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Disruptive technologies and new entrants are radically changing the financial services industry, forcing traditional business models to adapt and transform to benefit marginalized communities. Financial institutions are innovating and leveraging technology to serve market segments that are too costly to reach with traditional banking. Contactless payments have surged in demand globally as a result of the pandemic, hastening the transition from cash-based to cashless payments.
In Azerbaijan, like in most emerging markets, digital financial services can promote financial inclusion by increasing access to finance, reaching the unserved and underserved population at scale, and enabling more people to participate in the formal financial system. Since payments are typically an entry point to access other financial services such as savings, credit, and insurance, improving access to payment services is vital to achieving universal access to finance in the country.
Dedebala Nuriyev, a vendor at a grocery market on B. Majidov street in Baku, said, “We have been able to work throughout the pandemic without any interruption. While we always had a contactless payment system in place, people rarely used them. In the last year, I noticed a growing interest in card payments, especially contactless. Now that customers understand it’s easier to pay with a card, they use it more frequently.”
In addition to reducing the spread of the virus, contactless payments help Nuriyev manage his revenues better and purchase inventory more efficiently.
With the upcoming legislative and regulatory improvements, uptake of digital financial services and financial inclusion in Azerbaijan is expected to receive another big push.
As part of the efforts to support the country, IFC’s Electronic and Digital Financial Services project—in partnership with the Swiss State Secretariat for Economic Affairs SECO—is helping to improve access to digital financial services for individuals and smaller businesses, supporting them grow and create jobs. IFC is working closely with the Central Bank of Azerbaijan to support the development of a legislative and regulatory framework and promote usage of digital financial services in the country.
As a starting point, raising awareness of modern digital payment channels among people and businesses—a trend that only gradually progressed up until the global pandemic—is essential to contain the impact of the virus and boost digitalization in Azerbaijan.
With this in mind, IFC’s project produced a series of animated videos with the Central Bank, the Azerbaijan Banking Association, and German Sparkassenstiftung for International Cooperation with funding from the German Federal Ministry for Economic Cooperation and Development/ Bundesministerium für wirtschaftliche Zusammenarbeit und Entwicklung (BMZ). The videos focused on the advantages of digital financial services—e-commerce platforms, payments through mobile phones, and corporate cards, among others and how to prevent fraud when going digital. Broadcasted daily on several local television channels, the videos are also strategically posted on many banks’ social media sites.
The campaign came just at the right time with the pandemic increasing the need for e-banking drastically. According to the Central Bank’s statistics, since the beginning of the pandemic, the number of payment cards issued as well as transactions have increased significantly.
“In alignment with IFC’s priorities in Azerbaijan, it is vital to support the country’s sector players and help them develop and offer payment related products that meet the needs of the unserved and underserved population. This project supported the expansion of digital financial services in remote areas of the country with the lowest operational cost,” says Teymur Heybatov, Project Team Lead for Azerbaijan, IFC.
Moving forward, improving the regulatory environment in Azerbaijan and supporting the government in modernizing the country’s payment system to enhance its efficiency will be key. This can be achieved by establishing a public-private dialogue, facilitating a joint payment platform through industry-wide consensus, and raising stakeholder awareness while identifying potential partners who can develop and expand mobile money products.
For stores like the one Nuriyev works in, this will mean safe and productive operations. Digital financial services will also help reduce the shadow economy and provide small entrepreneurs with better access to financial services.
Published in September 2021