Iranian Fintechs Propose a Way Out of Payment Fee Quandary

Iran’s Fintech Association has proposed a new fee system for online payment in which payment aggregators and payment service providers cover the network fees, which are currently paid by banks.
Payment transaction cost is one of the long unresolved domestic e-payment issues. The Central Bank of Iran has tried time and again but failed to rewrite the procedure acceptable to all sides.
However, in the new plan the CBI has put together a special working group consisting of all stakeholders, including fintech startups, to address the lingering problem.
The proposal was presented in a meeting at the CBI in the presence of officials from banks, payment companies and network operators, Milad Jahandar, representative of the association in the working group told the Financial Tribune. He seemed optimistic about the meeting. 
"The proposal calls on the CBI to stop setting fixed fees on transactions processed through online gateways, so that market players can negotiate fees based on their needs and the quality of services," he said. 
Almost all participants welcomed the proposal.
At present, banks receiving and making payments pay the bulk of fees because when a payment is made with a bank card, the bank receiving the payment has to pay a fee to the bank whose card has been used. 
This is over and above the amount banks pay as rent and support fees for each POS device to PSPs. Besides, a portion of the payment fee, 500 rials, is paid to companies in charge of maintaining the payment network. 

The current fee system significantly increases the final cost of money for banks and undermines their will and motivation to invest in electronic banking that has become a norm in most parts of the globe. 
In the new proposal banks are not obliged to cover the fees. It is estimated that elimination of online payment fees should cut banks' annual expenses by 16%. Payment transaction costs account for almost 60% of the total fees paid by banks.
"We initially decided to focus on online transactions because the payments account for a smaller share of the market, say  10%, compared to transactions made by POS terminals,"  Jahandar, who also is a co-founder of Bahamta, a certified payment aggregator startup, told the Tribune. 
As per CBI rules, aggregators are service providers through which business involved in e-commerce can process their payment transactions without having to deal with banks. 
Aggregators' business plan is totally fee-based…gateways of these companies processes 6% of online payments, he said. "But we earn more than the PSPs."
Jahandar does not subscribe to the school of thought that the public at large is reluctant to pay fees for banking services. "Acceptors are okay with paying fees if they receive efficient service." 
Unlike regulations in most countries, debit card holders in Iran are not charged for e-payment when buying goods and services. The decision (not to pay) was made years ago, when the CBI started promoting debit cards.
However, experts now say fees are necessary because you cannot use a service for free. They say people in Iran have a bad habit and usually expect other organizations to foot the bill. 
Apparently, the central bank is still worried about the possible consequences of charging card holders for making payment transactions. Therefore a third plan, like what fintechs have proposed, seem to be more viable and could be acceptable.
"We [payment aggregators] are the real beneficiaries of the market…we believe costs of transactions should be paid by aggregators and PSPs rather than banks. This would help improve the competitiveness and enhance the quality of payment services," Jahandar said.
Established in 2017, Iran's Fintech Association seeks to bring industry players under a single roof, mainly to find a solution to their problems and boost innovators’ relations with regulatory bodies.
The proposed plan also seeks to promote a competitive environment in which all PSPs have an equal opportunity to expand their market share.  
"Currently, a number of payment companies are paying a part of the fees they receive from banks to major acceptors, such as online shops" Jahandar said. "PSPs not interested in these unhealthy activities have no chance of expanding their business."
Twelve PSPs have so far have a CBI license to operate in the domestic market. The central bank’s stringent regulations for setting up a PSP have so far disallowed the emergence of new players in the lucrative market. 
According to official data, more than 2.73 billion transactions worth 3,886 trillion rials ($16.8 billion) were processed by PSPs in the calendar month to June 21. 
POS devices accounted for 90.62% of the total transactions by processing 2.47 billion transactions worth 3,243.9 trillion rials ($15.44b) in the said month. Online gateways were next with 5.51% transactions and mobile instruments 3.87%.