and
associated members began to grow steadily. In 1992 MENATEP bank
, and in 1993 Mostbank
, became members of VISA International
. Notably, Mezhkombank
issue its first American Express
cards only in January 1995. Later, Optimum bank
and also Credit Swiss bank
accredited in Russia began to offer them to clients.
Large Area for Operations Appears
The international payment systems continued to compete
between themselves in Russia as well, trying to be the first to develop the new market and prevent their
colleagues from getting access to such a de-licious piece. For example, actually simultaneously with VISA
joined Europay International
; however, it did not begin to issue these cards explaining
this by the prohibition on the part of that association. Although this was not admitted officially, many
Russian banks really had to choose only one payment system for some time. It was only Mostbank
managed to combine operations in VISA
from the very start.
Simultaneously with the growth of the number of issuing banks,
the expansion of the international card-servicing network was observed. This was largely achieved through the
increase of the number of foreign exchange offices: the government finally permitted Russian commercial banks to
engage in such operations and this type of services enjoyed great demand.
Card Worth $10,000
Initially, international cards were advertised as an elite
product and cost the banks’ clients quite a lot. The insurance deposit for gold cards could exceed $10,000.
On the other hand, new banks that were entering the market of plastic cards were frequently compelled to use
dumping prices (in the condi-tions of Russia) to attract clients. Afterwards, banks used the same policy in
their struggle for the expansion of the acquiring network when they set fees below the level of profitability
to service stores that accepted plastic cards. The main aim was to attract clients (first corporations, then
persons) and get their place in the acquiring system.
Thanks to the efforts of the most active banks (first of all, Kredobank
, and later Stolichny bank
), the number of the users of international
plastic cards and their servicing network continued to grow. Along with this process, local card products began
to appear on the Russian market. This was linked, in the first place, with the limited number of persons who could
afford full-fledged international cards and the banks’ desire to develop the market of their own cards designed
for mass consumers. An ever greater number of banks began to shift the emphasis of their operations to work with
private individuals. The MMM
fraudulent pyramid schemes clearly demonstrated the powerful
financial potential of Russian citizens. The ban on cash foreign currency circulation, tight state control over
money transfer abroad and the periodically intensifying shortage of cash rubles, coupled with high interest on the
issue of cash rubles by banks, stepped up citizens’ interest in plastic cards.
Cards in UAE
In 1993 Mostbank
offered the first MostCard
bankcard. Along with individual banks (Mytishchi commercial bank
, Optimum bank, Elexbank, Elbimbank,
and others), domestic card associations appeared (STB Card
and Union Card
based on magnetic
cards (1992-1993), Zolotaya Korona
(1994) and Universal based on smart cards). Most domestic banks were oriented to
the issue of largely Russian cards (their own or system cards), which were cheaper and adapted to the solution of such
a pressing problem at that time as the shortage of cash resources in the process of settlements.
The systems whose founders paid close attention to the creation of card
acceptance infrastructure (STB Card, Union Card,
and Zolotaya Korona
) were conquering the market. Over two years of
operation, the number of STB
members reached 70 and the card acceptance network included 1,600 outlets while the respective
figures for Union Card
were 200 and 2,500. At the same time, the Universal system in-cluded 17 regional banks and
14 branches and units.
In the hunt for clients, banks were busy offering new types of cards and
democratizing the terms of their servicing. In this process, the issuers of domestic cards took efforts to create a network
of their acceptance outside Russia. Thus, STB
announced about the acceptance of its cards in the UAE, Optimum bank
about the acceptance of its cards in Israel, Cyprus and Geneva, Zolotaya Korona
in Germany and Union Card
Cyprus and Ukraine.
From 1994 joint card programs also became popular both in the Union Card
systems and among separate banks. The first projects, which were implemented together with insurance companies
), proved to be effective enough as they turned out to be profitable for all the participants. After that, banks
began to carry out joint card programs with commercial trading companies that had a ramified network of stores and a group of
relatively permanent clients. For example, Inkombank
began to issue Visa-Bee-Line-Inkombank cards
making it possible
to increase the number of Beeline
In March 1995 Russian banks started to combine domestic cards with international
debit cards. After classic cards Most-bank
cards. Other banks also hurried
to occupy this niche of cheap international cards. Thus, on the basis of these cards, Stolichny Bank Sberezheniy
its Student Card
program. Within several years it came to in-volve higher schools from ten regions of Russia, and over 200,000
students became the bank’s clients. The program was based on the fully automated process of salary and stipend distribution and payment.
Within the framework of this program, SBS
opened personal accounts free of charge, issued international plastic cards to students
and the teaching staff, equipped higher schools with automated teller machines functioning round the clock, and their canteens with
electronic payment terminals.
