Russian authorities to green light bank cards

In order to reduce the volume of cash payments, the Russian Ministry of Finance has drafted a bill requiring retailers with more than 60 million rubles ($1.8 million) in annual sales to install POS terminals equipped to process bank cards.

The document also specifies a cap on cash payments, initially of 600,000 rubles ($18,540) to be reduced subsequently to 300,000 rubles ($9,270). Deputy Minister of Finance Alexei Moiseev told Vedomosti that his Ministry was helping prepare the draft for the second reading in parliament.

The Central Bank of Russia has already expressed support for the Finance Ministry’s initiative.

“We believe a reduction in the proportion of cash payments is very important, because some of those settlements are related to dubious transactions,” Central Bank Chairman Elvira Nabiullina said.

Fighting the shadow economy and tax evasion is a priority task for the Ministry of Finance. According to Finance Minister Anton Siluanov, at more than 9 trillion rubles (about $278 billion), Russia’s “gray economy” accounts for 15-20 percent of GDP.

Analysts with Global Financial Integrity, a U.S. think tank, believe Russia’s shadow economy is actually much larger, equivalent to up to 46 percent of GDP annually.

Bank card-armed European and Americans, who come to Russia for business or pleasure, often find it impossible to pay with their cards in shops or restaurants. According to the Association of Retailers (AKORT), card payments in many Russian regions amount to only a fraction of those in developed countries.

Smartfin CEO Nikolai Zhmurenko said the country had 4,000 retailers equipped with POS-terminal per million of population in mid-2012, compared to 21,000-23,000 in the West as long ago as 2009.

“Many retailers, even in Moscow, even big ones, have no POS terminals equipped to accept bank cards. Sometimes this is done on purpose, to siphon off some of the revenue, to evade taxes,” Anatoly Aksakov, president of the Association of Russia’s Regional Banks, told Silver Rain radio station.

So why are retailers not exactly rushing to make life easier for the holders of more than 200 million bank cards (Russians alone)? The reason is that Russia has extremely high card processing fees — 1.5-1.7 percent on average, or up to 6 percent in certain cases, depending on the arrangements between the bank and the retailer.

By comparison, the fee in Europe and the U.S. is just 0.5-0.6 percent of the transaction amount. The Ministry of Finance admits that the rates are outrageous.

Yet help is on its way. The Central Bank Settlements Regulation Department director, Roman Prokhorov, said the Central Bank intends to start regulating acquiring fees for bank card settlements.

The reform will be implemented at a slow pace, though: In order to take into consideration the interests of both acquirers and issuers, the Central Bank will commission a special study from a consulting company. The fee regulation bill might be sent to the State Duma in the second half of 2014.

Izvestia reported that retailers had welcomed the Central Bank’s initiative. Consumers stand to win too: On the one hand, they will no longer have to look for an ATM to withdraw cash, and, on the other, retail chains are promising to either cut prices or improve customer service, thanks to lower acquiring fees.

Analysts believe, however, that not all regulatory measures will benefit consumers. According to Alexander Borodkin, head of the VTB24 Plastic Cards Division, only entities accepting bank cards will reap the benefits of lower acquiring rates, while cardholders, on the contrary, might see their current plastic card use terms and conditions deteriorate, possibly even leading to a drop in the popularity of bank cards.

“The issuing bank collects the bulk of the commission from the retailer at present. If the fees are lowered, the revenues of the acquiring banks [those that process the payment cards] will barely change, while the issuing banks’ revenue from card retail turnover will shrink substantially,” said Borodkin.

“As a result, issuing banks will be forced to either discontinue most existing client incentive programs or modify them to the detriment of customers.”

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