SHALL WE QUIT CERTAINTY FOR HOPE?

In recent years, the government's efforts to expand the use of non-cash transactions in the country have significantly increased the number of card users and simplified the payment procedure through the POS terminals and electronic systems. However, statistics show that the overall situation in this area is far from ideal. According to the Central Bank of Azerbaijan (CBA), during the seven months of 2018, despite noticeable growth of the volume of payment cards and the number of POS terminals, the volume of non-cash transactions decreased compared to last year. The representatives of relevant institutions note that it is time to shift from sanctioning methods to stimulating ones to further improve the situation with non-cash transactions in Azerbaijan.

Card record

On January 1, 2017, the government adopted a law on non-cash transactions, which, in theory, was supposed to fix most of the legal gaps in this area. Statistically, the measures have yielded good results so far: according to CBA, by July 2018, the number of bank transactions reached a record level of 6.174 million pieces, which shows an increase of 15.6% compared to the beginning of last year.

The main growth of plastic cards during this period of time was due to an increase in the volume of debit cards used for social, salary, etc. payments (by 22.6%, 1.9 million pieces). Obviously, one of the strengths of the above law was a strict instruction on the issue of salaries, the implementation of mutual transactions in economic activities through non-cash payments and the establishment of strict supervisory mechanisms for the implementation of this procedure. If early salary cards were only for employees of budget organisations and large businesses, today almost all employers provide them to their full-time employees. The Ministry of Taxes admits though that this did not solve the problem of full legalisation of salaries, rather it was an important step forward. The next key step will be income tax reforms, after which, as the tax authorities promise, employers will not have any reason to hide the full amount of employee income.

In fact, pensions and social benefits have been paid on non-cash basis for several years now, and almost all state institutions are gradually involved in this process trying to carry out all transactions through the banks. Since February 2018, the Azerbaijan Deposit Insurance Fund (ADIF) started payments to depositors of the liquidated DemirBank in non-cash. In addition, the fund provided an opportunity for clients of liquidated banks to pay loans through electronic systems ASAN Ödəniş and Hökumət ödəniş portalı (Government payment portal).

Today almost every Azerbaijani family owns at least one bankcard providing access to non-cash payments. A different issue is the volume of non-cash transactions made for intended purposes, i.e. without cashing in receipts in full one transaction in full - this is another matter, and it is in this part of our country that there are problems and gaps.

Targeting global standards

The objective of new projects launched by the CBA and the Ministry of Taxes is to ensure the growth of non-cash turnover. Thus, CBA intends to implement a new program of non-cash transactions. As noted by Ramil Mahmudov, the head of the CBA Development and Control Department for Payment Systems, one of the main tasks of his department is to bring the level of non-cash transactions in Azerbaijan to world standards. Sweden and Norway are the global leaders in terms of non-cash transactions and today only 6% of Norwegians pay for goods and services in cash. The population of these countries believe that cash transactions are sensitive to financial crimes.

Obviously, Azerbaijan is very far from the indicators of Scandinavian countries. According to the results of July 2018, the retail trade turnover in Azerbaijan reached about ₼3 billion, of which only 4% was made through non-cash transactions.

For the sake of clarity, in the same month, ₼1.3 billion was cashed through ATMs and POS-terminals, which makes 91.3% of all receipts from bankcards. In other words, cardholders clearly do not trust non-cash transactions preferring to cash out their income as soon as possible.

CBA believes that to address these problems, it is necessary to work out several areas. First, the development of non-cash transactions is possible through the improvement of business environment in the country, reduction of tax evasion and improvment of tax administration, because a shadow economy inhibits the development of innovative payment methods.

Another important direction is the development of electronic commerce. Currently, the level of e-commerce is very low compared to great potential for development, experts say.

Bank interest

Finally, the key factor is the activation and improvement of the banking sector. After all, whether the population intends to quickly turn their funds on bankcards to cash largely depends on their trust in banks, especially when quite a few a number of banks were closed in last years. The closure of banks was the main reason for the reduction in the number of existing POS-terminals. As of the beginning of August, there were 65.7 thousand POS-terminals, which is 5.5 thousand units or 8.3% less than it was at the beginning of the year. Nevertheless, CBA also recognizes that the availability of POS terminals does not necessarily mean that they are used, for the owners of retail facilities often refuse to accept cards claiming that the terminal is out of order, etc. At the root of these problems is mainly the reluctance to legalise accounting in full, as well as the gaps in accounting for financial transactions between two different business entities. "However, we can see a growth tendency in the interest of commercial entities in non-cash payments, which is associated with increased competition in the market," Mahmudov said.

Mr. Mahmudov also noted that one of the priorities of the regulator (CBA) is improving the security of non-cash transactions. "It has always been a priority for our bank. Recently, we made drafts of amendments to our rules on the use of plastic cards. One of these projects aims to improve the security of online payments. The facts of card fraud revealed recently show that the vector of fraud is gradually moving to electronic commerce, because it makes it possible to commit such acts more easily. Banks should be prepared to prevent such situations and have a stable policy of adequate counteraction to risks. We are working with banks, we are making necessary changes in the rules. In parallel with banks, we also work with a special working group of the Association of Banks of Azerbaijan," Mahmudov said.

Economic effect

The next step in the development of non-cash transactions will be stimulation measures and measures aimed at increasing the financial literacy of the population. So, CBA is planning to launch a stimulating lottery campaign "Pay with card - Earn with the card", the ultimate goal of which is to contribute to the growth of the turnover of non-cash payments. The Ministry of Taxes is also planning to amend the Tax Code by adding separate clauses to encourage entrepreneurs who prefer non-cash relationships with business partners.

According to international experts, if used in full, non-cash payments only in Baku will increase incomes by $1.9 billion, including business income ($1.4 billion), government income ($400 million), and consumers' income ($100 million). It will also increase employment by 3.5% in the next 15 years. Most importantly, the growth of non-cash payments by 1% means GDP growth of 10%.

In other words, boosting the growth of non-cash turnover is extremely important for improving the economic efficiency as a whole. Any government investment in this segment of the national economy will fully pay off in the future eventually increasing the transparency of payments and the budget revenues, as well as the economic and social potential of the state.