1. Challenges in Banking System Development in Iran SHEIDA NOBAKHT MAJID VESAL

2. Banking Industry in Iran 2 Before getting to the main topic, we need an image of Iran Banking Systems from past to the future. Banking Systems in Iran Today, Banking systems in Iran are used through wide range of growing services via various methods and channels. How the trend of its growth has been? Banking is almost an old business in Iran, but new methods of banking are quiet young in this country. Despite the fact that starting point of switching to modern methods was not too far ago, but as we will see in next parts, the growth rate during recent years has been remarkable. 3. 3 A glance over Banking systems in Iran; Summarized chart of Banking Services in Iran is shown below. Loan and credit services Long Term loans Short Term loans Guarantee Deposit and check services Long Term Current / Short Term Over drafts Methods Of Payments Debit Card Credit Cards E-purse Modern Banking Internet Banking SMS banking Telephone Banking Mobile Banking Inter-Bank Services ACH RTGS E- checks International Trade Swift Services Letter of Credit Guarante e Collection s Currency Exchange Services Exchange of foreign currencies Funds Transfer Common Commercial Banking Services In Iran 4. Payment Instruments and Terminals 4 We will focus on payment methods, Since they are of the most common banking services in every country. Payment Terminals: o ATM o POS Payment Instruments: o Debit Card o Credit Card o Card with e-Money function 5. Starting from about six years ago, remarkable increase in issued Debit Cards has occurred. In most of the banks, these (mostly magnet) debit cards are issued at the moment of request. They are used for Cash and Transfer Transactions on ATMs. Sometimes debit cards have compensated low growth of other types of cards like credit and e- money 5 Payment Instruments; Use of Debit Cards has grown vastly. 0 20,000,000 40,000,000 60,000,000 80,000,000 100,000,000 120,000,000 140,000,000 160,000,000 2006 2007 2008 2009 2010 2011 2012 Germany Iran Linear (Iran) Source: CPSS & Central Bank of Iran Number of Issued Debit Cards TotalNumberofIssuedcards byendofyear 6. Even though there has been acceptable growth, but number of credit cards is still far from its expected volume regarding the scale of economy and population. 6 Payment Instruments; Large but still not enough increase of Credit Cards. -500,000 0 500,000 1,000,000 1,500,000 2,000,000 2,500,000 3,000,000 3,500,000 4,000,000 2006 2007 2008 2009 2010 2011 2012 Germany Iran Linear (Iran) Source: CPSS & Central Bank of Iran TotalNumberofIssuedcards byendofyear Number of Issued Credit Cards 7. No Credit for Credit Cards in Iran! Why is that? 7 There are some obstacles regarding development of credit cards in Iran banking systems. In the past: Important obstacles regarding the usage of credit cards, due to banking regulations in Iran. Iranian business analysts and system architectures were successful in modeling credit card business in a way not to contradict these rules and to cover the global standard model for credit cards. Unfortunately, because of high risk of defaults due to economy instability, these business models still have not come in to application widely. 8. Contact less cards have not been in use broadly in the past, but new developments in both technical and cultural sides is changing this situation considerably. Number of Cards with E-Money Function 8 Payment Instruments; Emerging use of e-money cards. 0 1,000,000 2,000,000 3,000,000 4,000,000 5,000,000 6,000,000 2006 2007 2008 2009 2010 2011 2012 Germany Iran * Cards with an e-money function which have been loaded at least once. Source: CPSS & Central Bank of Iran TotalNumberofIssuedcards byendofyear 9. 9 Cards with E-Money function seem to experience remarkable growth in near future. Transport e-tickets The most important one was Transport e-tickets. Which includes large number of contact less cards for payment of all metro tickets and most of the bus tickets in big cities such as Tehran and other metropolitan cities. Some large scale projects have been started mostly during 2013, in which large number of contactless cards got in use. 10. Number of ATMs has increased gradualy and in an acceptable rate. The dispersion is not equal whithin the country. The whole investment in this field is done by internal banks. There is a strong tendency for developing other methods of payment instead of ATMs, such as POS and Internet transactions. 10 Payment Terminals; Number of ATMs had a considerable increase. 0.4 0.3 0.3 0.2 0.27 0.16 0 0.1 0.2 0.3 0.4 0.5 0 20,000 40,000 60,000 80,000 100,000 2006 2007 2008 2009 2010 2011 2012 Germany Iran growth Linear (Iran) Source: CPSS & Central Bank of Iran TotalNumberofactiveATMs byendofyear Annualgrowthrate Number of ATM Terminals 11. Compared to growth rate of issued debit cards and even ATM terminals, their usage has increased very remarkably. Number of ATM Transactions 11 Payment Terminals; An annual growth of around 50% could be seen in number of ATM transactions. 