Electronic Payments Costlier Than Cash

EghtesadOnline: A recent study conducted by Pulse Ware Company and University of Tehran academics shows that costs of circulating banknotes is still lower than the electronic payment fees, despite claims to the contrary by the Central Bank of Iran.

News ID: ۷۵۱۰۵۱

21 September 2020

The report says using electronic tools for making small payments bears higher expenses and consequently ends in higher inflation, way2pay website reported.

The CBI has stopped minting coins, claiming that the metal used for minting coins is worth more than the nominal value of the coins. In recent years coins have almost disappeared from daily transactions.

Pulse Ware, a private company specializing in financial market research, says the CBI's assumptions are not accurate because it has not employed proper models for estimating banknote circulation per capita and the volume of money in circulation.

"The decision was premised on CBI's reliance on reports by its money printing department, which calculate banknote circulation per capita based on the volume of worn-out banknotes out of circulation,” the report said.

"However, the criterion is not precise enough, since there is no rationale for the total number of banknotes and those that are worn out, lost or destroyed before being removed."

The CBI might reduce its expenses once they stop minting coins and low-value banknotes. However, using alternative instruments for making small payments might bear higher costs.

Electronic payments are considered as an alternative method for making small payment. Bank card holders in Iran pay no fees for receiving bank cards and making payments as fees are paid by banks -- an average of 750 rials on any payment transaction made for purchases and 1,560 rials for paying bills.

An estimated 2.89 billion transactions worth 4,769.01 trillion ($20.7 billion) were processed via Shaparak in the fifth month of current fiscal year (July-22- August 21). This was a 0.95% rise in volume and 8.28% decline in value compared to the month before.

Rise in Transactions

Data shows 82.25% hike in the value of transactions compared to same period last year. The number of transactions grew 23.01% year-on-year.  In the month under review 86.89% of the transactions were for buying goods and services. Buying cellphone recharges and paying bills were in second place at 8.38%.

Unlike regulations in most countries, debit card holders in Iran are not charged for e-payment when buying goods and services. The decision (not to pay) was made years ago, when the CBI started promoting debit cards.

Instead banks receiving and making payments pay the bulk of fees because when a payment is made with a bank card, the bank receiving the payment has to pay a fee to the bank whose card has been used.

This is over and above the amount banks pay as rent and support fees for each POS device to PSPs. Besides, a portion of the payment fee (500 rials) is given to companies in charge of maintaining the payment network.

Pulse Ware's estimates show that using low-value bank notes and coins are viable for payment up to 450 million rials.

CBI reports put the average cost of printing a banknote at 2,224 rials. Each banknote on average is used for making 375 payments in its five-year lifespan, which equals to 6 rials each time a banknote is used for making a payment. The average is 3 rials for coins due to durability.

"The annual cost of issuing and removing money is 12 trillion rials, which is equal to 0.15% of total transaction fees paid by banks," the report.