Banks have to keep abreast of innovative technologies mainly when it comes to payment instruments to be able to maintain their fair share of the payment market, says the managing director of Informatics Services Corporation – a leading provider of banking and payment solutions affiliated to the Central Bank of Iran.
Addressing the Iran Transaction Exhibition on Wednesday, Aboutaleb Najafi recommended banks to move toward open banking.
“Given the presence of new and innovative players in the [payment] industry, banks should beware that they could lose their share in the payment market if they don’t make changes to the current trend,” IRIB News agency quoted him as saying.
Reiterating strong ISC support for fintech companies, Najafi underscored the positive outcome of new technologies in different industries, including the banking and payment industry.
“In all industries innovation has indeed delivered and the banking industry is no exception,” he said, referring to the increasing penetration of hi-tech in the global banking industry.
Newcomers
Regarding giant tech companies entering the emerging payment sector, he said some newly-developed domestic startups, such as Iranian e-hailing company Snapp and major online retailer Digikala, are moving into the domestic payment market.
“This should be a clarion call for banks. They need to move toward open banking and build closer collaboration with fintechs and innovative payment startups.”
To remain competitive and relevant, he said, banks have to do away with traditional payment services.
Open banking is a practice that allows provides third-party financial service providers open access to consumer banking, transaction, and other financial data from banks and non-bank financial institutions through the use of application programming interfaces (APIs).
On the international stage, giant tech companies such as Google, Facebook, and Ebay are trying to grab a bigger market share of the growing payment industry. Google offers peer-to-peer payment service through Google Pay, which is driving momentum in the digital payment sphere. Further, the search giant is making concerted efforts to strengthen its presence in this sector.
Strong Rivals
Google Pay has some strong rivals. Apple Pay, for one, had about 140 million users in 2018, and is projected to reach 225 million in 2020. Samsung Pay, from the South Korean electronics giant, is expected to reach 100 million users in 2020.
Facebook has just begun rolling out its own payment service, Facebook Pay. Initially available to users of Facebook and Messenger, it eventually also will be available to users of Instagram and WhatsApp, per the company.
Payments will be processed by partners such as PayPal and Stripe, and Facebook promises users advanced security and anti-fraud provisions, as well as privacy protections.
In Iran, financial decision-makers have said they welcome the operation of fintechs in the domestic banking industry. The CBI has drafted a framework in recognition of fintech activities.
Based on a CBI framework on the manner of cooperation of fintechs with banks and their operation in the domestic banking industry, the CBI will not get directly involved in the process of authorizing innovative financial services and functions merely as the developer of regulatory frameworks.
Fintechs will be linked to the financial sector through authorized financial institutions … Risks will be included in the institutions’ total risks based on a partnership agreement … In return, financial institutions will benefit from [fintechs’] high potential in developing innovative services, attract new customers and boost sales.
Banks and financial institutions also can outsource their operations to innovative companies. However, they alone are responsible for customer data and will be held responsible in case of fraud, abuse or data leak.
