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The Russia-Ukraine war and cross-border payments: The impact so far

The Russia-Ukraine war's impact on cross-border payments
Last updated 1 June, 2022

On 24 February, Russia invaded Ukraine, beginning a war that has seen hundreds killed and hundreds of thousands displaced, as Ukraine’s major cities face severe bombardment. Our thoughts are with those affected by the war, which include some of our own colleagues. 

With many other countries responding via offers of assistance to Ukraine and sanctions on Russia, there has been a significant knock-on impact in the cross-border payments space. 

Interbank messaging service SWIFT has become a key focus of discussion, and is being partially cut off in Russia, while sanctions on major banks and the country’s central bank have also caused serious upheaval. Many payments companies have also cut services in the country, with Visa and Mastercard blocking a number of financial institutions in Russia, while American Express has severed ties with its partners in the country. In all cases this is likely to translate into a financial hit, with Mastercard saying it could lose 6% of its revenue as a result of the conflict.

Meanwhile in Ukraine a number of companies have slashed fees to send money to recipients in the country, but the war has limited the ability for payout services to function. 

Here we look at some of the initial developments in cross-border payments in response to the Russia-Ukraine war, including findings from our own pricing data.

The cross-border payments sector’s response to the Russia-Ukraine war

As the Russia-Ukraine war enters its third week, the number of cross-border payment companies that have withdrawn support for payments in Russia has grown considerably.

On the card side, American Express, Mastercard and Visa have all suspended their networks in Russia, meaning that cards issued in the country can no longer use their networks with merchants or ATMs anywhere in the world, while non-Russian cards will not work in Russia. However, banks in the country are turning to alternative card networks to take over, including UnionPay and Mir, meaning cards issued in Russia are in most cases still able to be used domestically.

For money transfers, many companies have now suspended payments to Russia. Western Union was left with no choice when sanctions hit its Russian partner Sber, although in mid March both it and MoneyGram formally suspended services in the country. Western Union has also suspended its operations in Belarus.

However, most money transfer companies have continued services in Ukraine where possible, and are likely to have seen an uptick in transfers, at least digitally. Both MoneyGram and Western Union are still providing remittances to Ukraine, although many of their agents are unable to open, limiting the ability to receive cash payouts. MoneyGram has also reported an increase in volume to the country, with the World Bank projecting an 8% increase in remittances to Ukraine in 2022.

Meanwhile in ecommerce, Payoneer is predicting a significant hit to revenue for 2022 as a result of the conflict, with the company removing c.10% ($46m) from its projections for the year. By contrast, PayPal is seeing minimal impact as it left Russia’s domestic market several years ago and only has some small cross-border exposure. Emerging markets-focused dLocal also clarified its exposure to the region in its FY earnings call, with CEO Seba Kanovich saying that the company doesn’t expect “any impact in 2022” from the war, as the company doesn’t process payments in Russia or Ukraine and has no merchant base in Russia. 

As part of its FY results, UK-based B2B player Alpha FX advised that its exposure to the ruble made up 0.02% of its forward book across two clients, while clients with direct exposure to Eastern European currencies total 1.7% of the company’s forward book. During its earnings report, the company said it had undertaken a detailed credit review of the impacted companies and some have closed out their contracts.

Meanwhile French payment processor Worldline issued an update, stating that it has been “immediately enforcing all the international sanctions applicable to Russia”. It has not provided specific details, although it states that its business related to Russia largely consisted of merchant acceptance from non-Russian merchants catering to consumers in the country. It also has no direct exposure to Ukraine, although it did state it had exposure of around 1.5% in countries bordering the conflict. 

Many other non-public companies have also withdrawn or paused their Russian products, whilst at the same time trying to provide additional support where possible into the Ukraine. We’re continuing to track the situation and will keep you updated.

How remittance players have been impacted

The ability to send and receive remittances has been significantly impacted by Russia’s invasion of Ukraine, with both countries seeing disruption.

The impact on remittances to and from Russia

In Russia our own data shows that several players have suspended remittance services to and/or from the country. In some cases this is as a result of the sanctions put in place against banks with connections to the Russian government. For example, Western Union’s service in Russia is provided as a result of a partnership with Sberbank. Digital players Wise, Remitly and WorldRemit also announced the suspension of their services to Russia following the sanctions.

