Business consultancy project

Mobile Financial Services in Azerbaijan

Comparing with other countries MFS payments system has not well developed in Azerbaijan. Due to the existence of Bank systems and their increasing penetration starting from Y 2014, mobile payment systems have occurred in the country’s financial market later than in other developing countries. In the comparison of the seven years, from Y 2007-to 2014, the bank penetration percentage has almost doubled. (Prgozhina, 2015). Meanwhile, starting from Y 2008 with the entrance of the Golden pay to the Azerbaijan market, the financial sector of Azerbaijan started to acquire the new advanced payment systems. (goldenpay.az)
However, there is enough place for further development of MFS in Azerbaijan, and for the understanding, the industry requirements for the development of MFS the peculiar distinctive supporting and imposing factors influencing service productivity must be evaluated. For the evaluation of country-specific prerequisite, the seven pillar MFS development measurement can characterize the country profile of Azerbaijan in the following way. (Bilodeau, Hoffman, & Nikkelen)

1. Mobile Financial Services Country Profile Evaluation.

Figure18. MFS Country Profile Evaluation

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  Institutional Environment 1.Regulatory proportionality
  

Azerbaijan Financial Market is being regulated by the Financial Market Supervisory Authority (FIMSA) and Azerbaijan telecom sector is being regulated by the MCHT (Regulations of the Ministry of Transport, Communications and High Technologies of the Republic of Azerbaijan, 2018).
The government has an active involvement in the development of the financial services landscape. In the Year 2017, the center for analyses of economic reforms and communication accomplished the strategic roadmap for the development of the financial services in the Republic of Azerbaijan. The roadmap contained the short and medium strategies and action plans until 2020 and the long-term perspective for 2025. (Azerbaijan Economic Reforms Review, 2017) The roadmap covers the whole financial services industry from a different perspective, but the key objectives can be characterized in the following way:

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  To reinforce financial inclusions through the development of insurance and bank systems.
  
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  To strength the infrastructure by providing the straight regulation and control
  
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  To enhance the digitalization of the financial services
  
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  Expansion of alternative financial services channels and changing the model of financial institutions for better understanding consumer demand.
  

2. 
   Consumer Protection
   

The consumers’ rights are being protected by The State Service for Antimonopoly Policy and Consumer Rights' Protection under the Ministry of Economic Development. (Consumer rights are protected in Azerbaijan, 2013). The law of the Azerbaijan Republic on consumers’ protection rights enables equal possibilities for producers and consumer for any trading process within the territory of the Azerbaijan Republic. Overall, consumer’s rights contain the free selections of the good and services, having access to the qualified commodities (product and services) and getting complete knowledge about quality, type, and quantity. (Law of the Azerbaijan Republic on protection of consumer rights, n.d.)

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  Market Environment 3.Market Competitiveness
  

The telecom sector in the country is being provided by 4 Mobile Network Operators and two fixed telephone network services. Moreover, the fixed-line and mobile communication availability within the country is very high as the state, and the private sector has established technological infrastructure. (Technical Assistance Consultant’s Report, 2014)
The banking system mainly dominates Azerbaijan financial system, while non-banking system cover the tiny share in the market, the total assets of financial system generated 88% and 9.7% respectively, while, insurance companies cover 2.3%. (Ibadoglu, 2018) Banking and non-banking services have passed through a steady increase in the last decades, and even the global financial downturn in Y2008-2009 has not impacted the country’s financial system. (Conrad, 2012)
However, the local currency depreciation in Y2015 has strongly affected the financial system. The currency depreciation caused additional financial burdens on the country’s economy, and around 15 banks were abrogated by government, and the licenses were withdrawn, with the end of Y 2017 the total number of banks shrank to 30 from the previous 45.
The bank accounts are the most prevalent product in Azerbaijan and according to the Y 2015 Financial Capability and Inclusion Survey (FCIS) report, about a third part of the population have this product. Although, only the small share is presented by active users but generally, the majority has overall knowledge and use it periodically. In addition, according to the World Bank Report, 34% of the population has a formal bank accounts, whether 84% indicated having it in the past, and 98% of them knows about service. (World Bank Group, 2016)
Figure.19 Knowledge and Usage of the Bank by Individual characteristic in Y 2015

