HOW TO PAY

Owing to the developments in information technology over the last few years and the increasingly popular e-commerce various types of electronic payment systems have come into being, using electronic money (e-money).

But as e-commerce has expanded tax evasion has become an increasing problem. E-payment systems mean that the owner of the e-money can remain anonymous. The following problem arises as well: if a firm registered in one country, produces payment software in another, then sells it on-line using an e-payment system registered in a third country to a customer in a fourth country, then in which country is tax due and what amount? It should moreover be borne in mind that many types of e-money are not officially recognised a s a means of payment and even now the revenue from this e-currency is not regarded by the tax bodies as the income of the economic agent until the e-money becomes hard cash.

So, if there is a problem, a solution needs to be found. This is exactly what the relevant departments in Azerbaijan are busy looking for.

E-money in Azerbaijan

The [draft] law "On payment services", drawn up by the Central Bank of the Republic of Azerbaijan, forms the basis for resolving payment systems' problems. This document stipulates that the banks, as well as local branches of foreign banks, are permitted to issue e-money in the country. Legal entities, which have a licence to provide postal and financial services, local organisations dealing in e-money, as well as local branches of foreign organisations operating in e-money, will also have the right to do this.

The Central Bank does thereby retain the right to introduce restrictions on the volume of e-money issued by the payment organisation to ensure the stability of its operation.

In the opinion of the executive director of the Milli Kart Group, Calal Orucov, the adoption of this draft law will produce a local brand of e-money on the local market. The viability of such money will depend on how it is used and how this part of the Internet is developed.

"Besides, how many on-line shops can the average Azeri customer name off the cuff. Two or perhaps three. When the number reaches 10-15, this will mean this part of the market will have attained a level of development, at which e-money can be normally used in transactions," Orucov thinks.

What is more, according the Azerbaijan's State Statistics Committee, from January to July 2013 the e-commerce market grew by 1.7 times compared with the same period last year, amounting to 1.3 million manats. The overwhelming majority (92.8 per cent) of the turnover on the e-commerce market involved products other than foodstuffs.

The competitiveness of the local on-line shops compared with their foreign counterparts is regarded as an important factor in developing this direction. In this field, there are web-sites selling technology and clothing, but they definitely do not come up to similar businesses abroad, both as regards prices and the variety of goods on offer. Local restaurants and voucher services and so forth are enjoying certain on-line successes, but not businesses dealing in goods purchased abroad. Major promising types of services are taking shape where the added value is being accrued at home in Azerbaijan and not somewhere abroad. So, it is quite clear here that money can be earned by doing something innovative.

Amidst all this we should not forget about the consumer. When it comes down to it, the way the customer thinks is just as important. For the moment, our consumers find it easier to go shopping since they can actually see the goods there for themselves. Much depends on the policy of the commercial enterprises. In circumstances where they cannot compete against the Internet giants offering lower prices, they can compensate by providing faster delivery.

Moreover, Jalal Orujov believes that it is not worthwhile waiting for the banking sector to issue e-money owing to the specific nature of this field. A look at international practice will show us that there are not that many banks in the world that are simultaneously e-money operators. But there is an objective reason for this.

The banks have more traditional and profitable tools that they can use in dealing with their customers. E-money is more than the prerogative of IT-orientated companies. "Perhaps our market is pursuing a slightly different course in it development, but the majority of the banks will not be inclined to operate with e-money, because that is a highly IT-intensive business and does not provide such a high profit margin as other spheres of the bank's operations. I think that banks are most likely to act as so-called 'back offices'," Jalal Orujov noted.

At the same time, the new law will make it possible for those operators already active on the local market to take advantage of existing possibilities. It is only to be expected that each of the payment organisations has its own ideas about the directions its development should take. Holders of debit and credit cards can also see that the services that they are currently being offered are far fewer than they would be offered in other countries, including those involving e-money. The reason for this it not the lack of technical facilities, which do actually exist, but the absence of the appropriate legislation and regulations. No-one will put out any kind of new product, if he is going to find that it is banned tomorrow or its usage is restricted. This bill provides guidelines and new impetus to the development of the e-money field and e-commerce as a whole.

