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Electronic Banking and Payment Systems Take Center Stage in Iraq
As Iraq continues to rebuild its economy and banking sector, electronic banking and payment systems have emerged as a key area of focus for the Central Bank of Iraq (CBI). In recent years, the CBI has taken significant steps to revitalize the country’s banking sector, implementing new technologies and regulations to enhance efficiency and accessibility.
A Growing Demand for Electronic Payments
The number of issued electronic cards in Iraq has grown exponentially since 2017, with over 9.7 million cards issued by the end of 2021. Prepaid cards have been particularly popular, thanks to their ease of use and simplicity. However, banking solutions have struggled to keep pace with this growth, leading to an imbalance between the number of electronic payment systems and the demand for them.
Insufficient Electronic Payment Infrastructure
The lack of acceptability of electronic payments has put pressure on salary withdrawals in cash, preventing the payroll cycle from continuing electronically. This is due to an insufficient number of automated teller machines (ATMs) and points of sale (POS), which are not increasing at a rate sufficient to accommodate the shift to electronic payment.
Dependence on Cash
Cash remains the dominant form of currency in Iraq’s economy, hindering the growth of the banking system. The CBI manufactures new dinars by trading US dollar oil income, and these Iraqi dinars are used to pay wages, pensions, products, and services. This issue continues to highlight the constrained role of the banking sector.
Lack of Public Trust
Iraqis do not trust their banking institutions or view them as a secure place to shelter their finances. High-interest rates, enormous collateral, demanding guarantee requirements, and low market penetration are also hindering the sector’s growth. Furthermore, due to the calamities that Iraqis have witnessed, many prefer to keep their money in cash hidden safely at home.
Religious Concerns and Islamic Banks
In a largely Muslim nation like Iraq, many people prefer to avoid entrusting their assets to conventional commercial banks due to religious reservations. Hence, Islamic banks began to develop progressively. However, numerous challenges impede the functioning of Islamic banks in Iraq, including insufficient expertise, the absence of an Islamic financial market, inadequate legal protection, and the subjection of Islamic banks to the CBI.
Recommendations
To address these challenges, experts recommend:
- Increasing the reach and number of bank branches across Iraq
- Requiring banks and electronic payment service providers to acquire integrated and modern electronic systems
- Gaining the public’s trust in the Iraqi banking sector
- Increasing the rate at which POS and ATM systems are implemented
- Legisating specialized laws for the operation of Islamic banks and finance
The Future of Electronic Banking in Iraq
As Iraq continues to rebuild its economy and banking sector, the adoption of electronic banking and payment systems is likely to play a key role in shaping its future. With the recent introduction of QR code payments by ZainCash, the implementation of this method could result in rapid adoption. As the country works towards increasing financial inclusion and promoting economic growth, it will be essential for banks and electronic payment service providers to work together to address these challenges and build a more robust and sustainable electronic banking system.
Read the Full Report
For a comprehensive analysis of the current state of electronic banking and payment systems in Iraq, read the full report.