Centralized finance cripples Russia as Visa and Mastercard pull out of the country

Mastercard and Visa have announced that they will no longer operate within Russia. With Russia already cut off from the SWIFT network and PayPal, the impact of exclusive reliance on centralized financial services is becoming more apparent.

Coin Bureau Boy indicated On twitter:

“Now that Visa and Mastercard have suspended services in Russia, we will get a glimpse of how dependent society is on these centralized payment services.”

Centralized payment services

The move, requested by President Zelensky, may cost Mastercard up to $756 million as transactions involving Russia accounted for 4% of its net revenue in 2021. It leaves Russians without three of the most critical services to move money.

Removing centralized payment solutions to act as de facto sanctions is extremely powerful. However, while the measures will directly impede Russia’s internationally condemned war effort, they will also affect all Russian citizens who oppose the war and try to live their lives.

Reports of bank runs, problems with the payment of wages and the interruption of daily work are affecting civilians in all the countries involved in the war. Reports suggest that more than a million tech professionals are working in Ukraine, Russia, and Belarus. People familiar with the matter say that many are operating on Web3.

Projects that already have crypto payments set up for workers will not be affected by the closure of centralized services. However, employees must still buy groceries and pay rent, activities that may not be possible with crypto at their location.

While it may be tempting for those who are against the war in Ukraine to support these financial sanctions, it raises a poignant question; If your country waged an unjust war, would you expect PayPal, online banking, and your credit or debit cards to be disconnected? How would you feed your family?

Decentralized payment services

Web3 offers many potential payment solutions through decentralization. These solutions can allow ordinary civilians to have autonomy over their wealth. Companies like Block (formerly Square) are trying to lead the way in decentralized payment solutions. In November, they announced a decentralized exchange, tbDEX, with further integration into other Block apps like CashApp to come.

We are still a long way from cryptocurrencies becoming a mainstream method of paying for goods and services. However, many civilians affected by the conflict will read about cryptocurrencies in the coming months as they look for ways to transact free from centralized control.

There is a flip side to this argument; if Russia had a completely decentralized payment system, then the rest of the world might have a hard time administering sanctions in the same way. However, there would be no shortage of other available sanctions that opposing nations could issue.

What’s next for Mastercard and Visa?

Earlier this year, Canadian venture capitalist Chamath Palihapitiya predicted that Mastercard and Visa would be his tips for the biggest losers of 2022. He cited the rise of Web3’s decentralized payment infrastructure as the main catalyst for his prediction. But, as centralized payment solutions continue to withdraw from Russia, are they simply highlighting their weaknesses in doing so?

Russian banks are rushing to switch to a Chinese card system, UnionPay, following the removal of Visa and Mastercard. However, it is unknown how this will affect the general population of Russia, whose credit and debit cards used to run on the Mastercard or Visa networks.

In January, Mastercard announced a partnership with Coinbase to enable NFT purchases with Mastercard. Their movement toward acceptance of Web3 has been prolonged, but world events may play a role in challenging the speed of adoption by traditional financial institutions.