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Financial sanctions that the US might impose on Venezuela could restrict Visa and Mastercard from processing transactions in the country, according to Bloomberg, citing a senior Trump administration official. These sanctions might also affect The Society for Worldwide Interbank Financial Telecommunication (SWIFT), which global banks and large companies use to send transaction-related messages.
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The sanctions would target the elite and those loyal to Venezuelan President Nicolas Maduro and would not impact ordinary citizens; the US would target restrictions to exempt transactions to buy food and medicine. The goal of this move is to block state-owned financial institutions’ access to the international financial system in an effort to cut off Maduro’s access to funds.
These sanctions could negatively affect Mastercard and Visa’s volume, but might also have implications on digital payments in the region amid a cash shortage.
- Visa and Mastercard could lose out on major volume considering they account for most of the transactions in Venezuela. Most local financial institutions in Venezuela are state-owned, and US and other multinational firms partner with these local financial institutions to process transactions. Restricting this could cut off a source of volume for Mastercard and Visa, and it could influence other international payment processing companies to cease operations in the country also. This could have negative implications on Venezuelan citizens as many are either un- or underbanked and this could isolate them more from the global economy.
- Meanwhile, the sanctions could have implications on the momentum that was building around digital payments in the country. Venezuela was seeing a surge in digital payments in the last few years amid the country’s currency crisis, in which cash access was limited due to a combination of slowing currency production and hyperinflation: Cash grew just 14%, while prices increased 2,500%. The country’s cash supply has remained low and as a result, digital payment companies soared: Vippo, a local digital payment application, saw users increase thirty-fold in 2017, for example. This mirrors similar circumstances in India, in which the government demonetizing spurred rapid digital payment adoption. It’s possible that cutting Mastercard and Visa off from the region will facilitate rapid uptake of these solutions.
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SEE ALSO: THE PAYMENTS INDUSTRY ECOSYSTEM: The trend towards digital payments and key players moving markets
Source: Business Insider – feedback@businessinsider.com (Rachel Green)