Kourosh Parvizian, the CEO of Parsian Bank and head of Private Banks and Credit Institutions Council has called for a fair and meaningful reform in the fee system for banking services.
“With the recent decision by the Central Bank of Iran regarding the new model for bank fees banks’ business is likely to improve, getting close to systems used by banks in most countries. The new commission scheme could help increase banks' investment in the payment services. By making new investments and upgrading the payment network, we can expect improvement in the quality of services,” he said in a talk with Electronic Banking Magazine.
He pointed out that the commission model should be designed to benefit all parties in the network, enabling them to recoup service costs in proportion to their investment. “All actors in the payment network must be able to grow and prosper.”
“As a representative of private banks, I would like to express gratitude for the CBI’s efforts to reform the commission model. For years policy and decision makers tried but failed to charge end users [cardholders] with a portion of the e-service cost.”
The CBI unveiled a long-awaited fee model for e-transactions per which payment acquirers, shops and retailers will be charged for transactions via POS terminals.
Payments for services such as issuing bank cards, guarantee letters, cash transfers, interest-free loans and LCs are the main sources of income for banks. However, customers do not pay a fee for transactions within Shaparak Network, the domestic e-payment network. Now that is supposed to become a thing of the past and people will have to pay when using their debit cards.
Banks receiving and making payments via cards bear the bulk of payment 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 is used. This was on top of the amount banks pay as rent and support fees for each POS device to payment service providers.
Unlike the past, the new system will require shops, where POS terminals are used, to pay a fee for each transaction they process.
3 Sides Responsible
In the new model three parties will bear the cost, namely the merchant, issuing bank and the acquiring bank even though banks are still responsible for the large portion of the costs.
Acquiring banks used to pay between 500 to 2,500 rials for each transaction. Whereas, in the new system acquiring banks will be charged 0.0005 rials as transaction fee.
“We hope that with the CBI move to reform the commission mechanism thing will change for the better,” the banker added.
He said banks make hardly any money from commissions. “In contrast in some other countries individuals are charged for parking money in banks.”
“Almost all depositors have confidence when depositing their money in banks. As such, the cost of security and protection must be taken into account.”
Parvizian highlighted the importance of ensuring that all actors involved in the payment network, including consumers, payment companies, merchants, banks, and national networks such as Shaparak and Shetab, can recover their costs based on their role in and contribution to the network.
“Those involved in the processes of e-transactions and incur costs should benefit from a minimum revenue to help ensure the sustainability and improvement of the services they offer.”
Upholding Fairness
CBI research indicates implementation of the new model should reduce bank costs by 48% that will instead be passed on to retailers.
Based on the new formula, merchants will pay a fixed fee of 1,200 rials for transactions below 6 million rials and 0.0002 (two-thousandths) of the transaction amount up to a cap of 40,000 rials for transactions above 6 million rials.
The current transaction ceiling is 1 billion rials. Under the new scheme a merchant will have to pay a maximum 40,000 rials for a 1-billion-rial transaction while (debit card) issuing banks will pay a fixed 240 rials for each transaction.
The CBI says almost 40% of retailers pay less than 10,000 rials per day in fees. The average daily fee for nearly 62% of the shops in the new system should not exceed 20,000 rials simply because such retailers have a high number of small transactions
However, acquirers with larger payment transactions, such as currency exchange shops, gold shops and financial service providers will be charged higher.
The banker stressed that it is crucial to avoid burdening one party with heavy costs while channeling profits to another. “Under the previous system, it was visible that services were provided by one party while the costs were covered by other parties. The new commission system has rectified this issue; however, there is still room for improvement.
“Suggestions must be taken into consideration,” Parvizian added, probably addressing the CBI.
He noted that banks incur costs for tasks assigned by the government, such as responding to inquiries and providing services to various government organizations. “Banks do not get paid for these services.”
“On the flip side, banks pay for the information they receive from government bodies, such as the tax organization, which imposes [added] costs on the lenders.”
He noted that proposals have been made in the past regarding this matter, “but their implementation was suspended. We hope that this too will be addressed by the CBI.” He did not elaborate on the proposals nor say why they were suspended.
Visible Mismatch
In the past the policy of the CBI and the government was to ask banks to focus on short-term deposits, Parvizian recalled.
“Now there are no long-term deposits of five years or more. This is while the allocation of facilities assigned to banks by the government is long-term.”
He added that 15-year, 20-year housing loans, loans for marriage and other types of lending have a repayment period of more than three years. “Under such circumstances, there is a mismatch between the policymakers' targets and bank resources.”
“Even if banks do make a profit on people’s savings and deposits, it is almost always used to pay for social protection loans ordered by the government,” Parvizian said.
