According to some estimates, already by 1995 the number of cards of all systems issued in Russia had come close to a million while the amount of annual hard currency transactions had exceeded $500 million. This was a noticeable achievement for a comparatively young Russian market. The same year it had to stand the first strength test.
The problems on the market of inter-bank lending, which resulted in the collapse of some large banks and difficulties for other banks to effect payments, considerably impeded the rapid development of the card business. The systems of cards issued by separate banks, trade and financial companies (debit and discount cards) suffered the most serious losses.

System Bank Crisis

In September 1995 Ortcard collapsed and the system Zolotaya Korona began to experience serious difficulties. In October OLBI cards stopped to work. This was followed by the collapse of the Poliscard system and the cards issued by the Mytishchi commercial bank. The cards issued by the banks Moskovia, AvtoVAZbank, Gloria-bank and Mosinraschet also failed to overcome the crisis. Europay International even had to withdraw the licenses for the issue of cards from two Russian banks – Yugorsky and Natsionalny Kredit. Due to the problems that had arisen, the role of Kredobank had also been considerably reduced. Kredobank transferred its international VISA cardholders to Vozrozhdeniye bank and ceded its share in UCS to UNEXIMBANK.
The systems bank crisis affected not only separate banks but also inter-bank systems. In 1995 three of them already passed the 100,000 threshold of card issuance (STB, Union Card and Zolotaya Korona). They had to part with some of their members forever. Difficulties also emerged for the Siberian merchant settlement bank integrated into the Russian largest chip card system - Zolotaya Korona: its cards were withdrawn from circulation.

LEARNING LESSONS

Possibly, largely thanks to the crisis, Russian banks that were members of Europay International managed to forget about their disagreements and unite into an association (VISA members did this several years later). Generally speaking, there had long been talks about the establishment of a national association of international card issuers, through which non-residents’ settlements would also be carried out. Under the system of plastic card payments that existed in Russia at that time, even residents’ settlements were effected through international payment systems abroad. This compelled Russian banks to keep large but low-yield insurance deposits with the primary banks of international payment systems and pay 2% commission on each transaction (according to estimates, the Russian banks paid about $11 million in 1995). They also had to lose profits from the possible overnight placement of funds in card settlements. Now, by choosing a single settlement bank on the territory of Russia, they could solve this and other pressing problems.

The Policy of Major Banks

After recovering from the crisis, beginning with 1996, domestic banks rushed with a new strength to struggle for the savings of the population, demonstrating a certain specialisation in the process. Thus, Inkombank drew more money to card accounts than other banks and became a recognised leader in the issuance and circulation of VISA cards. Stolichny Bank Sberezheniy issued cheap rouble products (STB Card) most of all and installed the largest number of automated teller machines. Most-bank offered the widest list of products. Uneximbank controlled the most powerful processing center UCS, which accounted for 75-85% of international card payment processing, according to various estimates. The banks Imperial, MENATEP and UNEXIMBANK had the largest client base to introduce salary and other cards in large corporations.
International payment systems also stepped up their activity on the Russian market to get new niches on it. Thus, Inkombank started to issue ruble cards of VISA International – “Inkombank – VISA Rus-sia” and announced about its participation in the project for the issuance of microprocessor cards to service small payments under the program VISA COPAC. Initially, Inkombank and Sberbank of Russia were chosen as VISA International partners for introducing the new VISA COPAC card into circulation. However, Sberbank withdrew from participation and decided to launch its own chip project based on the UEPS solution by the company BGS. At the same time, despite VISA innovations, the banks that were members of Europay International demonstrated a greater volume of card issuance. This was explained by a more flexible policy of Europay in relation to the admission of new members.

A Million, another Million…

In 1996 the number of payment cards issued by Russian banks exceeded one million. Each of the three leading systems – STB-Card, Union Card and Zolotaya Korona – accounted for several hundred thousand cards. In April 1997, for the first time ever, the number of cards circulating in one national payment system (STB-Card) exceeded one million.
However, the great number of cards did not yet evidence a qualitative growth of the market. Russian banks showed mistrust towards each other (intensified by numerous sleaze wars). They failed to unite their efforts for the creation of a card acceptance network that would work for common interests. As before, numerous projects remained only on paper. The Globus automated teller machine network de-signed as an inter-bank system serviced, in the final account, only STB-Card and international cards. A considerable lag of the acceptance network slowed down the pace of the development of actually all payment systems.
In these circumstances, bankers preferred to engage in salary payment projects, which enabled them to attract funds and forget for the time being about the development of the card acceptance network. As a result, from 1997 such projects based on magnetic and smart cards became the main motive force for the spread of payment cards in Russia. The cards finally reached the most remote areas and became a routine part of life, say, for deputies of the State Duma or workers of the Magnitogorsk integrated works lining up with their cards near automated teller machines on the day of receiving their salaries or wages.
However, soon the trust for plastic cards was undermined seriously and for a long time. The August 1998 financial crisis broke out with all its ensuing consequences, including non-working automated teller machines and signs on the stores that credit cards were temporarily (or for technical reasons) not accepted.