Incidentally, a solution was also found for banks, which wished but failed to become
independent issuers of international cards. Some major business operators agreed to give them a helping hand (naturally, to get benefits
from this scheme in the form of fees, insurance deposits and the growth of their influence in the eyes of the payment systems). For example,
within the Alliance interbank program, Mostbank
provided an opportunity to its colleagues, which were not VISA
to offer their clients the cards of these payment systems. Therefore, debit schemes developed almost exclusively on the Russian market
(even classic international cards were issued on the terms, under which they could not be considered credit cards.)
The first stage of the development of this market came to an end late
in 1995. It was characterized by the banks’ acquaintance with technologies: when launching their plastic card programs,
the banks were interested not so much in deriving profit as in other circumstances (their prestige, the desire to suit
major clients, etc.). The projects were basically small and were not expected to bring in any special yields. There was
a lot of money at that time: inflation enabled banks to spend much. Prudent banks, which understood what they were actually
doing, used this period to get their share in the market and, first of all, to establish a developed card acceptance network.
AS A STUMBLING BLOCK
The Russian plastic money market, which promised to be very capacious in the
future but was actually very narrow in the early 1990s due to its undeveloped infrastructure and the low incomes of the population,
was divided within a short period of time.
The struggle for the servicing of trade outlets was especially fierce. The pioneers
of Russian processing were established from the very start for work with international cards. Settlements were effected through
and later through the International Moscow Bank
. Until 1987 Intourist
the main servicing centres in the USSR and mainly serviced tourism and entertainment. Later they were joined by OLBI, STB,
and Union Card
while the sphere of operators accepting payment cards expanded through trade companies. Work with the commercial
network of international payment systems (except AmEx
) was actually fully concentrated in the hands of the company of uni-fied credit cards
). The main scandals involving cards in the early 1990s erupted, in the first place, due to the redistribution of forces
among its stockholders and the appearance of new ones.
processing company was for a long time the leading operator for servicing
transactions in Russia. However, in 1995 Most-bank
, a stockholder of Cardcenter, opened its own processing
center and took a part of Eurocard/MasterCard
clients with it to Multikarta
company while Stolichny Bank Sberezheniy
transferred its Eurocard/MasterCard
servicing to STB Card
center, its subsidiary processing structure. As a result, the share
of Cardcenter on the market dropped substantially. Whereas the processing centers (UCS, Cardcenter
) had to be linked to
international payment systems to process VISA
and Diners Club International
cards, they serviced internal cards through their
own processing centers (STB, Union Card, Universal, Zolotaya Korona
Apart from that, the processing centers of some large banks also struggled for the market.
Thus, Rossiisky Kredit, Montazhspetsbank, Inkombank
preferred to create their own processing centers and
independently go a long, labor intensive and expensive way of their certification in the payment systems.
A large variety of card systems in Russia created certain difficulties. Sometimes commercial
outlets accepted over a dozen of various cards, and each of them required a separate imprinting machine. Soon stores began to give up the systems
with a small number of cards and the issuers began to think about the technical and political solution to that problem and take certain steps to
get rid of the large number of cards.
of Past Days
Sberbank of Russia, Promstroibank
even signed in the autumn of
1994 an agree-ment stipulating coordination in the field of chip technology. Four Moscow banks: MBRR, Moskovsky Kreditny Bank, Rikk-bank,
and the Russian company Skuntek
signed a similar declaration. The agreement, which was concluded between Optimum bank
and the company STB-Card
but, unfortunately, was not fulfilled, also aimed to resolve this problem. Under it, the sides agreed to unite their
technologies and create a single card based on SMART Card
of Optimum bank
and the magnetic STB-Card
The main aim of these efforts was to unite the issuers’ efforts for improving the infrastructure
and the technology of the plastic money market. It was obvious that each issuer taken separately could not organize a full-fledged infrastructure
of its own cards (to organize the channels of communication, install automated teller machines and create a wide trade network of card servicing).
In experts’ estimates, it was necessary to spend over $200 million in Moscow alone for this purpose while profits from the im-plementation of the
card programs could be received only if no less than 1-1.5 million cards were issued.
The project of the single national card was aimed at resolving the problems that had emerged.
The single national payment system was designed to raise the profitability of plastic business in Russia both through the growth of the gross
volume of fees from the sharp increase in transactions and termination of the practice of sharing them with international payment systems.
Domestic operators did not want payments to be effected through international payment systems abroad. All of them wanted to participate in
the cash flow to reduce the prime cost of settlement services through profits from operations with the balance of funds.
The decision taken in September 1995 by SBS, UNEXIMBANK,
the bank “International
cash collection firm (a subsidiary of SBS
) to invest $250 million in the STB-Rossiya system
with Alexander Smolensky
elected as its president, could become the first real manifestation of the unifying approach. STB-Rossiya
intended to open in Moscow Russia’s largest center of settlements with the help of smart cards on the CIS
territory. Therefore, it was
expected that a single system of citizens’ non-cash payments similar to VISA, Europay International and other systems would be established.
However, the project’s implementation was postponed for an indefinite time due to the fact that UNEXIMBANK
unprepared to carry it through.