Financial services giants Visa and Mastercard have joined the growing list of companies suspending services in Russia. The decision from two of the world’s biggest payment providers adds to the punitive sanctions the West has levied against Vladimir Putin’s regime in retaliation for the incursion into Ukraine.

However, experts are conflicted about how impactful the bans will be. Some believe sanctions will do little to dissuade the Kremlin from pouring more troops into Ukraine whereas others believe suspending services could help bring about an end to the conflict.

“The suspension of such services will play a significant role in crippling the economy, which will damage Russia’s ability to maintain an expensive war,” Elizabeth R. Moore, head of leadership at the University of Law Business School, tells Verdict. “Importantly, the impact could also ultimately result in a loss of faith in Putin on the part of the Russian population. If Russians begin to turn against Putin in large numbers, this whole story could turn out very differently from what he envisioned.”

Visa and Mastercard announced that they would suspend their trans-border services for customers in Russia on March 5.

“We are compelled to act following Russia’s unprovoked invasion of Ukraine, and the unacceptable events that we have witnessed,” said Al Kelly, chairman and chief executive officer of Visa. “We regret the impact this will have on our valued colleagues, and on the clients, partners, merchants and cardholders we serve in Russia. This war and the ongoing threat to peace and stability demand we respond in line with our values.”

Visa said all transactions initiated with Visa cards issued in Russia will no longer work outside the country and any Visa cards issued by financial institutions outside of Russia will no longer work within the Russian Federation.

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Mastercard issued a similar statement, saying: “We don’t take this decision lightly. Mastercard has operated in Russia for more than 25 years. We have nearly 200 colleagues there who make this company so critical to many stakeholders. As we take these steps, we will continue to focus on their safety and well-being, including continuing to provide pay and benefits. When it is appropriate, and if it is permissible under the law, we will use their passion and creativity to work to restore operations.”

Like Visa, Mastercard would prevent cross-border transactions, but later clarified that all domestic transactions in Russia are mandated to be processed over a switch run by the central bank.

“Once the suspension of Mastercard network services is completed in the coming days, the company will have nothing to do with these transactions, including any ability to block them,” Mastercard said.

Visa and Mastercard have both said that Russia made up roughly 4% of their total net revenue in 2021. That included both domestic and cross-border activity. While a significant chunk of their income, suspending international services for Russians is hardly going to result in them falling on hard times, especially considering that they are still providing their services domestically for now.

It should also be mentioned that despite Visa and Mastercard dominating the market in Russia, their share of the sector has declined due to rising adoption of the central bank’s own Mir programme, as pointed out by GlobalData’s research.

Fintechs block services in Russia

Visa and Mastercard are hardly alone in pulling out of Russia. Other financial services providers have suspended services in the Federation. PayPal, American Express, Revolut, Wise, Western Union and Paysera are just some of them.

Cryptocurrency exchanges Coinbase, Kraken and Binance have blocked accounts connected to individuals and entities sanctioned by the US and its allies, but have so far refused to introduce a blanket ban on all Russians.

In early February, Bloomberg reported that Russians held over $200bn in cryptocurrencies, representing about 12% of the world’s total holdings, according to an estimate the Kremlin and government officials had done in order to craft a plan to regulate the industry.

Tech companies around the world are also putting the screws on Russia in order to protect the besieged tech community in Ukraine and the nation’s citizens. Big tech firms like Google and Apple have suspended services in Russia, with Microsoft volunteering to help Ukraine fight back against Russian cyberattacks. Elon Musk’s Starlink has also shipped disks to Ukraine, which enable the nation to access the company’s low-orbit satellite internet.

International brands like NIKE, adidas and Heineken have also stopped supplying services in Russia.

“For Western companies now, there is a tremendous need to be visibly against Russia,” Daniel Wolfe, managing director, cryptocurrency investment firm Simoleon Long-Term Value, tells Verdict.

The private initiatives added to the unprecedented sanctions imposed by the Group of Seven, or G7, in order to cripple Russia’s finances and force it to withdraw from Ukraine. Ukraine’s allies have, famously, barred Russia and its fintech companies from international payments system SWIFT, cutting them off from secure international communications and transactions.

