Moscow’s economy is arguably under the largest unified economic blockade in modern history, while Russia surrounds Ukrainian cities, including Mariupol, Odessa and Kyiv.
Alongside its European and Asian partners, including the almost unprecedented coalition of countries, the United States imposes very restrictive measures on the Russian Central Bank, seizing offshore assets linked to Kremlin, while the SWIFT Bank. Held by institutions outside Russia leading the ban on major Russian banking institutions from the messaging system. In addition to the pain of the Russian people, popular mobile payment platforms such as Apple (AAPL) Pay and Google (GOOGL) Pay are no longer functioning domestically.
In addition, credit card giants such as Mastercard (MA), Visa (V) and American Express (AXP) will either block transactions in invading countries and revert Russian citizens to cash reliance or Sberbank (SBRCY). And Alfa-Bank are currently on the verge of bankruptcy. The pressure is amplified because there can be a run on the ATM in a hurry.
The run on the bank #Moscow After putting catastrophic capital restrictions last night to protect Putin’s collapsing economy. This is Svetnoy Boulevard in the center of Moscow. pic.twitter.com/LgaclQzaPB
— Jason Corcoran (@jason_corcoran) March 1, 2022
“As a result of the sanctions order, we have blocked multiple financial institutions from Mastercard’s payment network,” Mastercard CEO Michael Miebach said in a statement. “As regulators evolve, we will continue to work with them to fully comply with their compliance obligations.”
This move is not just symbolic, as MasterCard dominates in terms of domestic wallet share and 39% of Russian card carriers rely on MasterCard. According to a recent report, about 4% of the company’s total revenue is exposed to Russia and 2% to Ukraine. Visas are not too late and dominate one-third of the Russian market, accounting for 4% of total income. However, Ukraine accounts for only 1% of Visa’s revenue, half of its peers’ Mastercard.
Flight to FinTech?
The dynamics of sanctions impacts appear more vague as they move beyond major card companies to digital-first payment processors such as PayPal (PYPL) and Stripe and Block (SQ).
Part of the reason why determining FinTech exposure and impact is a higher task for companies in this group is simply a lack of data on accurate vulnerabilities. According to Russian internet giant Yandex (YNDX), the service is rarely used by Russians and more than 90% of customers prefer to use credit and debit cards over online options.
Even among people using online payment services, Sberbank’s online payment platform has diminished competition with more than 80% of online payment users using the service, and PayPal has a market share of 3 It occupies one-third. Nonetheless, PayPal’s share is not spit, with 46% of Russian netizens reporting usage, occupying considerable duplication.
At least some Russian users may have migrated to PayPal as an alternative due to serious issues with Sberbank and other domestic options. In fact, PayPal’s stock has emerged from the rut since the invasion began on February 24, and has risen by more than 15% ever since. However, according to Reuters, PayPal quickly curtailed the notion of trying to take advantage of the catastrophic area by banning new users from the platform.
A financial services regulatory practice expert at Nelson Mullins Riley & Scarborough, a South Carolina-based law firm, said this action involved compliance concerns as well as moral judgment.
“These (sanctions) pose significant regulatory risks to US financial institutions and FinTech companies,” the company told RealMoney in an email. “Companies’ strong bank secrecy laws, money laundering prevention compliance programs, and Office of Foreign Assets Control sanctions programs should be able to address these new sanctions, but control over monitoring of third-party due diligence and FinTech partnership programs. Probably not. Expect such a major change in the regulatory environment by highly active developed countries in the areas of payments, digital assets and FinTech. “
In short, attempts to harness Russian and Ukrainian consumers who are trying to leverage FinTech in the midst of the financial crisis are more troublesome than worthwhile for almost all US-based institutions.
“The sanctions program applies to businesses that work closely with banks to make payments to affected areas that also apply such sanctions (payment processing). These same requirements apply to PayPal and It also applies to businesses such as Block, “online CEO Marwan Forzley global payment platform Veem told RealMoney. “I don’t think this sector will be the way to avoid sanctions, at least for mainstream players,” he said.
Jack Dorsey-led blocks, on the other hand, have no exposure to Eastern Europe and little exposure to international markets other than the major economies of Western Europe, Oceania and North America. In addition, cross-border transactions are not supported by this service. As a result, the Block platform appears to be lightly exposed.
Do you want to cash out with encryption?
It does not mean that the block is not affected by the geopolitical events that are currently pervading almost every inch of the market. Its founder focuses on Bitcoin and cryptocurrencies, so it could be a major beneficiary.
“Cryptocurrencies have already seen an increase in the value of rapidly fluctuating currencies as safe harbors in Ukraine and Russia,” Forsley told Real Money. “Cryptocurrencies are currently the only type of foreign currency available to Russians, so usage continues to increase among Russians.”
As an indication of this dynamic, Brock’s stock has skyrocketed by about 50% since the start of the invasion and the subsequent news that Russian assets were frozen. This is primarily tied to the company’s bold promotion to cryptocurrencies, which outperforms its peers in adapting to digital currencies.
“In the year ended December 31, 2021, Cash App’s total revenue increased significantly, primarily 57% of total consolidated net revenue in 2021 and 48% of consolidated net revenue in 2021. It is due to Bitcoin revenue that contributed to. “I read the BlockSEC filing released late last week.” The main drivers of Bitcoin revenue are customer demand and the current market price of Bitcoin. “
In addition to dealing with clients, Brock holds approximately $ 350 million in Bitcoin on its balance sheet, which is the fourth largest listed company in the world. The surge in block inventory is understandable given that Bitcoin was recently executed during an intrusion and jumped more than 10% per coin.
According to Citi, about 11% of Russians currently own cryptocurrencies, and purchases could only increase if the alternative allocation of currency transactions ends and the ruble crashes.
Still, analysts weren’t very quick at drawing direct causality.
“There is growing interest in Bitcoin,” the company’s analysts wrote earlier this week. “But Russia’s trading volume has been relatively low so far, and price behavior is due to investors positioning expected rises in demand from Russia, not Russia’s demand itself. Suggests. “
This observation makes some sense, as Russian policymakers are not keen to allow large outflows from their core currencies. In this case, the price of patriotism is certainly quite high. Given this impasse, it is important to ease expectations for investors outside Russia who are looking for opportunities in both Bitcoin and related companies such as Block.
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