BAKU, Azerbaijan, May 2. The demands outlined in the “Rules for carrying out payment operations and payment instruments” are a vital step to abandoning the use of physical payment cards in Azerbaijan, representative of the Bank of Baku and Head of the Expert Group on Payment Systems and Digital Banking of the Azerbaijan Banks Association (ABA) Tamerlan Rustamov told Trend in an exclusive interview.
“First of all, these rules were adopted in order to apply the requirements of the laws of Azerbaijan, “On the Central Bank of Azerbaijan," “On non-bank credit organizations,” and “On payment services and payment systems.”
These rules, which define a variety of innovative techniques in the digital payments ecosystem, for the first time outlined the requirements for credit transfers, direct debits, payment cards, and electronic money as payment instruments," Rustamov stated.
According to him, non-bank credit businesses will issue credit cards in compliance with these criteria.
“On this basis, non-bank credit organizations will provide payment accounts in accordance with the “Rules on opening, maintaining, and closing bank accounts” of the Central Bank of Azerbaijan,” Rustamov said.
He noted that the rules replace the traditional concept of “payment order” with “credit transfer” and define requirements for low-volume payment instruments. The general framework requirements for the execution of payment orders, individual collection orders, and instructions from tax and customs authorities were retained.
"The regulations specify a payment instrument that allows the payer, or user of the payment service, to perform a payment transaction with a payment card. We are discussing the requirements for card payment instruments while conducting payment transactions via a mobile device with the payment application installed. With the entry into force of these regulations, "Instructions on non-cash payments and money transfers in Azerbaijan" and "Rules for the issuance and use of payment cards" are recognized as no longer in effect,” Rustamov added.
According to him, ensuring information security in transactions with payment cards was identified as a priority issue in the “Rules for the Issue and Use of Payment Cards," while the new rules have further expanded the scope of this requirement to apply to all payment instruments.
“So, according to Article 3.17 of the rules, the transfer, collection, processing, and clearing of information on payment transactions performed within the country, as well as the technical maintenance of the issue and the acquisition of a means of payment, are carried out within the country.
In the previous edition, this requirement applied only to service centers for payment card transactions. Currently, any organization, including a payment service provider and a payment system operator, is subject to the law,” Rustamov said.
The expert noted that due to the further expansion of the use of innovative payment solutions and technologies in our country, such as GooglePay and ApplePay, the exclusion requirement remains in these rules.
“According to Article 3.18 of the rules, information on transactions carried out within the country may be directly exchanged between payment service providers, payment system providers, and payment system operators operating outside the country,” he added.
Rustamov noted that according to the rules, electronic money can be issued only in two forms: identified or unidentified. The requirements for electronic money, the identification of which is not required, that is, their maximum amount and terms of use, are the same as for small-volume payment instruments.
"The volume of payment transactions within one calendar month for a payment instrument of small volume and not requiring identification should not exceed 300 manat ($176.47) or their equivalents in foreign currency. The volume of funds stored in this instrument should also not exceed 300 manat or their equivalents in foreign currency. With the help of this payment instrument, the user of which is only an individual, payments are made only within the country. Money transfers and cash withdrawals are not allowed with this payment instrument.
Electronic money can be issued in national and foreign currencies. The requirement for the maximum amount of obligations for electronic money issued by payment service providers is determined by the Central Bank. This requirement can be determined individually for each payment service provider,” the expert added.
The deputy director of the department also noted that electronic money is not considered a deposit. "In accordance with Article 13.1.2 of the Law "On payment services and payment systems," when providing a person wishing to own electronic money with information about the issue of electronic money and the rules for their use before the issue of electronic money, it must be indicated that electronic money is not considered a deposit and is not insured in accordance with the law of Azerbaijan “On deposit insurance” and that no interest or other income is paid on these funds,” he said.
Rustamov emphasized that, for the first time in our country, in order to further strengthen the competitive environment in the payment card market and eliminate possible negative consequences when implementing projects to pay for Internet services and cashback projects, regulation of trade codes of business entities, known as the MCC code, was provided.
“Upon request, the buyer must set the merchant code (MCC code) of the business entity in accordance with the business entity's area of activity during the card-based payment transaction.
Also, the buyer must provide, without modification, the trade code of the economic entity for authorization and clearing of the same card-based payment transaction. Therefore, changing these codes and subsequently presenting them in a different form during clearing has a direct negative impact on the calculation of interbank service fees and the profitability of the issuer,” he said.
According to the expert, according to another innovation, displaying payment card details on the card itself is no longer mandatory.
“However, the issuer must make available to the card user this data, namely the name of the issuer, the payment card number, its expiration date, contact details of the issuer accepting applications, or the operator of the payment system serviced by the issuer, within 24 hours. This requirement is an important step on the way to eliminating physical dependence on payment cards in our society and completely eliminating physical cards in the next stage.
This strategy will provide further support for the growth of mobile banking services. Furthermore, the guidelines do not include any restrictive criteria for corporate cards. I anticipate that the next strategic era will significantly expand the usage of corporate cards as a payment mechanism,” he said.
Rustamov pointed out that, according to the requirements of the rules, the accounting of funds for payment transactions carried out by this payment instrument can be carried out by the issuer in a general (consolidated) account.
“Issuers can maintain records of prepaid cards identified for participation in payment systems, including the Instant Payment System, through separate payment accounts. This will allow payments to be made by applying the IBAN (International Bank Account Number) to the payment account to which the prepaid payment instrument is linked. According to this requirement, legal entities and individual entrepreneurs can carry out transactions using prepayment instruments.
Accounting for these payment transactions should be kept individually and not in a general (consolidated) account,” he concluded.
To note, the Board of the Central Bank of Azerbaijan approved the “Rules for the Implementation of Payment Operations and Payment Instruments” in early April.
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