Perspective on BRICS payment system creation
Doctor of Economics, Deputy Director of ANO institute Vnesh Econom Bank (VEB) Professor of the Moscow State International Relations University (MGIMO)
Nowadays one of the most painful subjects is the problem of how Russian enterprises and citizens use existing payment systems under the restrictions of banks – even more so, after the announcement of the departure of the French company, Thales, from the Russian market. The company had provided security for payment systems, meaning that the risks of using payment services for Russians have now increased.
The old solutions based on card payment systems, ie Visa and MasterCard ceased to work. Cards issued by the Russian banks, are instantly blocked by international payment systems that identify Russian bin-codes. Besides this, international payment systems can complicate the receipt of bankcards by Russian citizens abroad, and Visa has already recommended that banks do not deliver cards to Russian tourists; and there is information that MasterCard intends to follow suit.
It appears that a solution could be found with BRICS. In spring 2022 , the BRICS Business Council represented by the Chinese, the chair of the summit at that time, offered to boost cooperation in the electronic commerce and finance domain including:
• proposal to raise the single transaction limit of cross-border foreign exchange payment for industrial products e-commerce transactions by a large amount, – low frequency and long trade chains;
• approval of procedures for foreign exchange receipts and payments.
The first stage of such work was an offer to create on AliBaba – an AliExpress services platform of electronic commerce – a platform for payment for supplies of industrial/technical products and household goods. An initiator of relevant developments on the Chinese side was the Ali Research Institute which is about cooperative development of electronic commerce services (including payment systems).
Under sanctions, the appearance of domestic payment services, for processing supplies of industrial products, which is independent from western e-commerce platforms of such scale, is a benefit that can’t be underestimated. With respect to retail transactions, it also seems relevant, since various entities are offering co-badged cards of Russian banks linked with China’s Union Pay systems. This means they will not be able to prevent payments by our cards, by blocking them abroad.
Under the effects of western sanctions, Russia appealed to BRICS countries to broaden the application of national currencies and integrate payment systems. The integration of BRICS payment systems, that unites Brazil, Russia, India, China, and South Africa, could positively affect the global economic situation, which has also suffered under the effects of sanctions.
The BRICS PAY project development is under way and the creation of a complete service offering could take 2 years according to experts’ assessment. Being implemented are: retail transactions with the National Payment Corporation of India (NPCI), the Russian Federation Central Bank (CBR), and the Reserve Bank of India (RBI), which can form a regulatory/legal framework and a mechanism for mutual settlements under sanctions against Russia.
We see the formation of two operational bilateral payment channels: Russia-China and Russia-India, and in the near future a common payment service of BRICS countries (BRICS PAY), the development of which was supported by the leaders at the BRICS summit in 2019.
BRICS PAY implies a reciprocity principle, eliminating the domination of one of the BRICS countries’ payment system. In order to provide access for all categories of users on electronic commerce sites, it was suggested that payments be allowed for supplies of industrial goods and household goods by both domestic QR- code systems, such as the SBP (Fast Payment System) and our BRICS partners’ systems. The creation of this system implies a strengthening approach to standardization, including usage by sellers of the vendors’ certificates within the platform solutions.
Accession by the rest of the BRICS members, also of SCO (Shanghai Cooperation Organization), and EAEU (Eurasian Economic Union) of the said initiative, and the broadening of the platform for payments for industrial goods appears to be the objective for the immediate future. There is an expectation of accession to BRICS and to BRICS PAY payment system by Turkey, Egypt, and Saudi Arabia, as these countries have expressed interest and a discussion and possible decision could be made at the 2023 Summit. Broadening of member-states’ geography will generate an increased volume of transactions, gaining leadership in the global payment services domain.
Achieving strategic leadership requires a new approach to payment technologies. The creation of BRICS PAY system, means a departure from the obsolete card infrastructure and a transition to QR-code technologies. An analysis indicates that services such as AliPay, WeChat Pay have won a substantial segment of the PRC retail electronic commerce market, edging out card payment technologies (China Union Pay) from the Chinese market.
Linking of the payment systems to production technologies, delivery, and usage of product allows them to consolidate new technologies of goods and services promotion.
The biggest manufacturers have already begun (spot-wise) to form a new selling system, based on the circular economic model, the parameters of which the consumer receives with the use of a QR-code . For example, BMW has started to sell a portion of car features by subscription. It has begun with seat heating, which is very popular in Europe. The company wishes to charge customers 18 dollars a month, and for steering wheel heating – 10 dollars a month. The customers will also pay for access to Apple CarPlay, controlling intensity of illumination by headlights and some other features. For now, the subscription has been introduced in South Korea, UK, Germany, New Zeeland, and South Africa.
In Cornell University (USA) a QR-code has been developed that can inform shoppers about nutritional attributes of milk, so the label printing costs are being cut.
There is another technology, providing the ability to communicate with a smart refrigerator and ask it about the need to buy groceries, or whether food inside has spoiled or expired.
The platform solution offered could become a framework for the development of supply chains for industrial products and BRICS logistics management. It will provide concrete solutions for the creation of trans-border payments via QR- code for capital goods and household goods.