Credit card experiences in the new generation of the payment market

Credit card experiences in the new generation of the payment market

Part II

We don't always have to have money in our pockets to experience the good feeling of shopping, it is enough to have behaved well so that everyone wants us to feel this way, even if they pay for our shopping. A living and dynamic credit ecosystem means that.

The first part of this round table entitled "Credit card story; We read the narration of a multi-part series. Stay with us in the rest of this round table.

• Mr. Shokohi, in your opinion, what role can the central bank play in terms of setting regulations?

Shokohi: Last year, when I was at the central bank, I suggested to my friends that we should have centers as credit card service providers, just as we have payment service providers. In other words, there should be companies like PSPs that sign contracts with banks and sell credit to them. If you remember, twenty years ago when PSPs started, the banks had a lot of resistance. However, some new banks started PSP and after some time the resistance was broken and the state banks were also forced to start PSP companies. Finally, the central bank showed courage and separated them from the body of banks. It seems that this way, which has also responded well, can be useful in providing credit card services and installment sales.

• At present, one of the intermediary circles are "Pishgaman" and "Apsan" companies; If we accept that banks are not suitable institutions for providing credit cards, in your opinion, what model can play a good role in Iran?

Shokohi: I was the creator of the "Pisgaman" model and I started it with this goal and worked hard for it. We started this work at National Bank, which is one of the largest banks in the country, because it was not possible to cooperate with other banks. The second model that friends started is the idea that banks are not the right institutions to provide credit cards. If the idea is supported, it can be developed. We cannot judge alone in the banking sector, banking friends also have concerns and that is why they could not develop the credit card sector. Therefore, we are taking this issue out of the domain of institutions such as banks so that we can think about its development, although in the regulatory part of this process, the central bank should help and give permission.

• Do you believe that the central bank should give permission to these types of companies that intend to issue credit cards and take over all their issues and problems?

Shokohi: Yes, the central bank announced conditions for companies that wanted to become PSP in a certain period, the same process can be followed here.

• Institutions such as payment assistants and payment makers, etc.: they came into existence later. After 1990, no one got a PSP license, of course, it was not provided by the central bank either. But the central bank stood up and stabilized it, and we now have stable conditions in the field of PSP. However, the central bank did not enter the field of credit card and did not reach a reliable decision and policy about it, and for this reason, it is natural that it cannot legislate in this field.

• Do you believe that we are also facing a challenge at the regulatory level?

Shokohi: Everything starts with regulation. For example, when the central bank says that you can offer credit cards up to 200 million, I am surprised by this permission because it shows that our friends in the central bank are strangers to this issue and make non-expert decisions, and it turns out that they are still The credit card issue is not well settled in the central bank.

• Mr. Eftekhari, address two issues; One is the challenges at the regulatory level and the other is the lack of intermediary institutions.

Eftekhari: The point is that today we do not have any license to issue and manage a card between a financial institution and the public, apart from the banking body. Definitely, the regulator should think of a solution for this problem. If you take microfacilities from the banking network, which is very expensive for banks, the enforcement work of banks will be reduced and this behavior will be facilitated. We are trying to create this culture, although it is a difficult task. For example, regarding the management of the wallet, after several years of follow-up, an instruction finally came, but the duties of the various departments are not specified in it. We in "Apsan" are looking to obtain a driver's license, although we have not succeeded in obtaining it yet. Regulators in other countries, including our neighboring country of Afghanistan, are ahead of us and have given organizations apart from PSPs the role of managing wallets and conducting non-contact and card transactions, but in Iran only PSPs were allowed to do this.

• Do you consider contact and non-contact platforms, card readers and mobile phones to be effective?

Eftekhari: Yes, it is definitely effective; Cultivation for the credit category, considering the history of the credit card in its convenient form, requires new presentation platforms that mobile and other platforms can help. On the other hand, in generation z that we are facing today, there is an interest in new solutions and the heavy processes of getting a card and things like that are not considered.

• Therefore, the development of these platforms is the responsibility of the PSPs and the central bank cannot interfere and create development in all sectors.

Eftekhari: When PSPs entered the QR space, the central bank stopped them and did not allow development. "Asan Pardakht Bank Parsian" entered the QR space, but they also blocked it, and it took six months for "Shapark" to allow them to enter this business. The central bank should give permission to other companies to operate in this field, apart from PSPs and the bank.

• Mr. AHamdipoya, if you have a point on the regulatory level and interface links, please state.

Ahmadi Poya: Once the validation is done, the bank will deal with the issue with ease and confidence. Due to the very strict requirements and standards, the bank becomes risk-averse and must identify all risks and design appropriate coverage solutions for them; Of course, the bank must take risks knowingly about the existing risks in some business areas, but Iranian banks are only looking for products and services that do not have any risks; For this reason, credit card is not attractive for them.

