A unique Electronic Business model that worked in Iran

Electronic banking is on the rise in Iran and due to the scarcity of foreign banking technologies in the country, local IT firms have excelled in developing the state of the art electronic banking solutions that exist today in Iran. Several service providers for the payments industry and banking industry exist in Iran but, leading the market through a variety of banking and payments solutions and service is Fanap, the ICT subsidiary of Pasargad Bank which was ranked as the top Iranian bank in 2010 by ‘the banker.’

The game changing decision by the government of Iran, including the central bank of Iran to offer an MDR (Merchant Discount Rate) of 0% to the merchants resulted in a significant increase in the number of POS terminals at merchants and retailers. Before the year 2010, two major challenges were faced by the payment service providers who were involved in marketing and implementing POS terminals.
1. The merchants were not willing to pay an MDR fee for employing a POS terminal and hence preferred cash transactions
2. The merchants did not like the idea of end of day settlements where money earned on a specific day would not be readily available in their accounts.

The MDR rate around the world is between 2-3%. The regulators in Iran came up with a model to tackle the resistance of the merchants which to our knowledge is a model unique to Iran and not found anywhere else in the world.

The merchants were offered a ‘no charge’, 0% Merchant Discount Rate for transactions on a POS terminal by using a debit/credit card. The money would be transferred from a customer’s bank account to the merchant’s bank account instantly by the use of locally developed modern payment technology including a combination of payment switches, clearing houses and core banking systems. This would give the merchants access to their earned money immediately. The card holders also did not incur a fee for using a POS terminal service. No surprise then that there is a huge number of debit and credit cards being held in Iran. Number of Total cards in Iran (Debit+credit): 174,025,083 (for a population of 77 Million source: www.cbi.ir)

The acquirers (which are mostly banks) get to make their money by float (money supply) and by taking advantage of the high interest rates that exists in Iran. The technology providers like Fanap get paid little amount on each transaction (between 2-3 cents). Table below shows the top 10 acquirers in Iran based on the number of Point of Sales terminals they have installed for merchants.
A cultural change was required to take the merchants on board to make the point of sales services in Iran a success. Merchants in Iran often deploy more than 1 terminal to enjoy different relationship with each issuing bank and also make use of the bank’s special offers. These special offers include discounts, loyalty and yearly ballots where merchants win prizes like a new car or a television. In addition, there are several features for example mobile top up and peer-peer transfer that a specific acquirer provides on POS which other acquirers do not provide.

Post By – Usman Qureshi – He is the International Business Development head at Fanap (ICT Pasargad), a leading Information and communication technology company in Iran. His focus includes business development opportunities across all the EMEA and partnerships with key local and global market players. Usman comes from a diverse background with a working experience in technical, business and consulting aspects of the IT and communication industry. Prior to joining Fanap, Usman has held senior positions in Novell, Company in Washington DC.


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