Central Bank Sets Conditions for Fintechs

The Central Bank of Iran has clarified the lawful framework for the operation of  fintech companies, though policymakers could well reverse the trend.

Nasser Hakimi, head of CBI’s IT department, says the CBI allows fintech firms to continue operating so long as they are not involved in money creation, currency exchange and offering [their own] payment tools (like cards) and  attract deposits, way2pay.ir quoted him as saying during the third FinTalk meeting in Tehran last week.

“The CBI has strict rules about ‘money creation’ and will counter any move considered as an act of money creation,” he said.

Any financial operation using a medium as store of value, standard of deferred payment, and a medium of exchange will be considered as an act of money creation, according to CBI regulations.

However, “A service should have all these characteristics in order to be considered as an act of money creation,” Hakimi said, emphasizing that the CBI will definitely oppose businesses involved in money creation.

 “As per law, only the central bank and the banking system are allowed to create money by issuing money and checks.”

However, the official added that fintechs should make sure they are not creating money “by removing one of these features from their services.”

“The third factor could be deleted in almost all the businesses,” he added.

Fintechs are also warned against offering forex services, as conducting such services is a function restricted to the CBI (by selling hard currency to banks), banks and money exchange operators.

“Currency exchange, conducted by any other entity or individual other than the aforementioned, will be considered smuggling,” he told the conferees.

Moreover, fintech firms are not allowed to offer [their own] payment tools like cards, or attract deposits like banks and credit institutions.

Shaparak Company, affiliated with the CBI and in charge of the technical regulations of the payment market, has recently announced that every payment tool needs to be authorized by the company before being offered to the public.

Hakimi also elaborated on the legal framework for operation of payment aggregators.

These “payment aggregators” act as mediators in online payments. Almost a dozen of them have been helping newly established online businesses sell their goods and services online.

Aggregators charge customers a fixed percentage for their transactions. They also keep the money for a certain period of time after the transaction takes place.

Aggregators are allowed to charge extra for processing transactions; they are also permitted to settle the money with delays, according to the official, “But they cannot use payers’ money for their own benefit,” that have created some legal bottlenecks.

“We have no final solution for addressing these issues yet and suggest the use of escrow accounts.”

Other Bodies    

The CBI is apparently serious about its main duty i.e. keeping people’s money safe. But experts at the glassy CBI tower in upscale Tehran are out of touch with fintech operators, showing no interest in sharing their expertise with them.

Clarifying technical and legal ambiguities about the workings of fintechs in a three-hour Q&A session, was seen as a timely move towards improving the state of financial technologies.  

All said, the fintech sector still has no single regulator, and the central bank does not have total authority over the sector.

Hakimi did say that the CBI is okay with the interest aggregators earn through late settlement of transactions, but he noted that there are “other bodies” that might not be in favor of such operations.

He confirmed that “fintech-related bodies will soon come together to make the final decision about the state of aggregators,” probably shutting them down.

Umbrella of Banks or Central Bank

The official called on fintech firms to get closer to banks. “The current condition of financial markets in Iran is totally different compared to other countries. You cannot survive unless you operate in close proximity with other players in the market. You should be cautions enough to keep the partnership beneficial for both sides.”

Banks, naturally, are not expected to be good partners for fintech firms. In fact, banks see fintech firms as potential rivals.

Hakimi’s suggestion could be interpreted as being both in favor of banks and fintech firms.

Dismantling fintech firms or leaving them to their own devices are not the only options for the regulator in the current market conditions. Financial technologies are growing both in size and quality, expanding the scope of financial services, especially when it comes to customer relations.

Iranians are interested in financial technology. The CBI could embrace the opportunity and take the lead in supporting fintech firms. Working under CBI’s umbrella allows fintech developers to fulfill national interest, offer secure and reliable services. It could also help promote healthy competition in development of payment and electronic banking services.