0.3 0.6 0.4 0.56 0.43 0.00 0.10 0.20 0.30 0.40 0.50 0.60 0.70 -500,000,000 0 500,000,000 1,000,000,000 1,500,000,000 2,000,000,000 2,500,000,000 3,000,000,000 3,500,000,000 4,000,000,000 4,500,000,000 2006 2007 2008 2009 2010 2011 2012 Germany Iran Growth Linear (Iran) Source: CPSS & Central Bank of Iran Annualgrowthrate NumberofATMtransactions peryear 12. In recent years a considerable growth in value of transactions could be seen. This growth mostly is explained by new services on ATMs than cash withdrawal, such as fund transfer among the whole banking system unlimitedly. 12 Payment Terminals; In recent years, the value of ATM transaction has been doubled every year. 0.6 1.04 0.9 1.02 0.99 0.00 0.20 0.40 0.60 0.80 1.00 1.20 -100,000,000,000 0 100,000,000,000 200,000,000,000 300,000,000,000 400,000,000,000 500,000,000,000 2006 2007 2008 2009 2010 2011 2012 Germany Iran Growth Linear (Iran) Source: CPSS & Central Bank of Iran Annualgrowthrate ValueofATMtransactions peryear/inEuro Value of ATM Transactions 13. Coverage of POS terminals has grown vastly. Tendency for turning to non-cash methods of payments and also intensive competiotion among banks for installing their own terminals to atract more deposits are of the main reasons of this growth. 13 Payment Terminals; A significant rise in number of POS Terminals. 1.68 0.92 0.57 0.31 -0.02 0.89 -0.50 0.00 0.50 1.00 1.50 2.00 0 500,000 1,000,000 1,500,000 2,000,000 2,500,000 3,000,000 2006 2007 2008 2009 2010 2011 2012 Germany Iran Growth Linear (Iran) Source: CPSS & Central Bank of Iran Annualgrowthrate TotalNumberofactivePOSterminals bytheendofyear Number of POS Terminals 14. Concurrently, the number of POS transactions has increased largely as expected. 14 Payment Terminals; By average the annual growth of POS transactions is more than 150%. 1.5 1.4 1.6 1.4 0.96 0.00 0.20 0.40 0.60 0.80 1.00 1.20 1.40 1.60 1.80 0 500,000,000 1,000,000,000 1,500,000,000 2,000,000,000 2,500,000,000 3,000,000,000 3,500,000,000 2006 2007 2008 2009 2010 2011 2012 Germany Iran Growth Source: CPSS & Central Bank of Iran Annualgrowthrate NumberofPOStransactions peryear Number of POS Transactions 15. The most intense growth could be seen in value of transaction by POS. It shows that people have trusted the reliabality level of this system and are involving it more and more in their daily life. 15 Payment Terminals; Value of POS transaction has experienced a sharp surge. 1.1 1.4 2.5 3.6 1.9 0.00 0.50 1.00 1.50 2.00 2.50 3.00 3.50 4.00 0 50,000,000,000 100,000,000,000 150,000,000,000 200,000,000,000 250,000,000,000 300,000,000,000 350,000,000,000 400,000,000,000 2006 2007 2008 2009 2010 2011 2012 Germany Iran Growht Source: CPSS & Central Bank of Iran Annualgrowthrate ValueofPOStransactions peryear/inEuro Value of POS Transactions 16. Volume of POS Transactions Ratio 16 Payments by POS has risen remarkably and in 2012 is totally comparable to these payments in Germany. Value of POS Transactions Ratio Source: CPSS & Central Bank of Iran 83.81 41.81 18.16 5.59 1.35 0.49 2007 2008 2009 2010 2011 2012 GERMANY /IRAN 69.01 29.48 12.78 5.35 2.38 1.3 2007 2008 2009 2010 2011 2012 GERMANY /IRAN 17. Challenges in Banking systems developments: 17 In Iran, there are some problems above and beyond the ones which every IT solution provider experience. The common challenges that every IT man experience could be categorized in two main aspects: Business Challenges Technical Challenges Complexity of business flows Increasing customers expectations Changing needs of the market etc. Security Reliability Efficiency etc. 18. Iran-specific business issues, mostly enforced by Islamic Banking regulations: 18 Here are the main Obstacles which banking system development confronts due to Business Restrictions. Extra Complexity of Business Processses Enforced by regulations other than of conventional banking One of the examples is our Loan system consisting of more than six totally different flows and calculations. Other systems like deposit or bonds suffers from this, as well. Overhead Processes This is a consequence of complexity. Some processes would be heavier compared to of the conventional banking systems. An example is more than three processes related to non-fixed interest rate, which would be handled under only one process in conventional banking system. Extra Data and Reports This extra data which should be stored and used efficiently is unavoidable result of overhead businesses and processes. extra data will lead to an need for additional reports. 19. Continued Iran-specific business issues, mostly enforced by Islamic Banking regulations: 19 Here are the main Obstacles which banking system development confronts due to Business Restrictions. Lack of standards There is no broadly agreed standard for Islamic banking. It takes too much effort for customization of the software for each new customer even within the same country. Unstable Regulations and instructions Some rules and regulations are set centrally for all banks. In the case that they change in short run, we will lose our potential income on development the new product, even though we have finished the development process totally. One example is the situation which happened about Travel checks new instruction. 