We have also begun to see similar impacts in Belarus, which was hit by sanctions several days after Russia, although some providers appear to have opted to stop their services to the country at the same time that they withdrew Russian support.

Notably, restrictions on Sberbank have not only caused outages in Russia. The bank also has a partnership to provide remittance services for MoneyGram in Croatia, which has been stopped as a result of the sanctions. Our on-the-ground research has found this has been exhibited by less-than-ideal customer service from Sberbank, with many customers struggling to reach its customer helpline to find out if their money is safe and when and how they can retrieve it. This is likely to have been complicated by Sberbank’s departure from Europe on Wednesday.

The impact on remittances to and from Ukraine

In Ukraine, meanwhile, we have also seen outages. For money sent to the country, some services have stopped due to the fact that retail outlets that would usually offer cash payouts are closed, with some companies updating their messaging to reflect this. However, others are still showing as being able to send cash to the country despite their on-the-ground services being closed. 

This is creating a similar situation to one we saw in Afghanistan during the 2021 crisis, where people are able to send money to people in the country but it sits in limbo, unable to be collected by the recipient.

However, on the digital side the situation is different, with closures not causing the same issues, and some companies opting to remove typical fees for money transfers to Ukraine. Revolut, for example, which also has employees in the country, has removed transfer fees for money sent to Ukrainian bank accounts, as have Wise and Canadian player Vancity.

There are still challenges with digital remittances, however. In a blog post at the start of the week Wise highlighted that it was currently more difficult to operate its service in the country, and as a result it was temporarily capping transfers to the country at €2,500. Other services have put similar caps in place.

By contrast, remittances sent from Ukraine are being impacted by Resolution 18, a set of restrictions on the Ukrainian banking system put in place by the National Bank of Ukraine in response to Russia’s invasion. This includes a partial ban on FX trading, which has caused a number of companies to pull send services from the country completely. This includes Western Union, whose pay-in service from Ukraine has been fully taken offline, with the web page showing only a plain text message in Ukrainian that refers to current restrictions.

Pricing changes on UK to Ukraine/Russia corridor for five example providers

FXC Intelligence customers can access our full range of benchmarked pricing, payout mix and strategic data on pricing in the region

The state of remittances to Ukraine

On February 24th, the National Bank of Ukraine suspended operations in Ukraine’s FX market, meaning that while Ukrainians can receive remittances from abroad, sending payments is nearly impossible. Outbound payments from Ukraine are only permitted in exceptional circumstances, such as to pay for expenses related to the death of a citizen abroad, medical treatment or transportation of an ill patient. 

The same regulation has also prohibited the issuance of cash in foreign currency, which has implications for how money can be sent into the country. While it seems that banks and money transfer providers across the world are still offering transfers with pay out currencies EUR and USD, these are most likely converted into UAH by the receiving provider. 

In order to enable Ukrainians in the country to access money sent, the regulation also requires banks and other service providers to continue operating normally, unless doing so puts staff and customers at risk.

Despite these measures, some providers are warning their customers about possible delays in receiving the money in Ukraine. Delays might arise due to the disruptions from the conflict, and it might also be impossible to pick up the money in cash in some areas of the country. For this reason, some providers such as MoneyGram have suspended their agent-based services to Ukraine in a few countries.

Several providers, meanwhile, have waived fees for money sent to Ukraine for some of all of their corridors. However, we have seen little evidence that banks have echoed this practice.

Remittance companies that have waived fees to Ukraine

Russia: Bank sanctions, SWIFT and currency volatility 

In Russia, the harsh sanctions on Russian banks, as well as the decision to block SWIFT, have caused significant volatility in the value of the Ruble. It is important to note that it has not simply dropped and stayed low, but instead is seeing periods of value regain after each drop in price.

This has been exacerbated by the slew of discussions and announcements around the removal of SWIFT, with the EU giving impacted Russian banks 10 days to wind down their operations using the messaging platform on Tuesday.

