THE FUTURE HAS ALREADY ARRIVED

It is an interesting feeling to observe the future in real time… It is not even a matter of global achievements in space exploration and the discovery of new galaxies. What seemed a fantasy in everyday life a couple of years ago is an ordinary routine today. It is easy to make purchases without leaving your computer or phone or pay with electronic money or use a smartphone or smart watches for payments instead of a bank card. This “miracle” is already widespread in many countries of the world.

Card in smartphone

The system introduced in many smartphone models which can make you safely forget about your bank card is called tokenization, and ensures full encryption of card data during bank transaction. This can greatly facilitate transaction security. Also, tokenization makes it possible to attach cards to mobile phones, which makes physical presence of cards unnecessary. Owners of Visa cards need smartphones with a built-in NFC module.

In September, Visa initiated and launched its first tokenization project in Azerbaijan. So far, the only bank involved in the system is the International Bank of Azerbaijan (IBA), but soon the coverage of the system should expand and spread throughout the country.

What does this mean in practice? According to Alexander Stelmakh, Director of VISA Digital Solutions in Ukraine, the CIS countries and Southeast Europe, users only need to download a special application (e.g., IBA Pay for IBA), which is very similar to a usual mobile bank application, and enter the card number and security code to use their phones instead of a bank card. Interestingly, even the Internet is not required to make contactless payments via a smartphone, as everything can be done offline. “The only technical obstacle to payment can only be the lack of phone charge,” A. Stelmakh said.

By the way, the cards must be contactless for the system to work. Such cards are also new to Azerbaijan. Visa has obliged Azerbaijani banks to issue only contactless cards (using NFC technology) since April. To make sure that your card is contactless, you need to check if it bears four rounded lines symbolizing the waves (a tilted Wi-Fi icon). By the way, the sign is universal for all payment systems.

Holders of such cards already appreciate the ease of use of contactless cards: just bring it close to a POS terminal with built-in recognition function, and the amount required for payment is debited from the card without entering a PIN code. Maximum amount transferred on each transaction is limited to ₼50 (earlier it was ₼20) by the Financial Market Supervision Authority. But this is not the limit. According to the regional director of Visa, Inc. for the Caucasus, Christina Doros, the limit of contactless transactions in Azerbaijan is proposed to be increased to $40, which makes 80% of all transactions. Above the set limit, one needs to enter a PIN-code necessary to ensure transaction’s security.

Is it safe? Yes!

Speaking of security of contactless cards in today’s world teeming with all kinds of cyberattacks and associated threats, such technological innovations become reasonably questioned in terms of their safety. The providers of the technology promise that tokens, as unique digital identifiers, on the contrary, are a new step in ensuring the security of cashless payments. Since the tokens do not contain details of the customer’s payment account, such as a 16-digit card number, they can be safely stored with online merchants or on mobile devices, which makes e-commerce and mobile payments even more convenient.

“A safer payment environment opens up many opportunities in which commerce can take various forms, and consumers can make purchases anywhere, from any device, being confident in security,” Christina Doros.

The contactless cards also have several levels of protection, including a built-in contactless chip, a short operation distance of 4 cm and a unique encryption system, which makes faking cards almost impossible. In addition to advanced security of contactless payments, there are also technologies hidden from the public that are accessible to a narrow circle of specialists. But if we theoretically assume that there was a loss / theft of a card or smartphone and the attacker decided to seize the opportunity and withdraw money from the card? Experts do not deny such risks. But when the cardholder applies to the bank, the financial institution conducts an investigation using the data recorded on cameras attached to the POS terminals that provide the transaction. In case of confirmation of the fact that the money was withdrawn from the account without the permission of its holder, the bank returns the stolen amount to the client and then turns to law enforcement authorities. This process is not fast but experts are working on improving it.

Next stage

Either way, even taking risks into account, progress cannot stand still. Moreover, contactless payments through smart gadgets has long been used. The next step will be the implementation of a new pilot project in Azerbaijan - Tap to phone. According to A. Stelmakh, Visa plans to launch it already in 2020. This project introduces a new Visa technology, which will allow accepting payments via cards using mobile phones. In other words, the smartphone will practically turn into a POS terminal.

“We know that it is not always cost-effective for banks to purchase and install POS terminals. Our technology allows us to turn the phone into a POS terminal, which will greatly simplify the process of accepting cards for payment,” A. Stelmakh said. He noted that the project is already implemented as a pilot in Ukraine and Belarus. "In 2020, we plan to start two more pilot projects in the region, one of which will be implemented in Azerbaijan," Stelmakh said.

The main objective of these projects is to expand the market of cashless payments in Azerbaijan. Thanks to the implementation of the state program for expanding digital payments in Azerbaijan for 2018-2020 approved by President Ilham Aliyev in 2018, the share of cash transactions in the economy is expected to decrease from 74% (in 2017) to 40% (in 2020) . At the same time, the annual growth in the volume of cashless payments in 2018-2020 is forecasted at the level of ₼17 billion.

For reference: the share of non-cash payments in card transactions in Azerbaijan amounted to 20% at the end of the first half of the year, which is 4% higher than in previous year. According to C. Doros, in general, the non-cash payment market in Azerbaijan is showing growth. “According to the results of the first half of 2019, the number of transactions increased by 40% compared to the same period of the last year, the amount of transactions increased by 39%. At the same time, the average check size decreased by 1.4%, or to ₼54. Oddly enough, this is a positive indicator, as it shows that customers have started using cards even for small operations,” C. Doros noted.

Recently, Visa, Inc. and the Financial Markets Supervision Authority of Azerbaijan signed a memorandum of understanding, which will allow to intensify the development of digital payments in Azerbaijan. “The document also provides for the expansion of the use of modern means of payment, support for digital business and training for the population of Azerbaijan,” C. Doros said.

In short, future will soon be even closer.

NEWS

Central Bank of Azerbaijan cuts discount rate to 8%

The Central Bank of Azerbaijan (CBA) decided to lower the discount rate to 8% from 8.25%, the CBA announced.

"Stable oil prices in recent months, low inflation and a stable macroeconomic situation are the main causes that made it possible to reduce the rate from 8.25% to 8%," the statement said.

At the same time, the lower threshold of the interest rate corridor was maintained at 6.25%, while the upper threshold was reduced from 10.25% to 9.75%. This decision entered into force on September 13.

"The analysis shows that actual inflation is below the average of the target range, and changes in the dynamics of short-term inflation expectations are insignificant. According to updated forecasts, by the end of 2019, inflation rate will be slightly above the average of the target corridor (4±2%)," CBA reported.

According to CBA, the analysis of risk balance shows that external factors affect inflation more in the medium term than internal factors.

"First of all, this is associated with tensions in world trade and foreign exchange markets, as well as volatility in world commodity markets amidst the worsening growth prospects for the global economy. The Central Bank will continue to monitor these risks and use its own instruments to curb inflation in the target corridor," statement of CBA says.

This is the sixth reduction in the discount rate by the Central Bank of Azerbaijan in 2019. CBA emphasizes that the next meeting of the Central Bank, which will consider the issue of the discount rate, will be held on October 25, 2019.