ArmInfo. The analysis of the bankcards market in Armenia in 2016 demonstrates a significant and even unprecedented growth in non-cash payments and particularly a tangible rise in e-commerce transactions. For the first time over the period of operation of the Armenian Card (ArCa) Unified Payment System, the sector of online banking and other non-cash operations has received a new serious impetus for development. Following the global trend, the bankcard holders (over 1.5 million cards have already been issued) start more actively using the e-commerce advantages, buying inexpensive and quality goods in the global and local online stores, ordering food, paying for communication and utility services conveniently and safely, and making other payments. This is the case, which is called a smooth and natural transition from quantity to quality. Most of the achievements have become possible due to the correct assessment of the market development vector and "efficiency" of both the commercial banks and the ArCa Unified Payment System. In an interview with ArmInfo, Armenian Card CEO Ishkhan Mkhitaryan speaks of the ArCa achievements in 2016, the projects implemented and the plans to be carried out in the near future.
I think that the national payment system has clearly caught the development vector of the plastic cards market, focusing both on the development platform – the technological base, on which the market participants build their services - and the security. How do you assess the year 2016 in this context?
After switching to the new technological platform in 2013, we have been consistently developing our capacities, at the same time taking steps towards expanding the e-commerce development opportunities and ensuring the safety of payments by launching the 3D Secure technology. The latter requires confirmation of the operation by the cardholder every time he/she is going to pay with a card, thereby minimizing the risk of fraud.
Thus, the successful transition to the new software, new platform and technology, which also ensures a high level of payment safety, demonstrated last year that both the banks (the market participants) and the cardholders tangibly increased their activity, and for the first time we have enjoyed such a high growth both in the amount and the number of online payments. Along with the 3D Secure technology, we introduced functions designed to facilitate the use of payment cards in payment applications or websites. For example, the so-called recurrent payments, also known as payments under subscription, make it possible to carry out regular write-off of funds from a credit card without repeatedly inserting the card details and without the payer’s participation to initiate the next payment. It is also very convenient when you use mobile applications on websites, isn’t it?
That is to say, ArCa was preparing for a boost of online payments…
Yes, we were certainly preparing for it very seriously, realizing what the market and its participants would demand from us. We launched the hi-tech platform with the security level that meets the relevant international standards. I think we coped with these tasks quite well. And the banks began to offer their own products to both cardholders and internet merchants. So, the ideas we started putting in practice since 2013 have begun to give their results. Naturally, we are not going to stop here, we see where the market is moving and we have already announced a new project of contactless payments via mobile phones in 2017.
The global trend shows that plastic cars will soon become unnecessary. For instance, Sberbank of Russia forecasts that in some 5 years more than half of the payments will be made without plastic bankcards. One will only need to use a relevant application in a smartphone.
If you look at our business, disregarding the "plastic" and "card" concepts, you can say that we actually offer people to make payments conveniently, quickly and safely. Some 60 years ago the bankcards became a revolutionary technology that eliminated the checkbook. At first it was just an embossed plastic card, then a magnetic stripe appeared, and then it was replaced by a chip technology. Now there are contactless chips. Technologies follow each other very quickly. In Armenia you can still see cards with a magnetic stripe, and there are also contactless chips. Along with contactless payments, the related instruments have also started developing rapidly. At first, these were various pendants, bracelets, watches, etc., but when such a powerful tool as smartphone emerged everything started to change again, I would say everything started transforming into a new matter. Today, many of us do not imagine an active life without a smartphone, which is a phone, a notepad, available Internet, e-mail, needless to mention the social networks. Smartphones also become a tool of payments with the help of certain software applications. In developed countries the use of mobile applications for smartphones becomes common.
Our banks do not yet provide such services. As far as I know, the country lacks the relevant infrastructure for that.
The infrastructure for contactless payments is already being created. In July 2015 one of the banks started issuing and serving VISA PayWave contactless cards in our network. Since 2016 the network began to accept MasterCard PayPass contactless cards, and this year one of our banks is going to issue such cards. Armenian Card ensures the technological support of these projects. We are now working at introduction of Android-based applications for smartphones. We hope to launch the system by the end of this year. This will be a new breakthrough in contactless payment technologies in Armenia and I think both cardholders and merchants will appreciate the convenience of this service. This is a kind of an alternative to Apple Pay or Samsung Pay, which do not consider Armenia as a new market at the moment. Nevertheless, only Android has an open platform and we will be working with our software supplier. Hopefully, by the end of this year we will provide a technological opportunity for the launch of mobile payments for the VISA and MasterCards being issued within Armenian Card. Actually, all terminals that support contactless payments will be able to serve this application.