• Many banks are not even card processors, how do you categorize them?

Ahmadi Poya: In fact, these are tps (third party servicers) that provide the bank with various services on the card. Processors do exactly what PSPs do.

Friends who are outside the banking sector and have decided to offer a credit card product are facing a lot of risk in this area, because it is explicitly stated in the usury-free banking law that the provision of facilities and credit is within the authority and duties of financial and credit institutions licensed by the bank. It is central. In other words, only banks are authorized to issue credit cards and provide facilities. Many companies that give small loans today do not say that they give loans, but they say that we give the possibility of buying installments to our customers so that they can get rid of this rule with this trick. For this reason, the regulator is very strict and must provide space for private companies to enter the field of lending and providing credit products and services. When private companies start working and are regularly monitored and audited by the regulator, the financial reports and the amount of loan repayment and the percentage of defaults will be clearly defined, and in this way the bank can trust and entrust the process of validation and provision of micro-facilities to the private sector. On the other hand, the private company intends to attract customers; Therefore, he designs the product attractively, and for him UI and UX and pleasant customer experience are important, so that the customer gets credit or obtains facilities in the easiest and fastest way without any documents or guarantors. Therefore, private companies are attracted to LendTechs like AntFinancial, which provide loans in three minutes. This process is very important for Generation Z, because they believe that by registering quickly and in the shortest possible time, credit or loan will be received. As a result, such a product or service is very attractive to the young customer of the bank. On the other hand, the bank tells the seller that I will also give your customer the ability to buy from your store, that too in a market where liquidity is low; Therefore, you should also give a percentage discount to the customer and give a percentage to the bank. This process is accepted everywhere in the world, but here it is difficult for the sellers to pay the service fee. The acceptor or the seller benefits, because the market has expanded and the card holder has got an attractive product and his purchasing power has also increased, the bank is also relieved that in the case of the return of principal and sub-funds, it has successfully allocated resources and the regulator He has also overseen a transparent financial flow. All stakeholders benefit from this turnover. On the other hand, if such a product is not provided, many times when people have an urgent financial need to purchase a specific product but do not have the cash for it, they have to go to non-transparent financial networks and everyone will suffer except for a few profit-seeking people. But the important point is the definition of credit in the purchase process. In the credit card debate, there were Shariah problems, and the knot of this problem was opened with the "Murabaha contract". Therefore, credit must be defined on the purchase. On the other hand, sometimes customers need cash and want to convert their credit into cash by paying a fee, which is called cash advanced or "credit card cashing" in the international credit card system. In this situation, no purchase is made and the Murabaha contract is invalidated and is prohibited according to the requirements of the Central Bank. The regulator must find a solution for this need and other international credit card options that have not yet been implemented in Iran, so that all the capacities of the credit card product are used and this market is transformed and developed.

• In your opinion, what is the most important factor of slow development?

Ahmadi Poya: The first and most important thing is the lack of validation mechanism accepted and cited by banks. A university professor or school teacher may have a low turnover, but due to their personality and high status in society, they value their credit and try to pay their installments on time. Therefore, high credit can be assigned to them. But because of this low financial turnover, the bank allocates the least amount of credit and loans to them, and in practice, credit is injected where there is no serious need, and this issue will cause an imbalance in the distribution of wealth in the society, and the financial inclusion of the society will also be affected. will be affected.

• Mr. Shokohi, what is your suggestion for starting the engine driving the economy in the retail sector, which includes credit cards?

Shokohi: Let me mention an important point; Who are our credit card beneficiaries? Creditor, cardholder, seller of goods and services. We are not allowed to withdraw cash from a credit card due to Shariah issues. Here, it is not bad to mention the late Mousaviyan who worked hard in this field. He was a very honorable and lovable person who died last year due to corona disease.

