E-banking is an inseparable part of the banking industry and Iran needs to put a proper system in place to modernize the industry hampered by years of financial mismanagement and economic sanctions.
“Banking operation” and “payment system” are integral parts of e-banking industry. Iranian banking has relatively progressed in the latter, but lacks planning and sufficient expertise in the former, according to an expert familiar with monetary and financial policies.
“We’ve achieved success in e-payment system, so we have the same status as Turkey and Saudi Arabia in the region,” Nima Amirshekari, director of e-banking group at the Monetary and Banking Research Institute, a subsidiary of the central bank, said in an exclusive interview with the Financial Tribune.
“However, there will be loads of work to be done if e-banking shortcomings are to be addressed completely,” he added.
The expert said one of the main reasons e-banking services have slowly grown in the past decade is the process the central bank and other organizations need to go through before making the e-banking tools Islamic.
“Whenever an international e-banking instrument, let’s say a credit card, is imported, it needs to go through a time-consuming, complicated process to be transformed into a tool compatible with the Islamic law,” he said.
“In some cases the tool may be changed so much that it would become useless.”
But he believes that the lack of an integrated online system should be blamed the most for the present state of e-banking services in Iran.
Amirshekari, also an advisor to the managing director of Informatics Services Corporation, affiliated with the central bank, said creating a “credit bureau” that collects information related to credit ratings of individuals would be the “best solution” to the issue.
The system can make the collected information available to banks, mortgage lenders, credit card firms and other financing companies, so they can make decisions on granting loans and providing checkbooks.
“Credit bureaus are common throughout the developed world and the system can work under the government, private sector, or a combination of both,” Amirshekari noted, suggesting that in Iran the system should better be managed by lenders.
“Banks can make an investment to create an integrated online system to collect the information of customers and assess their credit before offering them a service,” he explained.
Some of the Iranian financial institutions, including big commercial banks already have a database to estimate credit ratings of their customers, but they “resist to share” it with their peers, he said, adding that “cooperation of other agencies with the banking system would help complete this cycle.”
Amirshekari said if the judiciary system, traffic police and education centers, among other organizations, can share their information, financial institutions can more easily estimate individuals’ credit ratings.
For instance, if a customer failed to repay a student loan during his education or violated the traffic law or committed a financial crime, their credit rating would suffer, he elaborated.
The expert believes the credit system would even help improve social behavior, as citizens want to make their credit score better.
On reasons behind the delay in the creation of a credit bureau, Amirshekari blamed western sanctions imposed on Iran over its nuclear energy program, absence of technical expertise for development of e-banking solutions, resistance of domestic organizations to be cooperative, and reluctance of banks to share databases with their peers.
He named the central bank as a capable entity to help run the project in the country but insisted that the regulator should only have a “supervisory” role.
But the central bank seems to be unwilling to give priority to a credit bureau, as it is busy curbing high inflation and controlling the rising money supply. It also needs to keep an eye on hundreds of uncertified firms, including buearu de change, credit companies and funds operating across the country.
Additionally, with the sanctions set to be lifted in a matter of months if nuclear talks between Tehran and the six world powers known as the P5+1 succeed, the central bank will also have to be concerned about how to manage billions of dollars in Iran’s funds frozen overseas due to sanctions, Amirshekari noted.
“They [central bank officials] are not going to give priority now to a credit bureau but if they decide to do so, they will definitely manage it in the shortest possible time,” he said, exemplifying that Checkavak, an automated clearing house system for checks, and SATNA, internationally known as Real Time Gross Settlement, are online solutions the central bank has successfully launched in recent years.
SATNA was established in 2006 for high-value interbank transaction settlement and started accepting inter-customer transactions from 2008. With commercial banks having joined the integrated system, the regulator provides real-time transactions of all banks.
Amirshekari supported SATNA and Checkavak as systems that have helped prevent financial fraud to a large extent.
He told the Tribune that a credit society is safer than a cash society and “once our cash society is transformed to a credit one, citizens can trust one another and do banking transactions through a credit system, a move that could lead to a fall in the money supply and hopefully lower inflation.”
