The Russian payment system MIR is booming, carving out a role for itself as a dominant domestic and now an international player in just five years. More than 56 million MIR cards were issued from 2015 to mid-2019. By the end of last year, the number rose to 73 million, accounting for over 25 percent of all Russian card payments.
The Bank of Russia created MIR to combat the country’s reliance on Western payment providers after international sanctions included severe restrictions on Visa and Mastercard and the Russian banks that used their systems. Its rapid ascent is the result of a concerted effort by the Russian government, institutions and private entities getting on board. MIR’s success and future ambitions are a blueprint for other governments looking to challenge established payments giants while the industry is in a uniquely disruptive and innovative era.
A Reaction to Sanctions
The United States and European Union imposed the sanctions in 2014 over the crisis in Ukraine. Consequently, the largest US credit and debit card companies were forced to cut ties with several Russian banks. At the time, Visa and Mastercard processed 90 percent of all payments in Russia. The following year, Russia’s central bank launched Mir (meaning “World” or “Peace” in Russian) via its National Payment Cards System (NPCS), to anticipate the country being cut off completely from Western bank card services.
Over a hundred Russian banks joined MIR in the six months after its launch, despite resistance from several large banks over potential security risks. BoR, however, insisted Mir’s protections were comparable to other international payment systems and sent a letter to major Russian banks demanding they accept and issue MIR cards for all Russian state employees by July 1, 2016. In 2017, President Vladimir Putin signed a law that established an obligation for Russian banks to use MIR as a national payment system, saying it was paramount for the system to be independent of foreign influence. The Kremlin gave Mir full backing, requiring its use to process all state welfare, civil servant salaries and pension payments by July 1, 2020.
At least 64 Russian banks have issued Mir cards, including Alfa Bank, Promsvyazbank, MDM Bank, SMP Bank and Svyaz Bank. Mir is co-branded with Mastercard so its cards can be used abroad. As a result, it can be more expensive for banks to support it, but they are honoring the Kremlin directives and putting their weight behind it. More private banks are getting on board.
A Comprehensive Strategy
It is a priority for Russia to remove the influence of the US dollar from its international dealings and economy. MIR has become the instrument of this objective for its relationship with trading partners and its influence on consumer behavior.
Today, eight countries accept the payments system without co-branding and MIR is on course to expand into four more countries over the next five years. Turkey’s Isbank started applying for MIR cards in April 2019, leading to Turkey’s agreement with Russia to use their respective national currencies for bilateral trade. The agreement, signed in October 2019, is expected to pave the way for Turkish banks and companies to issue Mir cards.
MIR is establishing itself as a catch-all digital payments provider. It has its own “MIR Pay” smartphone application on Samsung Pay and trials are underway for its use by major international online booking services for airline tickets and accommodation - a priority objective. Top destinations for Russian tourists like Vietnam and Cyprus are on board for the trials, with Bulgaria next in line.
Competing on their Turf
MIR represents a series of huge digital infrastructure projects by BoR: national fast payment systems, e-wallets, platform partners and more.
The drive to replace major US players has made it one of the most active payments providers innovating in the digital marketplace. MIR is forcing increased competition in the sector and enabling Russian financial institutions of all sizes to challenge rivals globally. With the battle for the Russian market seeing significant progress already, Moscow is now looking to establish a foothold for MIR in the West. In December, Russia announced a pilot project for Mir payments in London (one of whose participants is APEXX), its first foray into a major Western country. MIR is an example of a state-backed initiative leading directly to the disruption of an established playing field. The technology in the MIR payment card was developed using high-security standards and in close collaboration with state officials. It is hard to see how its success could have been achieved in just five years without such dedicated state backing. There will be many more lessons to learn from MIR, whether things go according to plan or not. Countries, especially developing countries, are taking major steps to digitize their economies across the board. MIR offers them not just an alternative partner or blueprint for a new government initiative, but a tool for negotiation.
MIR means payment sovereignty is possible. It means a better deal may be possible. Above all, it means that enormous change from even the most entrenched payment infrastructure is possible.