Contrary to rumours circulating online, pornography platform Pornhub has not blocked Russian users from using its services, swapping streamed smut for a message to support Ukraine. Independent fact checkers have found no evidence to support the claim.

Do Russians care about Visa and Mastercard pulling out?

It didn’t take long for Kremlin gremlins to downplay the impact of Visa and Mastercard pulling out of Russia. The Central Bank of Russia has said that all bank cards – including ones from the two American companies – issued by Russian banks would continue to operate normally. That is because domestic payments are processed via Mir, the central bank’s own system which was introduced in 2015 in order to sidestep sanctions imposed against Russia in 2014, following its annexation of the Crimean peninsula.

Chinese president Xi Jinping has so far only played a passive supporting role to Putin’s aggression, officially walking a tightrope of neutrality. But China is potentially playing a small part – albeit a passive one – in helping Russia skirt sanctions as several Russian banks have suggested that they would start issuing cards that use the Chinese UnionPay system, which overtook Visa and Mastercard as the world’s largest card payments provider in 2015.

This is not the first time China has supported Russia like this. Chinese AliExpress was also the first foreign company to accept Mir payment cards, in 2016, according The Moscow Times. Russia also signed energy, trade and finance agreements with China in 2014 to help the federation weather Western sanctions following its first Ukrainian invasion and could do so again.

However, it might be too early to draw any massive conclusions about what that will mean for China taking a more active role Ukraine conflict. While Chinese diplomats have referred to the relationship between Xi and Putin as “rock solid,” analysts note that China has so far taken a cautious stance.

There’s reason for that. Despite the alliance between the two having been bigged up by the the two nations, Xi stepping in could see China put its relationship with two of its biggest markets – the US and the EU – at jeopardy.

Russia was the 11th biggest economy in the world as of 2020, according to the latest figures provided by the World Bank. Russia isn’t likely to make the top 10 before 2036, according to a December 2021 report from British consultancy Cebr, which placed Russia at number 12.

Given that China’s big tech crackdown has resulted in its tech sector making staff redundant and the nation still dealing with the collapse of its real estate industry, it would seem unlikely that Xi would endanger the stability of the nation’s finances by supporting Russia more openly. But, like with a lot of this conflict, it’s a matter of wait and see.

In the meantime, Russians are feeling the squeeze from sanctions and, increasingly, from private parties pulling out of the country. JPMorgan expects the Russian economy to contract by 35% in the second quarter of 2022, a contraction similar to that seen during the country’s devastating 1998 financial crisis, as noted by our sister publication Investment Monitor.

“The suspensions by Paypal, Visa and Mastercard have already had an impact,” Wolfe says. “First, Russians abroad have lost access to the funds they hold in Russian banks as their credit and debit cards are no longer working outside of Russia. In addition, entrepreneurs who used PayPal have been forced to find alternative avenues to receive payment from foreign buyers. Whether this impact on ordinary Russians will have an impact on the Kremlin is a different question. I personally do not believe it will change the strategy or decision-making of Russia’s political leaders.”

Moore agrees that fintechs squeezing regular Russians won’t change the Kremlin’s tactics, “but in concert with other voluntary commercial withdrawals and economic sanctions by national governments, they will certainly have an enormous impact.”

No one should, however, expect the war to come to an abrupt halt due to Russia’s coffers running empty. In the short term, the Institute of International Finance expects that Russia’s own banking sector could make up for any shortfall in government funds induced by the sovereign debt restrictions.

Others note that Visa, Mastercard, AmeX and the others pulling out of Russia has less to do with solidarity with Ukraine and more about avoiding a backlash at home.

“The stampede out of Russia has now become unstoppable,” Joe Zammit-Lucia, author of The New Political Capitalism: How businesses and societies can thrive in a deeply politicised world, tells Verdict. “Those corporations that do not exit the Russian market will deplete their political capital and will also likely face other issues – employee activism, boycotts of their products and services in the West, and so on.”

If you and your business want to help the people of Ukraine during these terrible times, you can find information on how to do so here.

GlobalData is the parent company of Verdict and its sister publications.