Building new markets: a comparison of the Russian and American credit card markets

Abstract

Based, in part, on original fieldwork in Moscow, Russia, in 1998, 1999 and 2004, this paper focuses on two markets at their conception points-the American credit card market of the late 1950s and 1960s and the Russian credit card market of the 1990s. Emerging credit card markets need to solve two problems: the problem of uncertainty inherent in lending and the complementarity problem of simultaneously attracting merchants and cardholders. American banks jump-started the market by mailing unsolicited cards to thousands of unsuspecting and unscreened individuals. This resulted in staggering losses, but helped to attract merchants. American banks eventually solved the uncertainty problem through formal institutional means: they shared account information with third parties (credit bureaus) and based pre-screening on the calculation of risk, which made bank-customer relationships completely impersonal. The dominant way to disseminate cards in Russia is through payroll agreements with enterprises, whereby the employees are issued cards secured by their salaries directly deposited to the bank. Not only does the rapid increase of cardholders attract merchants, but payroll projects also solve the uncertainty problem through two-stage embeddedness: banks rely on employing organizations to mediate their relations with cardholders. As a result of dissimilar solutions to the uncertainty and complementarity problems, the structures of Russian and American credit card markets differ as well.