Ed Bentley

The Russian Finance Ministry is drafting proposals to create an electronic payment system, but analysts say it is unlikely to challenge the dominance of established brands Visa and MasterCard.

Reports from the Kommersant daily say the system would be based on Sberbank's card, which became the United Russia Payment System (URPS) last year. However, MasterCard is also competing to win what could be a lucrative tender in a rapidly expanding consumer services sector.

Recent years have seen consumers swap their cash for plastic, and top bankers are keen to offer clients more online and electronic services.

"Cash is a very important component of the economy but we have observed an explosive growth in ATMs and online," said Joel Kornreich, head of Citibank's consumer banking department in Russia.

Russia's internet-using population jumped by more than 8.5 million people between 2007 and 2008, according to the website Internet World Stats, taking the web's penetration to 27 per cent. In contrast, the European average of net users is over 50 per cent, and Citibank believes internet banking will continue to spread.

"Nobody wants to queue up in the snow," said Kornreich. "Our research shows that people are receptive to [internet banking] and people are adopting it."

MasterCard and Visa control 85 per cent of the market, including 90 per cent of the 35 million cards given out this year before September by state lender Sberbank, while only 3.5 million of these had the URPS logo on them.

Analysts see little reason for existing card holders to switch brands, particularly with Russia becoming increasingly integrated into the world economy.

"The type of people who have payment cards are the same people who go abroad, so [they] will want Visa or MasterCard," said Maxim Raskosnov, a banking analyst at Renaissance Capital.

The project already has a history of failure after the Central Bank tried to set up a similar system in 1993, while private banks have not succeeded with more recent attempts.

In the face of the crisis, however, the Central Bank has become determined to push ahead and implement the system by the end of the year in order to reduce Russia's dependence on foreign companies. Back during the crisis of 1998, Visa suspended its operations between August 17 and October 28, and businessmen want a system which acts in Russia's interests.

Alexander Alekhin of the Russian Union of Industrialists and Entrepreneurs described the growth of international payment systems on the market as a threat to the country's sovereignty, Kommersant reports.

MasterCard has already stated its desire to get involved in the creation of the system but first has to legally register in Russia to be eligible.

"We are ready to register in Russia and to create a financial settlements centre here," the head of MasterCard Europe in Russia, Ilya Ryaby, told Kommersant last week.

Whether they will be considered by the government remains unknown as officials may want to keep it domestic. While using MasterCard's expertise would help cut costs, using Russian companies would help fulfill the government's plan of making Moscow an international financial centre.