Author: Khazar AKHUNDOV
Last year, Azerbaijan recorded the highest level of development in cashless payments, mainly due to the implementation of a series of projects under the State Program for Expansion of Digital Payments in Azerbaijan in 2018-2020. At the same time, the Covid-19 crisis forced companies to increase the share of digital turnover. Non-cash payments for trade, services, catering, etc. have become a popular alternative to traditional payment among the population limited by the lockdown measures. These trends intensified in the first quarter of 2021. According to experts, the trend will continue in the post-pandemic period.
Over the past 3-4 years, the Azerbaijani government has made unprecedented efforts to increase the share of non-cash payments as part of the above-mentioned state program and through the development of new digital mechanisms and services in the banking sector. Moreover, if the main goal of the state was to ensure the transparency of monetary circulation and to increase the tax base by reducing the shadow economy, in particular by suppressing shadow money-laundering schemes in trade and services, then non-cash payments and the digital payment infrastructure in general helped banks and the corporate sector survive the pandemic crisis with minimal losses.
Regulatory and legal mechanisms have been reformed, IT infrastructure expanded, a number of electronic services available through payment terminals or through the Internet resources of the Electronic Azerbaijan system have significantly increased. In addition, the institutional base of banks has noticeably strengthened, leading to a tangible increase in the interest of clients in the e-banking services. Another positive change is that today pensions, scholarships, social benefits, salaries of all budgetary organizations, as well as most private structures are issued using debit cards. In general, as of January 2021, the total number of payment cards in circulation reached 9.6 million units. Experts believe that the massive issuance of debit and credit cards to employees and hired workers played a significant role in the more than twofold increase (relative to 2016) in the share of non-cash turnover in transactions within the country.
The main thing is that all these measures have made it possible to change in just a few years the mentality of the prevailing part of the Azerbaijani society, which until relatively recently preferred cash transactions.
Blessing in disguise
A radical change in non-cash payments took place in a very difficult year for the economy – in 2020. Pandemic lockdowns have significantly increased the popularity of contactless transactions and online payments among the population. Many companies providing e-commerce operations and even catering companies, which deliver on-order goods and service, adjusted their operations to this demand by accepting payment with bank cards and other online tools.
The e-commerce sector in Azerbaijan is experiencing an abrupt growth, with the number of transactions in 2020 increased by 55% and their monetary volume by 22%.
Lockdown restrictions have also changed the operation of banks: in order to prevent long queues, many of them have switched to distant e-banking services, as well as providing services for replenishing electronic accounts through ATMs. Accordingly, the total number of ATMs, which reached 2,779 units by the beginning of this year, increased by 2.7%. In the regions of Azerbaijan, the growth rate of ATMs reached almost 5%.
Due to the lockdown restrictions, many companies in the non-oil sector were also forced to provide distant services. At the same time, the majority of financial transactions, payment for current services, work with counterparties also switched online. This significantly expanded the use of the online payment resource. Moreover, the volume of non-cash transactions in the corporate sector increased, first of all, in the sectors of the digital economy and enterprises that were able to quickly virtualise part of their commercial activities.
According to the Central Bank of Azerbaijan (CBA), the use of the infrastructure of non-cash payments has increased significantly in 2020. Thus, the volume of transfers from current accounts through electronic banking reached ₼95.7 billion. Non-cash transactions made through payment cards within the country reached ₼6.4 billion. CBA notes that both of these last year's indicators are considered historical highs. In general, the volume of non-cash payments in Azerbaijan in 2020 increased by 34%, while the transactions with payment cards - by 26%. At the same time, the number of contactless transactions in Azerbaijan increased by 4.3 times over the reporting period, with their monetary volume increasing by 5.4 times.
Remarkably, these positive trends largely continued in the current year. In particular, according to the Central Bank, in January-February 2021, the average number of users per payment terminal, including ATMs and POS terminals, exceeded 4,000. This indicator increased by 8% annually, and the average monthly indicators rose comparable.
By the beginning of the year, the number of POS-terminals in Azerbaijan exceeded 57,000. Today one can find these terminals in almost all commercial and service facilities, catering points, etc. in Baku and other large cities, even the smallest ones. According to experts, based on the similar experience of Russia, Ukraine, Kazakhstan, the experience of non-cash payments during the pandemic will most likely continue in the coming years.
Today Azerbaijan implements a set of measures to expand the digital payments sector. According to the General Director of the Central Bank of Azerbaijan, Farid Osmanov, the priority of the bank is to attract new financial technologies in the sector that will make it possible to introduce innovative services, increase the access of the population and entrepreneurs to financial services anywhere in Azerbaijan.
The use of digital payment services in various sectors of the economy will also increase significantly. According to the head of the Centre for Analysis of Economic Reforms and Communications, Vusal Gasimli, in the next five years, public transport should completely switch to non-cash payments as part of the Smart City project. Moreover, together with the BakiKart system currently in use in the public transport of Baku (the metro and about 50% of buses), as well in other cities and regions of the country, payment for transport services will be carried out through bank cards and mobile devices using NFC payment technology (wireless data transfer). Digital platforms are also developed for cashless payments for car parking, bicycle and scooter rentals. It is also expected to start in the coming months a pilot project to ensure the payment of travel fair on the trains of the Azerbaijan Railway by means of contactless bank cards.
In line with the CBA strategy, it is planned to strengthen the mechanisms of regulation and control over payment institutions by improving regulatory and legal framework. There is a draft law On payment services and payment systems, which defines the legal and economic framework in this area. The document will cover the operations of payment organisations, non-banking providers of payment services, e-wallets, as well as the legal aspects of open banking (OpenBanking). The objective of these measures is to create high competitiveness in the payment market, as well as to support innovations in financial technologies, thereby stimulating the introduction of new products and services to the market. Currently, the discussions on the bill are coordinated with the relevant government agencies.
Another goal for the coming years is to increase public awareness of the benefits of non-cash payments, encourage citizens through various promotions, as well as return cashback and part of VAT to reduce the share of cash turnover. According to the chairman of the Association of Banks of Azerbaijan Zakir Nuriyev, a lot has been done in this regard. At the end of 2020, the number of non-cash transactions with payment cards exceeded the number of cash withdrawals through ATMs. For comparison, a few years ago, almost 80% of all money received on salary, pension and other debit cards was immediately cashed out by their owners.
Of course, one more important goal of digitalisation of money circulation is to ensure transparency of taxable turnover and, thus, to combat the shadow economy. There is a direct connection between these two, since, according to experts, an increase in non-cash payments by 10% creates conditions for the reduction of the shadow economy by 5%. Therefore, in the next five years, we can expect various reforms in this area by the CBA, Ministry of Economy and fiscal authorities.