Therefore, the interests of all stakeholders must be properly definedbe; Don't think that the bank will lose a profit, but the customer should be willing to use the offered product. So, we have to deal with customers individually or segmentally, that is, segment our market and know with whom we do what and to whom we offer products at what level. Our third beneficiary is card acceptors or stores that sell by credit card. In 1982 to 1983, the PSP system was formed in Iran by adapting the international system, and according to it, sellers must pay a fee called acceptance fee for the services provided to them. When we provide a service to the customer as a creditor and provide him with cash to buy from somewhere, in fact, the store gets the benefit from the credit that the bank gives to the customer, and the service provider has the right to a part of the profit. It is a normal percentage to receive from the seller. In the world, this process is conventional; That is, we have an acceptance fee from 1 to about 10 percent, which depends on the trade and the sector that interacts. This amount is the amount that covers the income of the part of giving the product cheaply to customers, in the sense that the customer should use this product in the cheapest way, as in the world "Visa" and "Master" do not receive any profit for the purchase period. they do not. In Iran, due to the high rate of inflation and interest, such a thing cannot be done. The central bank has put two choices in front of us: one is to receive your profit from the customer from the day the transaction is done, and this causes the product's desirability to decrease; Second, get a percentage from the seller, which, of course, the central bank, and at some point some big banks, destroyed this building in the 80s, and at another time, they started online payment to the receiver, which went to the seller's account as soon as the card was swiped, and of course these It was out of standard. Therefore, that building was destroyed and now there is a lot of resistance against the return of this correct and standard procedure to the market.

In order for such a business to be formed in the market, we must be able to accommodate the merchant fee. In my opinion, it is possible and many stores are willing to do it. We have to settle for a small but convincing number of one or two percent to cover the portion where a credit card holder can use free or free credit each month. My calculations are that the product will definitely be profitable and it will be more profitable for the bank than the facility, it just needs to be explained so that the banks are convinced as lenders. Of course, this process has better revenue than convenience, because it makes customers feel that the credit card is a product that costs them little or nothing until the moment they spend. On the other hand, stores should also know that it is with the creditor's financial power that they were able to sell their goods.

• Perhaps one of the challenges is that banks are constantly being approached about credit cards when they are not their main audience.

Shokohi: They are creditors and give credit.

• Other institutions can also provide credit. In practice, the loss that the bank suffers through the facility is more than the credit card; Therefore, it is not a question of resources.

Shkohohi: The loss is not more, by the way, the profit is more; But the point is that for the credit card to become popular, a very large amount of credit is needed. In Iran, with a population of 80 million people, if we assume that we can give credit to 20 million people and consider 10 million Tomans for each person, 20 million divided by 10 million is 200 thousand billion Tomans, and this is a very large number that banks can They do not provide it. For this purpose, other markets should be resorted to. My suggestion is to use the capital market; I differentiate between installment sale and bank credit card. Many sellers are also lenders in installment sales; That is, it is not the bank that provides credit, but it is the seller that gives credit. A large part of credit sales is concentrated in this sector and has a high percentage.

• Mr. Eftekhari, look at the problem from a solution point of view, hasn't the fact that we keep addressing the banks caused a deviation?

Eftekhari: Banks were in charge of credit cards, and in practice, everyone's eyes were on banks. I think we need to do some basic things about this, and that is for the regulator to formalize and license card processors and service providers. Definitely, the security system and the KYC system should be entrusted to this group; That is, we still enter into every bank project, the first mistake or negative view we have of other institutions is that KYC is not done properly. Therefore, such a process should be entrusted to these institutions so that they can communicate with the end customer. Definitely, with such an event, these institutions will go after their main work, which is to give credit cards and credit to people, and the bank will return to its ori

Have validation. Another thing that is missing from these, and I think it would be great to see it form, is sharing validation. The company "Rating Iranians" collected data, but again the same banks were gathered together and not many institutions are among them. Therefore, there should be a place where the custodian of all financial institutions and even payment platforms aggregates behaviors and establishes the basis of credit.

People's credit card and credit should indicate their credit rating; If the credit card becomes a sign of people's credit, then it becomes important and if the credit card is considered as a facility, we cannot consider the correct basis for it.

• Mr. Ahmadipooya, were we ever wrong to address the banks about credit card development?

Ahmadi Pooya: Banks everywhere in the world are in charge of managing the banking business and are responsible for accepting their risk. Banks are custodians and this does not mean that they will be eliminated by the entry of other companies. Banks must provide the required resources and the bank can agree to leave the difficult process of validation and microcredit to private non-banking companies.

Another important point is the reform of the fee system in this case; When there is no difference between a debit card and a credit card, and they are treated the same in stores, and in the bank, the equivalent of 120% of the principal and sub-funds of the credit card is received as collateral and guarantee, why would the customer want to go to the credit card and use the card Debit itself does everything, and in case of lack of liquidity, it uses traditional methods of facilities or conventional non-transparent methods in the market. This situation destroys all businesses defined in the field of credit, so what is the difference between credit card and debit card. All over the world, discounts and benefits are applied to credit cards that the consumer can use, such as the credit card that "Visacard" or "Mastercard" jointly issue with the world's leading airlines and offer special benefits and discounts to the customer. It is considered on all kinds of airline services, such as discounts on tickets. Therefore, credit card is an important strategic banking product in the banking system of other countries, while debit card is very prosperous in Iran's credit system.

