One of the most increasing trends in Azerbaijan is the digitalization of the country's financial sector, and one of the directions in this area is cashless payments, their advantages and future situation, Erdem Chakar, Mastercard Country Manager for Azerbaijan told Trend in an interview.
The manager also talked of one of the directions in this area - cashless payments, their advantages and future situation.
What is the mission of Mastercard in Azerbaijan, and what are you currently doing in this direction?
If very briefly, the Mastercard’s mission is increasing the share of non-cash payments among the Azerbaijan’s population. Moreover, the non-cash money is pure not only in terms of transparency and financial security, but also in the full sense that the coronavirus outbreak in China recently showed, where they really began to avoid banknotes and prefer non-cash payments.
In 2003, after the outbreak of Severe Acute Respiratory Syndrome (SARS) in Hong Kong, there was also an increase in contactless transactions in Asia, because people did not want to touch not only cash, but even pin pads to authorize the transaction. Now the epidemic has gone beyond China, transformed into a pandemic, and all other countries of the world have also begun to avoid paper money. Herein, the demand for non-cash payments has increased many times.
Speaking about what we are doing in this direction, I will start with tactics, if I may call it that. It lies in the fact that there is a tendency that young people pay more through cards, and that is why we wanted to invest in student cards like smart student cards, since a student are an excellent carrier of cashless payments. Most of them are far from office work, they often and everywhere use their cards, showing an example and instructing their parents, friends, and even sellers who do not know how to use them, thereby popularizing cashless payments and making them part of the local culture.
That is why we also carry out various campaigns targeting youth. We are currently running a campaign in the Azerbaijani Bravo supermarket chain. If you pay with a Mastercard card, you participate in the lottery, and if you pay contactlessly, then each such transaction gives ten chances to participate in the drawing of the latest iPhone model every month and twice a year - in June and at the end of the year, or at the beginning 2021, the latest Lexus car is also available as a prize.
We do not make any money on this. This does not affect our income model, but we want people to use their cards more. And as soon as you start using contactless payment, you’ll see how fast it is compared to cash transactions. Just imagine how one transaction would drag out if, for example, you were in a store and wanted to buy a product that costs 3.52 Swiss francs, but the seller did not have a change from 10 francs, or he does not even give you 6.5 francs, since he considers it his duty to count exactly 6.48 francs.
A similar anecdotal incident occurred in the Bravo supermarket chain. The manager, the cashier and I decided to check that which transaction will be completed faster, in cash or by card. Since the manager’s presence played the effect of observer and the cashier worked to the limit of his capabilities, the transactions were approximately the same. Then, when we were about to leave, one guy came and took the goods at a price of 1.28 manat (75 cent). Since the cashier didn’t have change, the transaction dragged on several times. Therefore, it might seem that payment by card is not faster than cash payment, but in fact, without such cases with the search for change, a digital payment will always be equally fast.
We also arrange these kinds of promotions in which we send mystery shoppers to the store, and if the cashiers ask them if they have a card, if they want to pay it and if they want to do it in a contactless way, the cashier can get a reward. Thus, we make them messengers who will inform the public and thus serve the project Cashless Azerbaijan 2018-2020.
For us, this is only the beginning of the way, because right now, only 20 percent of all card transactions are in POS terminals, the rest is cash withdrawals. In other countries, this is more than 40-50 percent. Nevertheless, three years ago, the number of non-cash payments was only 10 percent, so we almost doubled the use of POS terminals, but we have more opportunities, and the way to this lies with a digital approach to everything, and I will tell you a little more about it.
The state program for expanding digital payments in Azerbaijan for 2018-2020 ends in 2020. What role has the payment system played in the state program of Azerbaijan for the development of cashless payments over the past period and what is your assessment?
Actually, the initiative to create this state program came from the Central Bank of Azerbaijan. As MasterCard, we conducted a consultation project in 2017. We helped the CBA write a program, brought in experts from Turkey and other markets, invited top management. A team of advisers worked here for about 8-9 months, worked with the Central Bank of Azerbaijan, attracting experts from the region, as a result of which the program was adopted as a state one.
Nevertheless, we provided the country with ideas and advice not only on payments and the like, but also in other areas, such as calculating the economy, taxes, digitalization of the economy and social reforms necessary to ensure economic transparency. Thus, we trained in all areas, and here our competitors are not other payment brands, but cash, because it is still the largest part of payments in Azerbaijan, as in other markets, even in Turkey, where the share of non-cash transactions significantly higher, but collectively still inferior to cash payments. Thus, we always consider cash as our competitor, and we believe that the transformation of all payment transactions into non-cash will make the economy more transparent and secure.