20. Iran-specific technical issues, mostly enforced by abnormal economy conditions: 20 These are important Obstacles which banking system development confronts due to Technical issues. Weak Infrastructure Weak internet connection, low bandwidth Not enough ISP providers Not enough data centers Restriction to provide some of Hardware and Software The other dimension of problem is that we will not be provided with required hardware/software in a standard level. 21. Continued Iran-specific technical issues, mostly enforced by abnormal economy conditions: 21 These are important Obstacles which banking system development confronts due to Technical issues. Difficulties with Technical Training Training of our technical experts is another complicated problems to deal with, while we do not receive enough training from the world outside, there is not enough experts inside. Help and Support Limitations As a consequence of this restriction, we have been forced to solve many of our new problems by trial and error, sometime there is no alternative for solving them. 22. These kind of pages do not seem unfamiliar to our experts! 22 Some times there might be difficulties even using free apps or documents. 23. Then, Why Banks do not go toward foreign solution providers? 23 Foreign Banking Solutions Providers have not been very successful in Irans market. Previousely mentioned Complexity of rules and regulations. Heavy costs of implementation of new businesses and also data conversion process. Licensing problems of the software or its related components. Risk of being affected by changble situation of forign relations. 24. Despite all these problems, What is Our Solution? 24 Domestic Banking Software Providers have more suitable solutions for this special conditios. We found our solution considering all of our limitations. Its specifications are: No longer dependent on Oracle or other restrictive tools Agile enough to lunch new businesses in the shortest time Easy to administrate Fully service based Extendable and configurable Light enough to be able to run with minimum requirements 25. 25 An Overview on architecture of our newest solution. Logging(File,database,syslog) Authorizathion&Authentication Caching(Database,file,memoryordistributedcatch) Command Manager ExtensionManager(Packaging) Communication (ICE, XML RPC, PYRO,) Request Processor (Multi Thread, Multi Process) Database (Oracle, MySql, DB2, PostgreSQL,) Scheduling EventManager App Modules Configmanager(File,Database,) Accounting Deposit Loan CustomerDeposit Etc SessionManager TransactionManager Oracle, DB2, MySQL, Clients. Internal Services BatchManager 26. 26 There could be seen screen shots of Negin lite client. 27. Delta Console 27 Delta console and web console are the administration tools. Delta console is a text based application, using this software user can login and list, search or execute all available functions according to his/her permissions. Web Console It is a web based tool for managing and monitoring batch processes, end of year processes and defining administrative parameters. 28. NContainer 28 Ncontainer enables customer to extend our systems by developping their own system. (Negin Custom Service Container) Ncontainer is a platform which enables customers to develop their extra systems based on our APIs and facilities, they can write their extentions and use all available components like connection management, transaction manage ment, access control, event system, session managemnt and clusterin. 29. Event System 29 Event System triggers internal activities. Asynchronous handling Synchronous handling This facility allows user to add some scripts whenever an specified event happend, Actually it is like database trigger, it doesnt need compile and ist easy to deploy. User can add extra checkings, logs or running some custom process. Core-banking SystemEvent handler on money transfer service This handler would be executed whenever somebody wants to transfer money more than 1000 euro Money Transfer Open Account Close Account . Example: Money transfer request Any service call, from wherever will invoke the event which is attached to money transfer service and consequently all registered handlers will be executed. 30. Negin Lite Updater 30 This updater, updates client side software, parallely in background, without any intrruption for user. Asynchrones update Failure and Recovery Torrent update Role based update Monitoring and dashboard 31. Considering every thing into account: 31 Banking systems development in Iran seems to keep on growing. There are some main obstacles regarding development of banking systems in Iran. Despite of this fact, there are many efforts that have been done to conquer these problems and surely still much more to be done in the future. The potentials for development of banking industry in Iran in different aspects seems to be considerably high, which supports the idea of more investment on software development in this country. 32. 32 References http://www.bis.org/cpss/ http://www.cbi.ir/ http://www.worldbank.org/ www.tosan.ltd http://www.inntron.com/core_banking.html 33. 33 Johann Wolfgang von Goethe 34. Thank you 34