Now it’s not every Russian bank. It’s seven Russian banks, and there are important cutouts, like oil and gas. That’s something to keep in mind, but this is going to create some major headaches for Putin and his regime, which is the ultimate goal here.
LG: So when consumers make a financial transaction, are they in a sense using the Swift system? Is their monetary exchange being communicated by the Swift system? Or is this more for exchanges that happen from bank to bank?
RR: It’s both. It’s bank-to-bank transactions. It’s also person-to-person transactions. If you received a wire, or money from a payment, or something like that. If you’ve ever provided a Swift code for that payment, that is a good example of Swift being used in action. So it’s not just the major banks that are using it. It goes all the way down into the financial system, which is why it can be so economically painful to be cut off from the system.
MC: So even if I can’t easily send money from one bank account to another. What if I want to use a popular person-to person-payment app, something like Apple Pay, Google Pay, Venmo, Square Cash, PayPal. Do those apps still work in Russia?
RR: Well, depending on if those companies have shut down their operations in Russia, the answer’s either yes or no. If yes, then no, you can’t use them. I’m pretty sure that earlier this week, Apple shut down its activities in Russia. Which means Apple Pay, you’re not going to be able to use that to get funds out of your bank.
I think it’s important, though, to note, there are workarounds to this. Major banks that are cut off from the Swift system, they can use other systems, like the SPFS system, which was established by the Russian central bank after the 2014 invasion of Crimea, or the CIPS Network. This was created by the People’s Bank of China.
And I think it’s worth noting the international payments to Gazprom, for Russian oil and gas, aren’t made via Swift. So there’s definitely workarounds here, but they’re not as secure, they’re slower, and they cost more. There’s also not as much of a reach. Right? The Chinese system, for example, is a lot smaller. There’s only about 1,300 financial institutions participating, and most of them indirectly.
LG: And you are correct, Rachel. Earlier this week, we reported that Apple had paused selling its products through various retail channels in Russia and had shut down services or was limiting services such as Apple Pay.
So as far as sanctions against Russia go, I’m wondering what level or scale you think this is on. Banning Russia from Swift. Does this have more impact than say tech companies pulling their products and services from Russia, or a company like Luke Oil speaking out against the invasion of Ukraine?
RR: I think it does have bigger implications. And I think to really assess what this means, for the Russian financial system, you do have to look at the whole breadth of sanctions that are being implemented.