Setting the scene
As SWIFT, the Society for Worldwide Interbank Financial Telecommunication, has reached the headlines in relation to Western sanctions on Russia for the conflict in Ukraine, there is a piece of the debate that has remained incognito as a lifeline for Russia. Some Western analysts have pointed to a Chinese alternative, but the answer may lie in a purely domestic or hybrid version integrated with this Chinese alternative, the Cross-Border Interbank Payment System (CIPS). The more likely scenario is by turning to the purely domestic alternative – the Mir payment system. ‘Mir’ translates to peace in Russian.
Why Mir was developed
The Mir payment system alternative did not come from the current stage of the conflict. It relates to Ukraine, yes, but back to when Russia was first sanctioned by Western countries. The conjuring of its own payment platform, able to compete with foreign services, dates back to March 2014. It was precisely then when the U.S. imposed sanctions against Russia and c that Visa and MasterCard stopped servicing the cards of several Russian banks, which made the issue of deploying an independent payment system in the country especially relevant. In May of the same year, the Russian president, Vladimir Putin, signed a law on the creation of a national payment card system (NPCS), and in mid-2015 interbank testing of the new platform, called Mir, began.
Around the same time, domestic transactions on MasterCard and Visa cards were transferred to NPCS processing, and a few months later, in December, the first Mir card was issued. The National Payment Card System joint-stock company established by the Bank of Russia became the operator and operational payment clearing center of the payment system. In total, more than 270 Russian banks are currently connected to the platform, 158 of which issue Mir cards.
Where are Mir cards currently accepted?
Mir cards work throughout Russia, at all points where bank cards are serviced, including in Crimea, which is currently under Western sanctions. It is also possible to pay with the card abroad, however, not in the West. According to the customer support service of the payment service, at the moment Mir is accepted in 12 countries, including Turkey, Vietnam, Armenia, Belarus, Uzbekistan, Kyrgyzstan, Tajikistan, Kazakhstan, South Ossetia, Abkhazia, Cyprus and the United Arab Emirates. The list, according to experts, may grow in the future. Some foreign online stores also support the acceptance of Mir cards, and a striking example in this case is the largest Chinese marketplace, AliExpress. Other Chinese companies and stores are currently on standby as Russia and China plan to jointly integrate the Chinese UnionPay bank card system inside the country’s financial ecosystem. In this scenario, Mir will likely have a prominent position.
Security of financial transactions with Mir
Mir platform complies with the international payment card industry data security standard (Payment Card Industry Data Security Standard, PCI DSS). For additional protection of online payments, the system implements MirAccept, a proprietary two-factor authentication technology based on the 3D Secure protocol. With MirAccept each purchase in online stores is confirmed by a one-time code that is sent to the cardholder’s cell phone. This allows the banks to verify that the payment is actually made by the cardholder, and protects against unauthorized online withdrawals. Almost all Russian banks have automatically connected MirAccept. This is currently a free service complimentary through the utilization of the Mir platform.
Mir through the lens of regulation and Russian law
The NPCS is regulated by the Federal Law No.161 “On the national payment system“, “The strategy of development of the national payment system” and “The concept of the national payment card system”. The Mir payment system was developed from scratch in just one year. When creating the NSPC, specialists from the Central Bank analyzed all domestic systems available at the time for non-cash payments, but none of them met the performance and quality requirements. As a result, the project had to be created from scratch. At the end of the first nine months of 2021 there were around 100 million issued Mir cards. Mir accounted for 25.2% of all card transactions in Russia and 32.3% of new card issuance. As of March 2022, VISA and MasterCard are still rolling back its services inside the country.
On the basis of the NSPC infrastructure in 2019, a system of fast payments (SBP) was deployed and is functioning, allowing citizens to instantly transfer money to each other by cell phone number, pay for purchases, utilities and perform many other types of interbank transfers, including by QR code. According to the Bank of Russia, currently 209 bank-members are registered in the SBP. In total, over three years 1.25 billion transactions for 7.3 trillion rubles were performed in the system.
In total, the NPCS includes 31 payment systems, 486 money transfer operators, more than 500 payment agents and bank payment agents.
Geopolitics continues to affect Russia’s SWIFT alternative
According to analysts, Russia needs to act fast if it wishes to avoid destabilization as SWIFT becomes a major talking point in relation to sanctions vis-á-vis Russia in regard to the ongoing conflict in Ukraine. The current geopolitical situation has fundamentally changed the formats of Russian banks and citizens in the financial market, faced with the complete disconnection from SWIFT and other foreign financial institutions. There is no doubt that the domestic Mir platform will continue to actively develop. The major question is whether it will be together with the Chinese CIPS system or as a continued standalone format.
The Bank of Russia also plans to expand partnership with payment systems operating in the Eurasian Economic Union (EAEU) and the Commonwealth of Independent States (CIS), the introduction of open program interfaces (Open API) technology, improving the quality and availability of financial services, as well as creating conditions for non-bank organizations to use services of the national payment infrastructure. There are a lot of plans, but realization must come quickly if Russia wishes to avoid any repurcussions.
As the situation continues to develop, Evolvera will continue to follow any developments in relation to the Mir alternative to swift or any others that appear.