Banking services are an essential and integral component of a modern market economy. So today, the interest in various aspects of banking systems and management methods is growing. Banking products are the traditional scope of banking business, aimed at raising the incomes of banks and the needs of private and corporate clients in the development of national economy.
Bank's getting certain competitive advantages is due to how well the bank develop and provide new products to market.
Introducing bank cards as a primary means of non-cash payments is an important task of "technological revolution" of banking.
The first use of cards as a means of payment refers to the end of XIX century. The idea of credit cards was put forward by John Bellamy (1880). In practice, the pioneer in this regard was the United States. The first credit card was issued in 1914 by General Petroleum Corporation of California. The cards were used for payment in the process of trade on petroleum products. In this quality, they quickly gained popularity. The cardholder received a lot of flexibility in service and discounts in buying goods. The issuing company gained regular customers and stable income.
Today, bank cards are a key element of electronic banking systems that are increasingly pushing out checkbooks and cash. Important feature is that the card contains certain information required to access to the bank account, a payment for goods or services.
Introducing card product was the beginning of the development of retail non-cash forms of payment. Thus, the payment via cards increases on the Azerbaijani market. Over the past four years, the amount of cashless payments increased as compared with previous years: in 2006 by 3.3 times, in 2007 - 2.04 times, in 2008 - 44.3% and in 2009 - 4.4%. At the same time, in the total turnover, the share of cashless payments via cards made up 9.3%, 9.4%, 13.4% and 15.9% respectively. In 2007 the turnover of POS-terminals increased by 1.9 times, in 2008 - 2.5 percent, in 2009 - 7.8 percent. The growth of operations on cash withdrawal was 1.9 times, 1.6 times and 1.5 percent respectively.
Some indicators of payment cards market development in Azerbaijan:
Date |
Number of POS-terminals |
Number of ATMs |
Number of POS-terminals installed in retail trade, public catering and services |
31.12. 2006 |
2070 |
1080 |
1576 |
31.12. 2007 |
5309 |
1317 |
4653 |
31.12. 2008 |
8124 |
1515 |
7367 |
31.12. 2009 |
8657 |
1694 |
7854 |
This tendency testifies increasing public trust in the products and services offered by banks. However, according to the data provided by the Central Bank of Azerbaijan, the cost of operations, the share of non-cash operations (through POS-terminals) via plastic cards in Azerbaijan in 2009 dropped to 6.3% of total turnover, and the number of operations decreased to 2.9% of all deals compared to 8% of turnover and 3.79% of the number of deals in January 2009 and 7.46% and 2.32% in 2008.
Unlike cash amount, the plastic card is not declared at the border crossing. According to Azerbaijan's Law on Currency Regulation, every individual can take $10,000 in cash out of the country without paying customs duties. However, formerly, the cash amount exceeding $1,000 to $10,000 was subject to customs duty at one percent.
Importing currency in amount of equivalent to $10,000 into the territory of Azerbaijan is officially documented by the customs authorities through the customs declaration of the passenger, but in amount exceeding the equivalent of $10,000 - the passenger's customs declaration and customs certificates. Benefit of plastic cards in this case is obvious, since card is not cash, it is simply a means of access to account.
Currently the Central Bank of Azerbaijan prepares national payment system development program. Although it delayed a little during the global crisis, the Central Bank's board first deputy chairman Alim Guliyev said work will continue on it this year.
Realization of the program will allow creating integrated united E-payment sphere in medium-urgent prospective in the country, accelerate development of E-trade and increase volumes of cashless turnover.
New state payment system development program and non-cash payments will be aimed at achieving two goals. First, improving the infrastructure by attracting 1,600 postal services to provide banking services, and secondly, controlling over cash payments.
CBA plans to take radical steps to limit cash payments. The program will be aimed at stimulating increasing operations through banks, which in turn leads to increased investment opportunities of banks.
Actions were held on the basis of state development program of national payment system over 2005-2007 in the county. National payment systems on small payment of the central bank (HONKS) and big payments (AZIPS) were also created. Center on communal payments was created via HONKS. It allows transferring funds and getting reports in on-lone regime, as well as eliminating abuses in department of banks. The second processing center - Millicard OJSC was established under the Central Bank. It was passed to 18 commercial banks later.
Task was set to provide all trade facilities and spheres of service by POS-terminals by late 2007 in accordance with orders of presidential decree Improvement of Azerbaijani payment system dated November 22, 2005. This process will continue in 2009.
