MOSCOW, Dec. 28 — RIA News/Prime. The Russian Federation (RF) credit card market experienced a big change in 2016. Previously, two American players, Visa and MasterCard, dominated the market, with the companies accounting for most of the credit cards Russians used. Now a national payment system, Mir, has been introduced and is already claiming a share of the market.
While agreeing that the new national payment system has significant growth potential, experts and banks warn that Mir credit cards will gain popularity throughout the country only if they offer a loyalty program with considerable benefits for customers.
Mir credit cards owe their existence to U.S. sanctions against Russian banks in 2014, which resulted in problems with the Visa and MasterCard services. By the end of 2014, Crimea was actually cut off from the international payments market as Visa and MasterCard excluded the peninsula from their service.
These events and the severing of ties from U.S. payment systems at Russian banks prompted the RF government to launch a national payment system. This resulted in the decision to create NSPK, Mir's system operator.
The Mir project, which was developed and launched within a short timeframe, will be successful, although not overnight, says Kirill Sviridenko, CEO of MultiCard, a processing company of VTB Group.
"Mir credit cards will gain a significant share of the Russian payment systems market, but this will take time. It took more than 50 years for Visa and MasterCard to succeed on the market, and Mir was launched only a year ago," he says.
The head of product development management at Binbank, Aleksey Okhorzin, also believes the launch of Mir was a success, especially given its tight development and launch windows. "It's worth noting that NSPK, together with the banks, has done a titanic amount of work. The results are excellent, but the company needs to press forward," Okhorzin says.
The infrastructure created for Mir credit cards to be accepted as a form of payment has been the biggest success of the past year, NSPK CEO Vladimir Komlev says. "We regard the results of 2016 as positive, as we've been able to reach all our goals. Developing the infrastructure for the acceptance of the Mir credit cards for payment was our main objective, and we managed to achieve it very quickly," Komlev told RIA News.
All ATM cash machines throughout the country will be able to accept Mir credit cards by the end of 2016, while the mass issuing of the cards will start in 2017, Komlev said.
According to NSPK, by Dec. 21, 2016, Russian banks had already issued over 1.67 million Mir credit cards – and this number continues to grow. Currently, more than 40 banks are issuing Mir credit cards and more than 90 banks accept them as a form of payment.
Credit card services currently include over 1.7 million ATM cash machines and payment terminals.
In addition, Mir credit cards can be used as a form of payment in most large retail networks in Russia, as well as in some online shops, Komlev says.
Another success is the launch of the co-badging projects in cooperation with the international payment systems that make Mir credit cards acceptable for payments abroad. These Mir credit cards are being issued in cooperation with MasterCard (Mir-Maestro) and the Japanese payment system (Mir-JCB). NSPK signed a similar agreement in September for cooperation with the Chinese payment system, Union Pay.
"By mid-2017, a project in Armenia will launch in cooperation with the ArCa payment system. The same rules and rates will apply within the integrated systems interaction and the accounts will use the national currency, expanding the infrastructure for acceptance of Mir credit cards for payment significantly," the top manager of the company says.
Leading the way, the largest Crimean bank – RNCB – has already issued over 850,000 credit cards.
Currently, RNCB is issuing up to 5,000 Mir credit cards per day, and is planning to issue one million of the cards next year, the company told RIA News. In addition, all of the cards RNCB is issuing are based on the Mir payment system, with the work pictures of Crimean artists appearing on the cards, RNCB also said.
The rate at which banks in other regions of Russia are issuing Mir credit cards is lower compared to Crimea. For instance, Otkritie is issuing Mir credit cards for payroll projects and signing agreements for payroll projects with state-financed organizations, says Olga Ovchinnikova, the head of the department of credit cards and consumer loans.
"The rate at which Mir credit cards are issued will depend on two factors: the willingness of organizations to use the cards for their payroll projects and the effectiveness of NSPK's efforts to increase consumer demand for the cards," she said.
The costs of issuing and servicing Mir credit cards are comparable to those related to the credit cards of other payment systems, says Natalia Nalivkina, assistant to the head of the retail business development department of Sviaz-bank.
So far, most Mir credit card users at Sviaz-bank are individuals, not payroll projects, she says.
As of Dec. 15, 2016, VTB 24, a retail daughter to VTB, had issued over 320,000 Mir credit cards; 140,000 of those were issued to recruits in the RF armed forces, the credit institution says, adding that the costs of issuing the cards are identical to those of issuing cards based on the international payment systems.
VTB, the second largest bank of the RF, started issuing Mir credit cards as a matter of standard practice on Dec. 1, 2016, and is planning to issue more than 500,000 of the cards by the end of 2017, says the head of VTB credit card service, Maria Tochilova.
"During the coming year, the bank is planning to start issuing social NSPK-based credit cards as well as Mir credit cards with touch-free options and a Troika transport application," she says.
Binbank issued around 20,000 Mir credit cards in 2016 and is planning to issue "hundreds of thousands more" in 2017.
One of the main innovations for Mir in 2017 will be its loyalty program for its card holders, says Komlev. The program plans to pay cash back based on the amount the user spends – usually 10–15 percent. According to Komlev, all Mir credit card holders will be eligible for the program.
"This service will be beneficial to every participant of the program, including card holders, banks and retailers. The banks will receive additional income from every transaction, retailers will gain access to loyal card holders, and consumers will be able to choose the special offers and purchases that match their interests," Komlev says.
The pilot project of the Mir credit card loyalty program launched on Dec. 21, 2016. Anyone with a Mir credit card issued by Rossija, SMP, SDM and MInB is eligible to take part, says NSPK.
NSPK also plans to allow users to pay for public transportation using Mir credit cards and issue campus cards for students. "We've already tested several non-financial services and will start implementing several solutions in 2017," Komlev says.
In 2017, NSPK is also going to pass its development plans for ensuring the safety of Mir credit cards to the banks with which it is partnering, Komlev says.
According to the head of the National Payment Council, Alma Obayeva, this could amount to approximately 40 million Mir cards. "If we take into account 30 million public employees plus the 10 million citizens who showed their willingness to use them, 40 million seems like a reasonable figure," Obayeva told RIA News.
Obayeva said all public sector workers, retirees and citizens receiving social benefits will be switched to Mir cards.
Mir cards will also contribute to the switch to non-cash payments for retail purchases, Obayeva said. "People own 250,000,000 credit cards, but retail transactions are still done mostly with cash. The dynamics of using credit cards are good but we haven't crossed the threshold of primarily using non-cash payments," she said.
However, for the Mir project to be successful, it needs a lucrative loyalty program, Obayeva warns.
"People expect to be rewarded for being loyal. They're accustomed to benefitting from a variety of bonus programs. A remarkable program like discounts in stores, museums and cinemas, Aeroflot bonuses, interest refunds and so on are vital. We need perks to lure consumers," she said.