UnionPay has limited the acceptance in Russia of its cards issued abroad

UnionPay cards of foreign banks can no longer be paid for in retail outlets that use POS terminals of banks under sanctions, learned RBC. Such cards are mainly used by Chinese tourists, but for them it is more important to pay via WeChat.

The Chinese payment system UnionPay has restricted work with Russian acquiring banks that are under sanctions of Western countries: it has banned servicing its cards issued by foreign banks in their POS-terminals. This was reported to RBC by two sources in the banks and an interlocutor in the payment market.

According to an RBK source in a major bank, such a decision UnionPay may have taken for fear of secondary sanctions. Another source in the bank specifies that the cards stopped working in spring. “In April and May, after the sanctions were imposed,” he said.

“Yes, indeed the Chinese payment system UnionPay on its own initiative limited partnerships with sanctioned banks both in terms of acquiring and issuing. In particular, only by verbal notification was the acceptance of foreign UnionPay cards disabled,” said a source in the payment market.

In March 2022, major international payment systems Visa and Mastercard left Russia after Russia launched a special military operation in Ukraine and imposed large-scale sanctions against the Russian financial sector after that. Their foreign cards do not work in Russia, and Russian cards do not work abroad.

UnionPay remains the only international payment system that continues to operate in Russia. Officially, the company has not announced any restrictions on work with sanctioned banks, but in the spring it became known that it banned issuing its cards to such banks – according to RBC sources, the reason for this decision also lies in fears of secondary sanctions.

The instrument of secondary sanctions is not very often used by the U.S. authorities, but the very fact that they can be imposed on certain foreign persons who decided to interact with sanctioned individuals “makes others think twice,” says Anton Imennov, senior partner of the Pen & Paper board of lawyers. According to explanations from U.S. regulator OFAC, non-U.S. persons can be included on sanctions lists if they have provided any form of assistance, sponsorship or financial, material or technological support or goods or services to a person who is already subject to U.S. blocking sanctions.

“Whether a particular transaction is ‘major,’ OFAC decides on a case-by-case basis,” Imennov adds.

Who was affected by the restrictions
The largest acquiring banks in Russia and Europe came under the toughest U.S. blocking sanctions on the SDN list. These are Sberbank, VTB, Alfa Bank and Promsvyazbank. According to the latest Nilson Report research, at the end of 2021, Sberbank was in first place in Europe by the number of processed transactions – 27 billion payments for $281 billion. VTB is in 17th place, Alfa Bank – in 35th place, Promsvyazbank – in 44th place. Otkritie and Sovcombank, which provide acquiring services, are also on the SDN list.

The Nilson rating includes Gazprombank (29th place), but it is only under EU and U.S. sectoral sanctions. They are more lenient compared to blocking sanctions, impose a ban on providing long-term financing and do not provide for blocking assets and operations. Tinkoff and Russian Standard, which are not subject to sanctions, are also in the rating of the largest acquiring banks.

RBC sent inquiries to the largest acquiring banks. UnionPay declined to comment.

How often UnionPay cards are paid in Russia
The turnover of foreign cards of payment system UnionPay in Russia is not so significant that we can talk about any significant losses and the flow of merchants between acquirers, said an interlocutor RBC in the payment market.

One of the sources specifies that due to restrictions from UnionPay stores, for which it is important to serve tourists, move to acquirer banks not under sanctions.

“But overall, it won’t affect the acquiring market redistribution in any way, and the leaders will maintain their positions,” he says.

“This did not affect the acquiring portfolio, as it mainly concerns tourists from China, which became much less, and the share of payments by UnionPay cards of foreign banks in the total volume of acquiring was less than 1%,” says another interlocutor at the bank.

Any restrictions usually have a negative impact on the volume of transactions, but it is worth noting that the share of UnionPay in general is not large, explains the head of the research department of Skolkovo-RASH center Egor Krivosheya: “For foreign tourists, however, it may be a limitation, as there are fewer payment options at a number of outlets. However, the expert stresses that for many Chinese tourists it is more important to have cardless services AliPay and WePay (WeChat Pay) to make payments. “In the early 2020s, the share of these services in the total volume of Chinese payments was above 90%. A number of large merchants have already connected the ability to pay with these services,” Krivosheya cited statistics.