Banks cut off from SWIFT will be effectively unable to make large cross-border payments, with alternative solutions such as card or remittance-based transactions only suited to relatively small payout amounts. It also has significant implications for trade in both Russia and the EU, as the bloc is Russia’s biggest trading partner. In 2020 the EU accounted for 37% of its imports and 38% of its exports. 

Meanwhile, Ukraine has not seen the same volatility because it took the decision to freeze its official exchange rates on February 24. 

Currently volatility in the Ruble interbank rate mapped to key events

Pricing impacts for money transfers and FX margins

Up until March 3, we had not seen a dramatic change in FX fees, however on Thursday Russia’s central bank imposed a 30% commission on foreign currency purchases on currency exchanges made by individuals. This followed a cap on the export of foreign currency to $10,000, which was put in place the day before.

However prior to this decree, where there has been currency volatility in Russia or Ukraine, it has had a knock-on impact on FX margins.

This is due to the fact that providers do not update their pricing as frequently as currencies can change, with updates occurring every 3-4 hours in many cases. This creates the potential in a period of high volatility for FX margins to be briefly very high, for example 10%, if there has been a strong currency move and cross-border payment companies have not yet updated their pricing to reflect it. 

This situation is, however, likely to be far worse with cross-border bank transfers, as banks typically only update their pricing each morning. 

Russian sanctions bite for banks

On April 8th, the EU adopted its fifth package of measures against Russia, which – together with other international sanctions – are placing severe restrictions on how the country can operate financially. Meanwhile, S&P Global has placed Russia under a selective default rating after the government said it had repaid debts totalling around $650m in rubles – a currency investors cannot currently convert.

With the first sanctions having been in place for around a month, we are beginning to see a significant impact on banks both within and connected to the country.

Key impacts on banks as a result of the Russian sanctions

The EU’s latest measures include a full transaction ban and asset freeze of four Russian banks, meaning that 23% of the Russian banking sector’s market share is now cut off from the markets, and a ban on providing high-value crypto services to Russia.

However, even before these latest steps come into action, the impact on banks is beginning to be felt.

Within the country, we have now seen the first bank announce that it will miss a major bond payment due to the sanctions, although Sovcombank is expected to be followed by others in the future. Meanwhile, several banks operating in Russia have reported a sharp increase in the number of accounts being held in yuan, as businesses and high net-worth individuals move their non-ruble holdings to the Chinese currency. Here Tinkoff has reported one of the biggest rises, but several banks, including MTS, MKB, UBRD and Bank St Petersburg have all seen notable shifts.

However, some of the biggest impacts have been felt by entities operating across multiple countries, including Russia. VTB’s UK arm, for example, has been forced to enter administration as it cannot make payments under the current sanctions, while Societe Generale has put its Russian entity, Rosbank, up for sale due to its need to cease all activities in the country. Meanwhile Italian bank UniCredit, which is one of the European banks most at risk of write-downs on Russian-linked assets, has delayed its first quarter earnings as it continues to tackle its cross-border exposure to the country.

Expect more hits as sanctions on the country continue to tighten.

Cryptocurrency: An alternative?

As the region continues to grapple with the fallout from the Russia-Ukraine war and the associated impacts to the financial systems, crypto has seen growing mention, particularly as a potential means by which organizations might circumvent the sanctions. The heads of a number of crypto exchanges have also drawn criticism for not restricting services from Russia. 

However, while there has been a reported uptick in trading between bitcoin and the rouble, our own analysis of the industry indicates that the use of cryptocurrency as a means to bypass sanctions is likely to be overstated. Current infrastructure for cryptocurrency trading, transfers and storage is currently set up for consumer-level payments, with B2B crypto infrastructure remaining significantly underdeveloped, and lacking essential features such as KYC. This suggests that the main use is by individuals looking to avoid the volatility of the rouble, rather than large government-connected organizations who are the target of sanctions.

Meanwhile, we are seeing growing interest from individuals across the region – including Ukraine – to be paid in crypto instead of their own, currently volatile or restricted currencies. It is likely that this will translate into a greater product offering to serve this need in the future.

The bitcoin price has notably climbed over the past week, however so far we have not seen notable increases in network fees that are paid on every transaction on the blockchain. This is in contrast to when bitcoin was last at a major peak in April 2021, where large numbers of users cashing out caused a surge in network fees. 

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