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. Last Updated: 07/27/2016

For Russia, a Home-Grown Credit Card

In a sign of growing sophistication among Russian consumers and financial institutions, Stolichny Bank, one of Russia's biggest consumer banks, has announced the creation of the country's first plastic payment card company.


Stolichny said that it and three more big Russian banks - Most-Bank, Menatep and Kredo-Bank - had set up the Russian Plastic Card Company.


The company has already issued 4, 000 magnetic strip payment cards and plans to supply Russia's first credit card for the masses, servicing both dollar and ruble accounts.


Alexander Sorokin, president of the Russian Plastic Card Company, said Monday that plastic cards are attractive in times of high inflation because shoppers simply cannot carry the huge bundles of cash needed to make purchases.


"We authorized two payments of a million rubles today", Sorokin said. "Try carrying that around in your wallet".


The need for a convenient payment system that allows Russians to purchase major consumer items has already prompted many companies and big Russian stores to issue cards that allow purchasers to pay for goods bought at one given store.


But Stolichny Bank, Russia's second biggest consumer bank after the semi-state owned Sberbank, has invested over $10 million in a computer system, supplied by the U. S. firm IBM, that links the bank with 65 ruble and hard-currency stores in Moscow.


Its own personalized plastic card, the STB card, has operated since early March. While Stolichny calls its product a "credit card", the bank does not actually extend any credit. Users can only spend as much money as is in their bank accounts.


A few Russian banks are licensed to issue international brand credit cards like Visa and Eurocard but they are beyond the reach of all but Russia's super-rich. They require big insurance deposits in dollars and charge high fees. Kredo-Bank, for example, charges $500 to open a Visa credit card in the name of a joint venture and requires that its customers lodge a deposit of $20, 000 with the bank.


A Russian company, Ort International, has announced plans for an Ortcard that will start working in June, but the Ortcard will also require a deposit of at least $1, 000 a year and will cost $50 a year to run.


Sorokin says the whole point of the Russian Plastic Card Company is that it will create a product for the masses.


The STB card now issued by Stolichny costs only 500 rubles to obtain plus a 500 ruble annual fee. The only other precondition is that users open an account with Stolichny Bank.


Toby Mitchell, director of Payments Systems Partnership, a credit card consultancy in Eastern Europe, said that private Russian cards like STB could play a valuable role in educating Russians in plastic cards. But he expected that famous international brands would eventually win out because of their prestige and wider acceptance among merchants.


Alexander Smolensky, president of Stolichny Bank, disagreed, saying that by the start of 1994 the Russian Plastic Card Company will be issuing its card through scores of banks and that it will be accepted at stores all across Russia.


He said that the big risk with Russia's growing credit card industry is that it is still entirely without a legal basis.


The only forms of payment order that are legally binding are direct transactions over the counter of a bank or else interbank payment orders scrawled on slips of tissue paper issued by the Central Bank. Authorizing a payment by using a magnetic card is simply not in the law.


"We are going ahead with the system but, frankly, if anyone wanted to, they could walk away from a debt and it would hard to make the contract stick in a court", Smolensky said.