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Remittance service providers Wise and Remitly have suspended their money transfer services in Russia, following new sanctions against the country in response to the ongoing military action in Ukraine.
Russia is one of the largest remittance-receiving countries in the world. Popular money transfer service providers like Wise and Remitly hold balances in countries that are popular corridors or currency routes.
In order to reduce the high fees traditionally associated with international money transfers, FinTech companies are relying on technology and local currency holdings to provide faster, cheaper, and safer international money transfers.
In a move seen a significant escalation of the West, the United States, and the European Commission announced they would take action against Russia's central bank and ban Russian banks from the SWIFT international payments system.
SWIFT (the Society for Worldwide Interbank Financial Telecommunication) is a cooperative owned by banks headquartered in Belgium. SWIFT provides a messaging platform that enables banks to send instructions on international fund transfers to their counterparts.
SWIFT is overseen by the G10 group of nations and their central banks, namely: the Federal Reserve, the European Central Bank, and the Bank of England.
In the past, it had implemented sanctions when a multilateral body decided upon them, like the United Nations in the case of North Korea. In March 2012, the EU Council directed SWIFT not to provide services to EU-sanctioned banks. The Russian banks mentioned in the sanctions list will be expelled from SWIFT, effective immediately.
Soon after the announcement of new sanctions, Wise and Remitly had suspended all money transfers to Russia due to those new restrictions. Severance from the Swift payment system will make it difficult for banks to receive payments or act as intermediaries for money transfer services.
Earlier, Wise had set a limit on money transfers to Ukraine, citing increasing difficulties in operating its service in Ukraine. The cap is likely to be removed soon. According to the Wall Street Journal, some customers have reported problems completing transactions through MoneyGram and Western Union.
Money transfers to Ukraine have seen a significant increase since the Russian invasion. MoneyGram, a remittance service provider, reported that money transfers to Ukranian from friends and family abroad were 121% higher on Feb. 24, the day of the invasion, than the 30-day average. The company said that transfers continued to increase close to 70% between Feb. 21 and Feb. 28.
Remittances typically have a counter-cyclical effect in times of crisis. As the military action in Ukraine threatens to upend economies and livelihoods. Many residents living abroad sent funds to friends and families in Ukraine.
Western sanctions which aim to cripple the financial system of Russia have prompted companies to suspend operations in Russia in droves. However, cryptocurrency exchanges, including Binance, Kraken, and Coinbase, have not resorted to any form of sanctions or suspension. While they said, they would screen users and block anyone targeted by sanctions.
While cryptocurrencies are on-brand to break away from mainstream finance, positioning crypto as a backdoor to move money in and out of Russia would undermine Western efforts to pressure Russia to back away from war.
The crypto exchanges' stance goes against that of several traditional payment companies and fintech firms that have responded to sanctions by restricting services in Russia.
It is possible that cryptocurrencies can be the way to bypass western sanctions, but Crypto exchanges are still trying to figure out how to deal with Russia.
In other sanctions-related development, Switzerland has broken its usual neutrality stance and announced that it would freeze Russia's assets in response to the military action by Russia.
The Federal Council, led by President Ignazio Cassis, has also moved to broaden the sanctions to include Russian President Vladimir Putin, Prime Minister Mikhail Mishustin, and Foreign Minister Sergei Lavrov to reaffirm solidarity with Ukraine.
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