4. 
   Market Catalyst
   

Azerbaijan government authorities are intensively performing working group programs for the implementation of digital technologies. (Digitalization may become one of the drivers of development of Azerbaijani banks, 2018). Central Bank of Azerbaijan and FIMSA lead all projects regarding the digitalization of the financial system in Azerbaijan and deployment of the cashless payment system. The latest financial and digital technologies week meeting was held on May 2019 with a participation of FIMSA and Ministry of Transport, Communications and High Technologies, the Central Bank, the Center for Analysis of Economic Reforms and Communication and the Azerbaijan Banks Association. (mincom.gov.az, 2019). It was agreed to sign the new memorandum for the establishment of the single platform for the cooperation of financial and digital technologies and the information exchange in the field of innovative services and products. (Fintex Summit, 2019)

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  End-User Environment
  
4. 
   End-user empowerment and access
   

The rapid integration of technology and the availability of different advanced tools have influenced the consumer behavior of the Azerbaijan population as well. Despite the fact, the financial literacy level is not high and is planned to be developed through regulatory assistance, and the financial inclusion is gradually increasing. According to the Asian Bank country’s evaluation report, the financial literacy in the country is modest, and despite the awareness of MFS services, the real users of the service are deficient.
According to the World Bank Y 2017 the Financial literacy data, around 29% of the population has the bank account and comparing with Y 2011 it is almost doubled, increased from 15% to 29%. In addition to this data, in the financial capability survey report, which was held in Y2015, around 39% of the respondents confirmed having a bank account. In addition to bank accounts, the small proportions of the population use mobile financial services. Based on the World Bank’s Y 2016 report, even though 65% of respondents have information about e-money services, only 0.3% is actively using this service. Although the number of active
users is very low but comparing with Y 2014 data when it was 0.1% of the total survey result, it is increasing gradually. It confirms the fact that despite the E-money is a new approach in the financial system in Azerbaijan but can get a gradual increase in the upcoming years. (World Bank Group, 2016),
Considering that the mobile communication penetration is very high, as it reached 110%, and smartphone penetration is increasing, there are favorable market conditions for the development of the financial services via mobile devices. (GSMA Intelligence Data, 2019)

4. 
   Distribution
   

Nevertheless, the infrastructure is not well developed, some actions were done for the development of the financial services in Azerbaijan. The Golden Pay was the first online payment system which is certified by MasterCard and Visa. Besides, telecommunication companies are also providing some micropayment services.
Together with digitalization, the strategic map underlined the importance of the adoption of new payment systems considering the emergence of the young consumer segment. The young generation’s preferences are toward the online mode services, which are linked to social media. It is also considered to enlarge the financial services model by considering the world-wide experience and getting new knowledge and skills for the implementation of the new systems. (Azerbaijan Economic Reforms Review, 2017)
Together with World Bank Group’s “The Electronic and Digital Financial Services Project” Azerbaijan, Central bank and FIMSA are working on the spreading the cashless payment system in the Nakhchivan Autonomous Republic. (Azerbaijan-aims-to-become-caucasus-leader-in-cashless-payments, 2018). The establishment of the new cashless payment infrastructure will enable to proceed payment operations through mobile phones. Starting from Y 2018 CBAR and FIMSA enhanced resources for the development of “Non-Cash Economy” strategy and by the deployment of the Digital Banking systems. (Digitalization may become one of drivers of development of Azerbaijani banks, 2018)
Some mobile payment technologies, such as remote payment model including SMS payment and Internet payment tools, are valid in Azerbaijan. Nonetheless, the POS payment tool implementation has not developed yet, but CBAR and FIMSA are diligently working on the implementation of the POS payment technologies in Azerbaijan. The communication has already started with Microsoft and Visa Card authorities. This information was approved in the interview with Unibank and Pasha bank authorities.

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  Adoption and availability
  

Mobile Payment service is not well diversified in Azerbaijan. However, considering that mobile network penetration is high, and the banking industry is also endeavoring implementation of the new product ranges, the intelligence of the MFS can strength the total financial market in the country.
The deployment of the new technologies in the financial sector is one of the critical targets in the strategic plans of the country for the upcoming years. The advanced infrastructure and the digitalized service
capabilities must be spread among the population, and the financial literacy level should be sustained through different opportunities.
Nevertheless, the seven-pillar measurement is not enough for the estimation of the total country outlook from a different perspective. Therefore, the most fundamental assessment of the market analysis can be made through SWOT analyses by defining the implication of external and internal factors. Although, in addition to the peculiar assessment of MFS development through regulatory involvement and market competitiveness the evaluation of the MFS in comparison within traditional payment systems can root out the advantages or disadvantages of the MFS against traditional payment systems.

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