Today the main problem in the limited use of POS-terminals in the retail trade is the merchants (shop), because the clients themselves are interested in paying via card, because no interest is paid while paying through cards, unlike cash payment, the executive director of MilliKart LLC, Jalal Orujov, said. So, no commission is retained from the client. Shops are less interested in this for two reasons. The first reason is that the stores must pay commission to banks from the turnover made via cards. The interest was determined from two percent or higher, depending on the type of services provided by merchants.
The second and most important point is that virtually, all of these turnovers are completely transparent to the tax. Basically, the problem is that the shops are trying not to advertise their turnover.
Indeed the measures taken by the Ministry of Taxes to stimulate the use of cashless payments led to a significant increase in the number of POS-terminals, as well as the tax authorities do not take into account the cash registers of enterprises, if they do not install POS-terminals. But after the installation, in most cases, no operation is conducted on the terminals.
Most of the POS-terminal is installed, but under any pretext the shops refuse to accept the card. These selling points justify their refusal through problems with communication, that is, the POS-terminal does not guarantee that it will accept cards. This leads to some losses of banks, because the POS-terminal is an expensive equipment.
To stimulate the development of cashless payments, the Tax Ministry made a new proposal to hold lotteries for cash checks. The campaign will also be in the interests of cardholders. The head of MilliKart believes that the massive use of non-cash payments must motivate to do a transaction not only by cardholders, because these lotteries are designed specifically for these purposes. On the other hand, it needs to encourage the shops so that they take the card. The main problem is just that.
Although the number of POS-terminals in 2009 increased by 533 units to 8,657 units, the rate of installing them is considered to be low, given that the bulk of the shops have already established them, currently the terminals are installed mainly by the new legal entities.
As much of business is located in Baku, significant part of POS-terminals is in the capital. Of the POS-terminals, 7,871 have been installed in Baku, 786 - in other regions. Only 10-15% of them are used. In the regions, the POS-terminals are used mainly in the tourist centers, although not significantly as in Baku.
According to the data provided by the Central Bank, in 2009 the turnover through plastic cards via POS-terminals amounted to 344 million manat in the total turnover of 5457 million manat. 132,000 operations were held through them compared to 45.299 million operation via all types of cards per year. In 2008, the turnover through plastic cards via POS-terminals amounted to 0,319 billion manat in the total turnover of 4,274 billion manat, in general only 929,000 transactions were implemented through POS transactions while total transactions made up 40.111 million. In December 2009, the turnover through POS-terminals amounted to 29 million manat over 146,000 transactions, while the total turnover on cards amounted to 635 million manat over 503,900 transactions.
The Government of Azerbaijan intends to continue taking measures on the transition to cashless payments in the future. It deals with retail trade, foodstuffs and other service facilities.
Despite the order by the Cabinet of Ministers to transfer the services at those facilities to the card system by the end of 2007, this process has not yet been completed and is unlikely to be possible by the end of this year. The Minister of Taxes Fazil Mammadov said earlier that to ensure the efficiency of POS-terminals, the ministry is negotiating with banks to reduce the high fees for banking operations, which do not satisfy the enterprises.
The order by the Cabinet of Ministers dated February 3, 2006 determined the criteria for the installation of POS-terminals and a timetable for their step-by-step implementation on the territories during 2006-2007.
Territories |
Period of completing introduction of POS-terminals in the retail, catering and services, where cash registers were installed or to be installed |
|||
By 1 July 2006 |
By end of 2006 |
By 1 July 2007 |
By end of 2007 |
|
Sabail, Nasimi, Yasamal, Narimanov districts of Baku |
With annual turnover more than 3000 manat |
With annual turnover more than 2 000 manat |
With annual turnover more than 1 000 manat |
In all other retail facilities, public catering and service irrespective of turnover |
In other regions of Baku and other territories of Azerbaijan |
With annual turnover more than 3000 manat |
With annual turnover more than 2 000 manat |
With annual turnover more than 1 000 manat |
POS-terminals are installed as part of the transition to cashless payments, and their introduction, like cash registers, will also allow the cash circulation and reduce the tax evasion.
As part of combating shadow economy and illegal business, the tax authorities intend to continue to monitor and verify the enterprises, evading tax and violating tax legislation.
Today in Azerbaijan, over 90 percent of operations with plastic cards accounted for cash withdrawals at ATMs, which negatively affects the development of cashless payments, Azericard processing center said. Despite that over recent years, a network of ATMs and POS-terminals has grown significantly, and the number of cardholders has increased several times, all the existing infrastructure of cards is not effectively used.
Further development of the card market depends on how quickly the infrastructure for receiving cards will develop, especially in rural areas where there are no appropriate channels of communication. It needs to hope that the population will recognize the payment card seriously for a long time.