When they were first introduced here about two years ago credit cards were an expensive novelty -- another toy for the ridiculously rich. Today magnetic cards of one form or another are poised to revolutionize the way most Muscovites use their money.


Payment using plastic cards has enormous potential in Russia. Cards can be (and are) used to replace relatively cheaply the painfully slow and potentially dangerous practice of paying cash salaries. Hundreds of Moscow shops now have terminals through which it is possible to make cashless payments. Since the systems work in real time (i.e. the transactions happen as you stand there and watch in the shop or bank), it is now much easier to access your savings at any time if it looks as if the exchange rate is about to plunge.


Though most card holders are still relatively wealthy, the real potential of these systems is not for the richest 5 percent of the population with accounts at commercial banks.


In some industrial regions, the whole local economy revolves around a single enterprise that may have tens of thousands of employees. At the moment when there is a shortage of cash, salaries go unpaid. This may not be because the enterprise is broke -- it is simply that there are not enough banknotes to go around. Plastic cards that can be used in local shops have enabled some enterprises to get around this problem. The very same factories have also been able to provide perks in the form of specialty goods available only to their workers holding these cards.


But perhaps most exciting is what Sberbank (the Russian Savings Bank) could do with a card-based system. Sberbank Moscow holds 75 percent of the banked savings of the city's population and 20 percent of corporate deposits (150,000 organizations). There are 14 million holders of deposit accounts and 2 million holders of current accounts in Moscow alone. Sberbank was a founding member of the STB Card, the magnetic card venture run by Stolichny Bank.


This month Sberbank began issuing debit cards to holders of its current accounts.


Not only could this eventually give most Muscovites quick access to their banked savings for the first time ever, but all payments to Sberbank could be channeled through an individual's account. This would reduce the administrative work involved in bill payments to a minimum, raising the eerie prospect that the lines at Sberbank Moscow branches may one day disappear.


This is no pipe dream -- the technical foundations have already been planned. Sberbank Moscow is planning a massive centralized computer system which will eventually link its 800 city branches, giving millions of Muscovites access to their accounts via any branch in the city. Sberbank Moscow plans to link its branches by dedicated (x.25) communication lines to facilitate this.


This kind of magnetic card system could not be set up anywhere in Russia. For the system to function there must be a direct data connection between a shop or automatic teller machine (cash dispenser) and the bank.


When the card is used the bank must know, at that moment, if there are sufficient funds in the customer's account to make the purchase. It is not usually possible to use public telephone lines for this since the connections are extremely slow, and not reliable or secure enough. In most of Russia's other cities, the telecommunications infrastructure is much worse so private networks will have to play a much larger role before magnetic card systems are viable there.


However, there is an alternative. For the last six months in Estonia a card system has been in use which does not require on-line verification. Today 20,000 Estonians with accounts at four Tallinn banks are using a technology called a smart card.


A smart card is a plastic card that incorporates a small microprocessor. Unlike a magnetic card, it carries a large amount of information about its holder and is very difficult to forge.


These systems make it possible for transactions in shops and banks to be off-line (i.e., there is a delay before the terminal checks the funds in a bank account and the money is debited). A computer therefore need only make an hourly or even daily connection rather than a call to verify every transaction.





Robert Farish is the editor of Computer Business Russia.