PRINCIPLE OF DOMINO
According to some estimates,
already by 1995 the number of cards of all systems issued in Russia had come
close to a million while the amount of annual hard currency transactions had
exceeded $500 million. This was a noticeable achievement for a comparatively
young Russian market. The same year it had to stand the first strength test.
The problems on the market of
inter-bank lending, which resulted in the collapse of some large banks and
difficulties for other banks to effect payments, considerably impeded the rapid
development of the card business. The systems of cards issued by separate banks,
trade and financial companies (debit and discount cards) suffered the most
1995 Ortcard collapsed and the system Zolotaya Korona
began to experience serious difficulties. In October OLBI
cards stopped to work. This was followed by the collapse of
the Poliscard system and the cards issued by the Mytishchi
commercial bank. The cards issued by the banks Moskovia,
AvtoVAZbank, Gloria-bank and Mosinraschet also
failed to overcome the crisis. Europay International even
had to withdraw the licenses for the issue of cards from two
Russian banks – Yugorsky and Natsionalny Kredit.
Due to the problems that had arisen, the role of Kredobank
had also been considerably reduced. Kredobank transferred
its international VISA
cardholders to Vozrozhdeniye bank and ceded its share
in UCS to UNEXIMBANK.
bank crisis affected not only separate banks but also inter-bank
systems. In 1995 three of them already passed the 100,000
threshold of card issuance (STB, Union Card and Zolotaya
Korona). They had to part with some of their members forever.
Difficulties also emerged for the Siberian merchant settlement
bank integrated into the Russian largest chip card system
- Zolotaya Korona: its cards were withdrawn from circulation.
Possibly, largely thanks to the crisis, Russian
banks that were members of Europay International managed to forget about their disagreements and
unite into an association (VISA members did this several years later). Generally speaking, there
had long been talks about the establishment of a national association of international card issuers,
through which non-residents’ settlements would also be carried out. Under the system of plastic card
payments that existed in Russia at that time, even residents’ settlements were effected through
international payment systems abroad. This compelled Russian banks to keep large but low-yield
insurance deposits with the primary banks of international payment systems and pay 2% commission
on each transaction (according to estimates, the Russian banks paid about $11 million in 1995).
They also had to lose profits from the possible overnight placement of funds in card settlements.
Now, by choosing a single settlement bank on the territory of Russia, they could solve this and
other pressing problems.
Policy of Major Banks
recovering from the crisis, beginning with 1996, domestic
banks rushed with a new strength to struggle for the savings
of the population, demonstrating a certain specialisation
in the process. Thus, Inkombank drew more money to
card accounts than other banks and became a recognised leader
in the issuance and circulation of VISA
cards. Stolichny Bank Sberezheniy issued cheap rouble
products (STB Card) most of all and installed the largest
number of automated teller machines. Most-bank offered
the widest list of products. Uneximbank controlled
the most powerful processing center UCS, which accounted
for 75-85% of international card payment processing, according
to various estimates. The banks Imperial, MENATEP and
UNEXIMBANK had the largest client base to introduce
salary and other cards in large corporations.
payment systems also stepped up their activity on the Russian
market to get new niches on it. Thus, Inkombank started
to issue ruble cards of VISA
International – “Inkombank – VISA
Rus-sia” and announced about its participation in the
project for the issuance of microprocessor cards to service
small payments under the program VISA
COPAC. Initially, Inkombank and Sberbank
of Russia were chosen as VISA
International partners for introducing the new VISA
COPAC card into circulation. However, Sberbank
withdrew from participation and decided to launch its own
chip project based on the UEPS solution by the company
BGS. At the same time, despite VISA
innovations, the banks that were members of Europay International
demonstrated a greater volume of card issuance. This was explained
by a more flexible policy of Europay in relation to the admission
of new members.
In 1996 the number of payment cards issued by Russian banks
exceeded one million. Each of the three leading systems – STB-Card, Union Card and Zolotaya Korona
– accounted for several hundred thousand cards. In April 1997, for the first time ever, the number of cards
circulating in one national payment system (STB-Card) exceeded one million.
However, the great number of cards did not yet evidence a
qualitative growth of the market. Russian banks showed mistrust towards each other (intensified by numerous
sleaze wars). They failed to unite their efforts for the creation of a card acceptance network that would work
for common interests. As before, numerous projects remained only on paper. The Globus automated teller
machine network de-signed as an inter-bank system serviced, in the final account, only STB-Card and
international cards. A considerable lag of the acceptance network slowed down the pace of the development of
actually all payment systems.
In these circumstances, bankers preferred to engage in salary
payment projects, which enabled them to attract funds and forget for the time being about the development of the
card acceptance network. As a result, from 1997 such projects based on magnetic and smart cards became the main
motive force for the spread of payment cards in Russia. The cards finally reached the most remote areas and became
a routine part of life, say, for deputies of the State Duma or workers of the Magnitogorsk integrated works lining
up with their cards near automated teller machines on the day of receiving their salaries or wages.
However, soon the trust for plastic cards was undermined seriously
and for a long time. The August 1998 financial crisis broke out with all its ensuing consequences, including
non-working automated teller machines and signs on the stores that credit cards were temporarily (or for technical
reasons) not accepted.