Logos for Visa Inc., Mastercard Inc., Diners Club International Ltd. and China UnionPay Data Co. payment services sit in the window of a souvenir store in Moscow, Russia, on Tuesday, April 1, 2014. Visa Inc. and MasterCard Inc. stopped processing cards for Bank Rossiya after the U.S. placed the lender on its sanctions list.
Photo: Andrey Rudakov/Bloomberg via Getty Images

UnionPay has an opening in Russia

Protocol Fintech

Good morning, and welcome to Protocol Fintech. This Wednesday: cutting Russia’s cards, a crypto fraud arrest, and a fine for Deutsche Bank.

Off the chain

International Women’s Day was definitely not the best timing for Bain Capital Crypto to roll out an all-male team. After deleting a tweet with a photo of his partners, managing partner Stefan Cohen promised (in a since-deleted tweet) the firm had a “few more exciting hires to announce.” (He might want to get to know his new colleagues better: He apparently managed to tag the wrong Chris Hofmann on Twitter.) Cohen later apologized and said his firm’s “mess up” was a reflection of what happens when you don’t have a diverse team. At least he’s learning fast.

— Owen Thomas (email | twitter)

An answer in the cards

Sometimes it takes geopolitics to upend business as usual. That could be the case with the war in Ukraine, which has the potential to upset the established order of payment cards.

Visa and Mastercard both announced over the weekend that they’re stopping operations in Russia. That means Visa cards issued in Russia won’t work outside of Russia, and Visa cards issued outside of Russia won’t work inside Russia. Japan’s JCB followed suit Tuesday.

The effects of the moves by Visa, Mastercard and JCB have been softened by Russia’s development of the sanction-resistant MIR system, which processes all domestic card transactions inside the country, including those issued under foreign network brands. But buying products abroad will be difficult for Russian consumers. To keep their international business flowing, Russian banks have responded by seeking out other payment networks — with China’s UnionPay the chief option left.

UnionPay is much larger than you think. It’s already the largest network by number of cards in circulation due to the sheer size of the Chinese economy, said David Robertson, publisher of The Nilson Report. While best known and mostly used inside China, where it has about 90% market share, it is growing outside China as well.

  • UnionPay is both a network and a brand. It has debit, credit and prepaid cards in China. Internationally, it has steadily grown acceptance of UnionPay cards through deals with merchant acquirers and banks that own ATM networks. It also partners with local financial institutions in Southeast Asia, Africa and elsewhere to issue UnionPay cards.
  • The company’s cards are accepted in 180 countries and regions and are accepted by 55 million merchants.
  • More than 150 million cards have been issued outside China in 67 countries and regions, according to UnionPay.

Strategically, UnionPay needs to diversify. Historically, the pitch for UnionPay acceptance outside China has been volume from Chinese tourists and business travelers using their cards abroad.

  • Volume from non-Chinese, local cardholders is still much smaller than the volume inside China. But it’s growing. Adyen, the Dutch payments company, has supported UnionPay for years. And UnionPay signed a deal with Fiserv last month to broaden card issuance and merchant acceptance.
  • Russia’s an important market for UnionPay. The network recently highlighted that 90% of UnionPay transactions in the country were domestic — meaning it’s not just about serving Chinese travelers. And it’s touted UnionPay acceptance at everything from ecommerce site Ozon to Russia’s state railways.
  • But it will take a long time for the volume in Russia to be material compared to UnionPay’s massive business in China.
  • Volume from Russian nationals outside of Russia is another way to grow, though that’s a moot point for the moment, since Aeroflot has canceled its international flights.

Is it worth it to move to UnionPay? Russian banks can make the switch, Robertson said. “It’s completely possible. It then becomes a political question.”

  • “It’s a global disaster politically” for UnionPay to seem to take advantage of Russia’s invasion of Ukraine, Robertson noted.
  • It’s far from clear how or when the conflict will end, and if Visa and Mastercard will resume operations in Russia. But for Russian banks, Visa and Mastercard are mature and have advantages. “Visa and Mastercard have more cachet and more utility globally than UnionPay,” Robertson said.
  • A card network doesn’t just move money around. It’s also a guarantor for transactions, making merchants whole if there are problems. “If banks in Russia were to go to UnionPay, UnionPay would have to be willing to be that,” Robertson said, including for cross-border purchases, which are fraught right now.

There’s more uncertainty, of course. Merchant acquirers — which can be payments companies or banks in the U.S. — may not be willing or able to accept transactions from UnionPay, particularly with cards issued by Russian banks. That could defeat the purpose of moving to UnionPay. “It depends on how their lawyers view the sanctions,” Robertson said. So this crisis might be an opportunity for UnionPay — but one it should view with great caution.

— Tomio Geron (email | twitter)


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On the money

On Protocol: Crypto lobbying is sweeping Washington, with a record 320 lobbyists attracting a record $9 million in spending in 2021. Groups with the biggest budgets included Coinbase, Ripple and the Blockchain Association.

Thailand is loosening tax regulations for crypto traders. The new policy exempts crypto traders from a mandatory 7% value-added tax on authorized exchanges. It also offered tax exemptions of up to 10 years for crypto startup investors.

Santander will offer loans backed by tokens tied to agricultural commodities in Argentina. In a partnership with startup Agrotoken, the financial services company will offer loans for the agricultural sector, backed by tokens pegged to the price of grain commodities in U.S. dollars.

Sen. Elizabeth Warren says she’s drafting a bill to make using crypto to evade sanctions harder. The move comes after Warren and other top Democrats wrote a letter to the Treasury Department asking what it’s done to ensure crypto isn’t used to bypass Russian sanctions.

Visa and Mastercard are preparing to raise credit card fees. Many large merchants will see an interchange fee increase next month when accepting consumers’ credit cards. The expected fee hike had been delayed because of the pandemic.

Goldman Sachs is offering clients a Galaxy Digital ETH fund. SEC filings show the bank plans to offer interested clients access to the ether fund. The bank will receive an introduction fee.

FINRA fined Deutsche Bank $2 million over order pricing. The Financial Industry Regulatory Authority said the investment banking firm routed customer orders through SuperX, an alternative trading system the firm owned, without considering whether other exchanges might deliver better prices.

Crypto charges

On Tuesday, the SEC accused John and Tina Barksdale of defrauding thousands of retail investors who bought or invested in the Ormeus Coin cryptocurrency. The Justice Department announced John Barksdale has been arrested overseas and faces conspiracy and fraud charges for selling and promoting a cryptocurrency “through false representations.”

John Barksdale “operated like a traveling salesman and peddled lies, overstatements and misrepresentations” of the cryptocurrency, DOJ Special Agent Ricky Patel said in a statement.

Patel said John Barksdale misled investors by telling them the crypto company was secured by a $250 million crypto mining operation “which would have been one of the largest such operations in the world.” The company even ran an ad on a Jumbotron in Times Square making that claim, according to the DOJ.

— Ben Pimentel (email | twitter)

Just one question with Dave Abner, global head of Business Development at Gemini

Before joining Gemini, Abner wrote “The ETF Handbook” and consulted with the World Bank on encouraging the use of ETFs in developing capital markets.

Why should crypto companies welcome regulation?

Our investors are all regulated. Our client base is generally regulated in the institutional space. And they want a regulated counterpart because they want clarity around who we are and what we do. We've done everything that we can so far on the regulatory front. We always use an “ask permission first” approach to everything. We don't do things and then ask for forgiveness.


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