I think in some 2-3 years this technology will strike roots and become common in our country. In Russia, for example, there are a lot of network cafes, restaurants, and stores, where these terminals operate successfully. They also operate in the Moscow Subway. They generally ensure small, up to $20-$25 payments, but the payments are frequent, and the speed of the operations is of much importance. Payments below the specified limit may not require a PIN code. Payments above that limit require a PIN code.
The impression is that our banking system does not lag behind the global trends and tries to keep up with times, but one cannot say the same thing about the merchants, i.e. the sales and service outlets serving the card infrastructure. First, the cards are not accepted everywhere; secondly, they are reluctant to accept cards and there are often problems with the connection. It is possible to refuel petroleum with the help of the cards, but the gas filling stations apparently operate in such a shadow that they do not even think of non-cash payments. Small stores are also reluctant to work with cards either. In the provinces the infrastructure is also very poorly developed. So, we have room for improvement…
The provinces are already catching up with Yerevan. The matter concerns Gyumri and Vanadzor, needless to mention the "tourism" towns, places and facilities. Very often the reason for a lack of infrastructure is not the reluctance, but the lack of awareness of the advantages. For example, the new cash registers the entire sales and service infrastructure of the country must be provided with by the Government’s decision imply acceptance of bankcards. The outlet owner can request its bank to provide an opportunity of accepting payment cards. Such an opportunity is generally provided after certain procedures and tests. Moreover, the banks will not have to spend money on POS terminals, they will only need to provide the sales outlet with a payment application and the cash register will start performing the POS terminal function as well. Many are unaware of this, but an opportunity has emerged to involve in the card infrastructure of non-cash payments many trade outlets, which banks previously found unprofitable to provide POS terminals with. Many stores do not have a big trade turnover so that the banks could hurry to offer them cooperation. Now this is not a problem, and no store is likely to prevent a person from paying if the latter has no cash. In addition, many network players expand their presence into the provinces, and the local outlets also tend to keep up with the "high standards." Nevertheless, I agree, we have room for improvement!
As regards the outlets themselves, they carry out the chip&pin payment procedure, to which our sellers have added a “signature” element. Let me remind that if a bankcard uses a chip, the customer only needs to insert the pin code and there is no need for putting a signature on the check. Though the banks explain to the store managers that it is not necessary to do that, nevertheless, they require the buyers to sign the check even if the check has no place for a signature! Habits die hard and the foreigners visiting Armenia are surprised at this know-how of ours. Just imagine, they even require the customers to sign the contactless payment check. Nowhere in other countries have I seen such a thing.
In November 2016 Armenian Card signed an agreement with the Russian MIR national payment system. When will there be a full compatibility?
The pilot launch will be by late summer 2017. I would say that this is a very serious project and it is technically complicated. Much work is to be done in terms of regulatory agreements, intersystem agreements, standards, rules and system requirements. The intersystem interaction between our two national payment systems is the first practice within the CIS: the national ArCa cards will be used outside Armenia and the MIR cards will be served by our banks.
What about the commission fees?
The tariff policy will be guided by the principles of competitiveness, because otherwise the project itself will be unprofitable for us and for the Russian side, not to mention the users. If there is no economic expediency, we have nothing to talk about. As you know, by the end of the year all Russian state employees are to receive MIR cards. This is a great number of people. Given the expected big inflow of tourists to Armenia from Russia due to the reduced air ticket prices and the signing of an agreement on visits with Russian national identity documents, the MIR cards will become a real means of payment.
How will the banks be engaged in this process?
Due to the fact that this is an intersystem cooperation and that we are a national system, almost the entire card infrastructure of Armenia that serves ArCa will serve the MIR cards. That is to say, all the banks operating in our processing center will automatically start serving the Russian payment system. The banks will not have to exert special efforts to that end.
It is important to reduce the commission fees for cash withdrawal with due regard for the fact that the card infrastructure is far from being available throughout the country and tourists need cash AMD.
We are pleased with the level of the use of card payments in tourist services. There are no problems with non-cash payments in Tsakhkadzor, Dilijan, Jermuk or any other tourism center. As regards the fees charged in the course of cash withdrawal from ATMs, they are determined by the cardholder’s bank (the issuer bank). One of the components of the fee is the interbank fee, and as I have already said, the tariff policy that sets the interbank fees, will be competitive.
If I am not mistaken, the Chinese payment system in the post-Soviet space is unavailable in Armenia only. There are no Chinese projects in the country; neither is there any Chinese business here. Probably, this is why Armenia is not interesting to China UnionPay…
This is not so. The Chinese system is interested in Armenia, it is necessary to choose a partner bank. Here it is for our banks to decide whether it will be interesting for them to serve Chinese cards or whether there will be enough customers. If the partnership is established, we will ensure its technological component. I can say that the Japanese national payment system JCB is also interested in cooperation. I have recently got surprised at the fact that quite many Japanese tourists visit our country.