So, about what we have done: Let me start with 2018, when, along with improving the refinement of the state program, we did some additional things, first of all, several projects to familiarize the public with cashless payments. Together with Central Bank of Azerbaijan (CBA), we conducted a campaign in a supermarket in Nakhchivan Autonomous Republic, the conditions of which were as follows: If you pay above a certain amount, for example 10 ($5.8) or 20 manat ($11.7), then you will immediately receive a certain gift. By the way, the same action will be held in the Bravo supermarket chain from June 1 to June 30 - the Mastercard owner, who has paid over 40 manat ($23.5) in a cashless way, receives one of the offered gifts on the spot. We also met with representatives of the Ministry of Education, and talked with them about student cards, and as a result, there are already two universities in the country where this system is already being introduced.
We also introduced Masterpass innovation in Azerbaijan, which was already in Turkey, and which is actually the best in the world in its class. It allows you to store your card under the protection of the Mastercard security system. That is, when making purchases on the website or in the mobile store, you no longer enter the number, card expiration date and CVC code (Card Verification Code) - you just need to save the card once, so that upon subsequent payment we will identify you quickly and, most importantly, safely give access to payment and money transfer wherever there is a Masterpass logo.
The advantage of this system is that you no longer need to constantly enter your card information from store to store, and the seller does not need to store it every time, because if something happens, then these cards will be at risk of falling into third parties. This will not happen with Masterpass, because we have the technical infrastructure to keep this entire information safe through Payment Card Industry Data Security Standard (PCI DSS).
In addition, we encourage the holding of a large discount network: Regardless of whether you are a citizen of Azerbaijan or not, in many hotels, medical institutions, coffee houses and boutiques of the city, when paying with a Masterpass or Maestro card, you will receive a discount of 10 percent or more, depending on the type of institution. The same system exists in Turkey, so when you visit, for example, certain hospitals in Istanbul or Ankara, or Trendyol and Hepsiburada stores, you will receive an instant discount if you pay with Azerbaijani MasterCard cards. I believe that this and some other campaigns in Azerbaijan have helped and continue to help people adapt to cashless payments.
Also, we conducted several campaigns with more fashionable new developments on the market in 2019, for example, made a discount campaign with Wolt courier company and joined a partnership with Hesab.az (online payment system) owned by Goldenpay OJSC.
We have also introduced innovative products, for example, we have a chat bot, thanks to which you can book a seat in a restaurant or book a hotel room by simply entering information into a chat on Facebook Messenger, Telegram or WhatsApp, and the chat bot will respond and give you options that you will choose. We also train cyber security bankers and product development. In October 2019, we also held a training on card payments with the media, because it has one of the biggest responsibilities in familiarizing people with payments, new trends, the digital economy and so on. Moreover, our training is not only bringing foreign experience here, but also "taking" the players of the financial system "there" - to trainings in Russia, Ukraine, Turkey, Silicon Valley to show them what, how and where are happening innovative solutions so that later they bring them to Azerbaijan.
In connection with the end of the state program, the government is faced with the need to develop a new package of documents for the next period and expand the scope of the target program. What, in your opinion, should be worked on in subsequent years, and what can MasterCard offer in this regard?
We are going to pay more attention to digitalization. We are working with the CBA in this direction and we will meet with the CBA management in the coming months to draw up a plan for the next stage, and this is only the beginning. When you start such a journey, you can no longer stop because people expect more and more offers. Now everything is becoming digital, and despite the fact that not all non-cash things are digital, all digital things are non-cash. Therefore, the emphasis on digitalization of the financial market is more than obvious. The economy around the world is transforming in a quick way, and today many markets do not use cash, for example, in Norway, China and the US, so we have something to offer the local market.
So in 2020, several things will appear on the market, such as payment by phone, and so on, and it is necessary to maximize contactless payments in the coming years. In Georgia, 90 percent of non-cash transactions are contactless. In Azerbaijan, this is probably only five percent. But when we campaign in Bravo and give tenfold chances to win the iPhone or Car in the lottery, their number jumps to 50 percent. We are also going to bring new payment technologies, and again, these will be mobile payments, or something else from the "smart payments" category.