Taking into account the fact that there are still no operators on the market that can immediately comply with the requirements of the Central Bank of Azerbaijan, the expert believes that it is expedient to make these demands less stringent in the initial period following the adoption of the law. Therefore it remains to be hoped that, after the law has been passed, the Central Bank will allow operators a certain period of time to ensure that their operations comply with these stipulations.

Regulation

Yet another far from important factor is that, in accordance with the law, payment organisations and also the organisations whose activity relates to the issuing of e-money will be able to obtain either general or special licences to carry out their activity.

Foreign payment organisations wishing to open branches in Azerbaijan and also organisations operating in the field e-money will have to obtain a licence from the Central Bank of the Republic of Azerbaijan.

The draft law also sets out the obligations of payment organisations with regard to the security of customers' funds and the necessary measures to ensure this.  If an organisation is not completely prepared to guarantee customers' funds with regard to all forms of payment services, then the Central Bank can issue it with a special licence for rendering payment services separately.

Besides listing the services offered, the payment organisation can also perform other additional operations like currency exchange, the safe-keeping of valuables, and also data storage and processing.

To render services within the framework of their own activity payment organisations will be able to offer customers loans on specific terms, for example, they will be able to grant a loan to cover a payment and for a term of no longer than 12 months and so forth. The relations between the payment organisation and the customers to whom it grants loans will be regulated by the law "On protection of the rights of consumers". Demands made on payment organisations by their creditors (including demands made when the organisation has filed for bankruptcy) cannot be applied to customers' funds.

Before carrying out an operation, the operator of a payment service is obliged to provide the customer with information on the payment terms (or provide an individual identification code), to stipulate the maximum time to be taken to perform the service, the fees for the service, the exchange rate used and other aspects of the transaction.

Useful experience

It is noteworthy that the introduction of other payment systems, which were markedly more advantageous than traditional cash transactions preceded the appearance of e-money in industrially developed countries. As seen in world-wide practice the development of more progressive and modern technology is being delayed by the conservative attitudes of the potential users, which is in turn leading to greater expenditure on its introduction.  Those who issue e-money are incurring additional expenses since they have to convince users of the advantages of using it compared with the traditional ways of making payments.

If the state backs it, however, e-money may manage to take a considerable part of the payment facilities' market. The experience of Singapore, where the share of e-money in the non-cash turnover exceeded 80 per cent at the beginning of 2004 is an illustration of this. Every resident had on average two debit or credit cards and used each of them at least 130 times per year. In two years the number of devices to take e-money grew 10-fold.

Competition on the e-money market is highly developed in Russia among the countries of the Commonwealth of Independent States (CIS). There are three leading smart online payment organisations - WebMoney, "Yandeks Dengi (Yandex Money)" and "QIWI Koshelyok (QIWI Wallet)". This year the PayPal system, which belongs to the eBay company, has entered the market.

Today Azeri citizens are also actively using the on-line auction facility eBay; payment for the goods acquired is made at local banks, using a card. However, depending on the further development of the e-commerce market, it seems quite likely that the Paypal online payment system will also come to Azerbaijan. The appearance of such an international player will undoubtedly have a positive effect on the development of electronic payments in the country.

This is inevitable in the light of the package of measures being drawn up to deal with non-cash transactions. Even today, in the number of cards issued Azerbaijan occupies sixth place among the countries of the former USSR, after Russia, Ukraine, Belarus, Kazakhstan and Uzbekistan, this rating being largely determined by the size of the population in these countries. But if we take this figure as a percentage of the overall population, then we exceed even Russia, Ukraine and Belarus in the number of cards we have.

Azerbaijan is definitely the biggest cardholder in the Southern Caucasus region. The country already has more plastic cards in use than either Georgia or Armenia. At the moment though, we have the most credit and debit cards, but are not involved in the largest number of transactions. At the same time, if development continues at the present rate, the number of plastic cards in Azerbaijan is expected to exceed six million in 2014, largely due to the extraordinary popularity among the population of the branded credit products offered by a number of the country's banks. On 1st July 2013 more than 5.3 million debit and credit cards had been issued by the banks, that is 300,000 (5.5%) more than on 1 January.

When the above-mentioned law is passed, it will eliminate the serious gap in regulation in this sphere, owing to which most operators had been afraid to introduce a variety of new services to the market. Therefore, the adoption of this new draft law is expected to open up the market to attractive, up-to-date products.