MONEY, CARD... AND SMARTPHONE

For the first time, Azerbaijan is going to introduce a system of contactless payments through the world’s popular services Apple Pay and Samsung Pay starting from June 2019. However, at the first stage, it will be possible to make payments using Android-based phones, as well as the bankcards. Later the innovation will also cover Apple smartphones. In addition to the obvious convenience for customers, contactless payments are a significant breakthrough in the implementation of plans for the development of non-cash payments in Azerbaijan. It is also one of the main tools in the fight against the shadow economy.

Volume of non-cash payments is growing

Obviously, in the past few years, financial institutions in an attempt to meet the growing needs of their clients have become the main drivers for promoting innovative solutions, including in Azerbaijan. Particularly when it comes to such an effective tool as electronic payments, the use of which is beneficial both to governments and directly to customers of banks. Numerous studies show that public expenditures to ensure cash turnover range from 1 to 2% of the state’s GDP. This is a considerable sum of money nationwide that could be diverted to medicine or education. Electronic payments reduce the cost of central banks to ensure cash flow, as well as the share of the shadow economy in the national economy and significantly reduce the potential losses from cash turnover.

In recent years, tremendous work has been done for the development of non-cash payments in Azerbaijan, both at the administrative level and by banks and international payment systems. According to experts, the market of payment cards in Azerbaijan is very dynamic, fast growing, but at the same time, it has a huge potential for growth. Today, only 18% of the total transaction volume occurs in the trade network. Obviously, this is not enough, given that in the post-Soviet Ukraine this figure reaches 40%, and in Europe - 90%. In other words, people are still withdrawing cash from the card in order to shop at retail outlets, all of which have POS terminals today, and there are significantly fewer problems with accepting bank cards than, say, a couple of years ago. At the same time, indicators of growth in the turnover of non-cash payments are quite optimistic. Only by the end of 2018, the volume of electronic payments grew by 31%, while the volume of non-cash card operations increased by 70%. At the same time, the share of non-cash payments in the total volume of card transactions in Azerbaijan at the end of the first quarter of 2019 already reached 20%.

All these indicators give rise to hope that the goals of the State Program for the Expansion of Digital Payments in Azerbaijan for 2018-2020 will be met in a timely manner. According to the document, by 2021, the share of cash transactions in the national economy should decrease from 74% to 40%.

Also, as indicated in the GEAR 2018 study (The 2018 Government e-Payments Adoption Ranking - “Rating on the introduction of state electronic payments”) Azerbaijan is the 43rd out of 73 countries, showing active growth in many indicators of the development of non-cash payments. Key indicator in this ranking is the creation of a secure electronic payment system, improvement of the access to the Internet, and digitalisation processes that make it possible for the citizens to use electronic payment solutions freely. Incidentally, Azerbaijan appeared in this rating for the first time. Experts believe that in the next study, which is held every two years, the country will significantly improve its position.

Pay... with your smartphone

According to analysts, Azerbaijani market is completely ready for a new non-cash payment tools — contactless payments using the NFC technology (Near Field Communication). There are two main uses for NFC in retail payments. The first one is payment with cards that support contactless technologies (for example, Contactless for Mastercard and PayWave for Visa). The second method, which is becoming increasingly popular, is contactless payment using mobile devices via Pay-services of Apple, Android, and Samsung.

To use the system, it is necessary to tie the card to the smartphone once using a special application, after which one can pay with a smartphone without using the actual card.

According to the available data, today the penetration depth of smartphones in the Azerbaijani market reaches 60%, and the Internet as a whole - 65%. "This means that both the market and people are ready to buy and sell online," said Hakan Tatlici, head of Business Development and Digital Payments at MasterCard.

By the way, according to MasterIndex study conducted in Baku to study consumer preferences in saving and spending money, more than half of the residents expressed their willingness to switch to contactless payments in everyday life. The results of the study showed that such payments are demanded primarily to pay in supermarkets and shops (75%), in public transport (60%), in pharmacies (41%), at gas stations (20%), in newsstands (15%), taxis (13%), restaurants and cafes (11%), bookstores (9%), sports facilities (3%), in cinemas and theatres (3%).

The results correspond to global trends, noted in the company. “Contactless payments are already popular all over the world, including in the United States, Canada, England, France and Turkey,” MasterCard Manager in Azerbaijan, Hakan Akar, said. "Thus, one can use the same card a fare in the subways of New York, Hong Kong, Taiwan and of many other cities and countries without buying actual tickets."

In turn, the Visa payment system obliged Azerbaijani banks to issue only contactless cards starting from April, allowing them to pay for a one-touch purchase. This was stated by Vera Platonova, Senior Vice President and Director of the Visa regional unit in the CIS and South-Eastern Europe. “The transition to contactless technology is a global trend that is an evolution of development. Now we also bring these technologies to the market of Azerbaijan. But to ensure their migration as quickly as possible, it is necessary to improve the infrastructure, and make the population and legislation of the countries ready for this process. Therefore, since April 2019, we have decided that all new payment cards issued by banks should be based on cards with contactless technology,” V. Platonova said.

As for the security of such payments, according to representatives of processing companies and payment systems, it will be higher than that of ordinary bank cards. “The contactless card is absolutely safe due to the presence of a chip. There are cases of fraud, with which we are constantly fighting, but let's face it - the magnetic stripe on a bank card is easier to forge than the contactless technology that is stored on the card or on Pay. There have been no cases when it was possible to copy a completely contactless card,” the vice-president of Visa said.

As well, contactless payments are also beneficial in terms of the banking costs related to the issue of such cards, as they can be issued for a longer period - 5-7 years, since there is no threat of damage to the magnetic strip. Therefore, the transition to a new technology will allow banks to save on costs.

Another important point is the readiness of payment terminals to accept the new type of cards. “Currently, most terminals in Azerbaijan accept such technologies, and the mandate for contactless terminals is already in operation,” V. Platonova said.

According to the results of the last year, 9% of cards in circulation were contactless. In the next five years, plastic contactless technologies will become an important part of the Azerbaijani payment card market. According to experts, in 2022, 80% of the issued cards in Azerbaijan will be based on contactless technology.

There are also plans to implement a largescale project on the introduction of settlements with contactless cards in public transport. Experts indicate that this is a rather difficult job that requires a lengthy preparation. It should be the government to play the key role in the implementation of this idea, and banks and payment systems can act only as its partners. “This is a very expensive project and, as a rule, it is also funded by the state. After all, it is necessary, at a minimum, to establish payment terminals, to train staff, to issue cards, etc. A similar project with the London Underground cost hundreds of millions of pounds, but these investments were made by the city’s mayor’s office. Certainly, we can say that this project can be implemented in Baku, but only by the order of the government or the mayor's office,” V. Platonova said.

We believe that given the government’s desire to expand the coverage of non-cash payments in Azerbaijan, including by maximally simplifying the use of bankcards, the implementation of the project will take place soon. After all, this serves the important goal of reducing the share of the shadow economy and ensuring economic transparency in the country.