However, it should be understood that we bring innovation not for the sake of innovation, but in order to benefit the bank, the cardholder, other ecosystem players, the state, and so on. After all, the more you become cashless, the more banks' liabilities increase, the greater the benefits for the government, since the economy will become more transparent and there will be more tax revenues, consumers themselves will enjoy the security and convenience of payments, regardless of whether they are in the store, abroad in another country, or online. The same experience should be everywhere, it should be seamless, and this is what we are mainly working on. So, our goal is to make Azerbaijan and Turkey leaders in the region in terms of payment in the digital economy.
Mastercard invests a lot in fintech startups, acquiring them all over the world. Which of the newly acquired platforms are planned to be implemented in Azerbaijan in the near future? Are any of them under implementation?
Yes, MasterCard actually invests both in established companies and in fintech. So, we have got several companies in recent years, such as the company involved in the field of Brighterion artificial intelligence company; Ethoca, which provides real-time interaction to TSPs and card issuers, and so on. This is a very useful technology, for example, one of the artificial intelligences we acquired, understands who you are by the way you hold your phone and how you type, and if it begins to suspect that it is not you, he begins to respond immediately by sending SMS request, or blocking and asking for a password, and etc. We help grow such fintechs across the globe, and support their growth. We have several fintechs in which we invest, we have several fintechs to whom we give ideas and serve as an intermediary, attracting banks to them, with which they may have some opportunities for cooperation.
Does the company monitor and develop fintech startups in Azerbaijan, and if so, with whom does it work?
I know some Azerbaijani fintechs in Silicon Valley, and, yes, we send some startup developers to forums to search for sponsors and help them in this regard. In general, investing in FinTech is an area for which we are not responsible at the global level, but what we do on our part is to train them, help them grow, and show them that we are connecting them with the right parties.
In general, how can a startup in Azerbaijan draw your attention? How do you assess the situation with the development of fintech in the Azerbaijani market? How advanced is Azerbaijan in terms of payment technologies?
Although Mastercard used to be a network exclusively for cards, now we invest everywhere where there is growth. So, in everything, no matter what grows, whatever brings income to the seller, cardholders, government and all partners, we either invest, or cooperate, or acquire. It does not even have to be fintech; for example, we also cooperate with automobile companies. For example, in Turkey, when you come to a gas station, the pump recognizes you by your license plate via bluetooth technology and you can pay without leaving your car, because your license plate and your phone are connected. This is a good program and we are investing in car companies around the world to introduce Mastercard infrastructure in their cars. This is done for a reason, since in the not too distant future there will be cars without a driver in everyday life, and this means that with our infrastructure you can buy without leaving your home, just by sending a car to the store.
In autumn, MasterCard announced plans to provide an opportunity to replenish the balance of the BakuBus card and pay for public transport with credit cards. Are there any advances on this?
Regarding the merger of MasterCard and BakuBus cards, on our part the technology is already ready, and we use it in other parts of the world. The use of payment cards in transport will bring a lot of volume in transactions and will tremendously change consumer behavior. That is why it is so important to us. So, I’ll say it again, everything is ready on our side, but we do not wait for the transport authorities to do this, we ourselves begin a dialogue with them to create a solution, and even go to other cities. And not only that, transport is not necessarily a bus or subway; it is also intercity trains, so we take them into account.
Sooner or later this technology will come to Azerbaijan, and although its distribution here will not be instantaneous, but even slow, the fact of a change in behavior is more important. As soon as people start using this card, they will use it everywhere; other people will see them and do the same, so this is a change in the behavior of the population in handling payments, digitalization of consumers. In Turkey, for example, everything is changed very quickly, and I hope that it will be the same here.
- How do you assess the functioning of recently implemented projects in the country, such as MasterCard Masterpass, Smart Student Card and others?
Masterpass technology has coexisted in Azerbaijan, and now it is used to make millions of transactions that, if there was no technology in the market, would either be cash or cash because the card holder did not want to insert the card, or non-cash, by long input card number or a PIN code. Now, these are millions of transactions taking place with just the click of a button on a mobile phone or browser. We are going to bring QR payments (bypassing application stores) to the country, so that you will be able to pay by scanning the QR code and a notification will come to your phone, notifying you want to pay with masterpass, and you just have to click "yes". This is how fast can payments be thanks to masterpass.
As for student cards, we are currently working with the Azerbaijan State University of Economics (UNEC) and Baku Engineering University, but soon three or four more universities will join them. We are very glad that this is happening, but we want more, because the younger people get used to it, the faster they learn, and the faster this behavior will become their normal behavior, spreading widely in the national economy. And of course, this is all in the interest of students. We are currently working closely with banks to include several more universities in the Smart Student Card system by the end of 2020.
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