• Do we not have a suitable incentive system for using a credit card?

Ahmadi Pooya: Actually, this is the first challenge; The second challenge is that when validation information is held by a particular entity and not shared, the field faces many problems. "Iranian" validation company only provides services to banks; Until some time ago, it did not even provide service to payers, which I hope has changed now. Now consider that a large e-commerce business in the field of supply platform wants to offer its customers purchase credit and wants to accept the risk and credit with its own resources; First of all, he can access the credit information of "Iranian" company with difficulty and through several intermediaries, and secondly, he expects to be able to include negative points and cases of non-payment of customer installments at the end of the credit report of "Iranian" company, but such a request is not accepted and The risk of the crediting process increases for that business. On the other hand, it is important to share authentication information while maintaining privacy rights of individuals. This issue is also raised in the discussion of data ownership. The customer says that he allows this company or bank to access all of his credit records in order to analyze them and assign him the credit he needs. But other banks do not share his records with this bank or company and say that this information is confidential. I will tell you an example, in a company to discuss the field of validation, we asked a public service company to give us the information of those who pay their bills such as water, electricity, telephone, etc. on time, and vice versa. it; But they said that this information is confidential and cannot be published! We didn't ask for information about the subscriber and his monthly usage or anything like that, we only asked for his compliance with those companies, which was not provided to us. When there is no comprehensive credit measurement system, the validation is limited to the information of the customer's past banking behavior, and the results obtained are not sufficiently accurate, and the bank cannot take risks based on it and not receive guarantees and collateral from the customer.

• What actions does "Apsan" take for its risks?

Eftekhari: We use our own internal network and actually, to manage our risk, we first entered into contracts with organizations and started giving credit to the employees of the organizations. But today we use the users of the "AP" system and we operate on this network and we validate based on people's financial behavior. We do not rely on any bank validation element at all, and for example, a person who has paid a certain number of bills or a person who has purchased a certain amount of his plane ticket from "AP" and things like that are the basis of credit. We are trying to create the main form of credit based on financial behavior here and gradually introduce it among people. In Apsan, we are not going to consider the financial behavior of the person in the banking network, and we have almost no installments, and our credit periods are two to three months. After joining our network, the initial credit is given by the "Tali" brand, and if a person is uncredited, he will also be discredited in our network, and no more credit will be given.

ginal place, which is a financial institution. This requires encouragement and punishment, i.e. the regulator should help to provide encouragement and punishment. In the world, if someone does not settle their credit card, they may be deprived of daily life services, and in this way, the elements that the government has provided for the credit card make people consider it mandatory to settle the credit card.

Validation is also very important. In my opinion, the traditional validation model should be changed and the individual's financial behavior should be collected in different networks so that we can create a single entity.

He does not receive money, but the one who settles on the course and is well-accounted, also receives more credit every day in "Apsan". Our credit is called "tali", which means "line" in Latin, which in the past was the real meaning of credit; A person would buy on credit, and the shop owner would put a line on his ruler, and after settlement, all the lines would be scraped to be erased, and the buying process would start again from the beginning. This is where the term "stuffed wooden stick" comes from.

Ahmadi Pooya: It would be very exciting if the second model were launched, but the first model is more common; It means that everyone in this field starts from different organizations. For example, say to a large organization that we give credit cards to all your employees; That organization also promises that if its employees do not pay their installments, their salaries will be deducted, which in practice does not mean giving credit. On the other hand, many organizations do not go under the burden of this issue due to signing one-year contracts with their employees.

Eftekhari: Definitely, starting this process requires culture building through which we can enter different colonies; Even in the organizational field, let's step further and include the family of the people of the organization. Due to the lack of any credit rating in Iran and in order to obtain data from individuals, we have to start in some places from these organizations and centers that have subscribers; But maybe, for example, "Apsan" will not sign a contract with any organization in two years. Definitely a big part of our 1400 plan is b2c customers; This means that the customer is directly connected to "Apsan" and his behavior is monitored. Finally, everyone's help is needed to create a culture of using credit cards.

Ahmadi Pooya: As you mentioned, one of the methods used by LandTechs is to create a credit network and develop it, and the lending process is based on the mentioned credit network. That is, work starts from somewhere in a specific and reliable organization or group, and according to the credit behavior of people, they are allowed to introduce new customers, and a credit network is formed little by little, and whoever has any history, is transferred to his representative. These innovative ideas are specific to the emerging private sector, which can solve the problem of validation with bold ideas and design and present an attractive credit card product to the customers of the country's bank network. Shokohi: As someone who has made a little effort in the field of credit cards in the last twenty years, I wish this field to develop.

Source: Future Banking Monthly