Russia launched a full-scale military invasion of Ukraine on 24 February 2022 and with it triggered a new era of geopolitical tensions and economic repercussions. In response to Russia’s aggression, the West slapped Russian entities and individuals with a number of sanctions with unprecedented scope and speed. The payments sector became a tool used to punish Russia for its invasion of Ukraine. Russia’s exclusion from SWIFT and the suspension of operations by international card schemes have become a cautionary tale for the rest of the world. This event inevitably impacted the payment provider industry, yet not necessarily in obvious ways. In this briefing, we summarize the effect the War in Ukraine has had on the payments industry in Russia and across the globe.
Russia’s Exclusion from SWIFT
The first major payments tool used against Russia came in a form of exclusion from the global payment system SWIFT, cutting off Russia’s ability to trade in the international market. Prior attempts by the Russian Central Bank to create its own alternative to SWIFT, a transfer system called SPFS, has largely failed, with this network assembling only a small list of mainly Russian banks. Although Russia is working on a new blockchain payments system to replace SWIFT and attempting to establish a lifeline to China’s own SWIFT copycat, CIPS, there are no short-term solutions for the Russian government.
Crypto currency could eventually be an alternative to circumvent SWIFT. Crypto, however, is volatile (see latest bitcoin performance in the figure 1 below), and the Kremlin is unlikely to rely on a payment form that it cannot directly control. Other markets hit by high inflation or currency devaluations, such as Nigeria, have been seen to turn to crypto, although consumers are often risk-averse, crypto acceptance is still limited, and physically paying with crypto can be challenging.
FIGURE 1: Bitcoin to US Dollar Price (USD)