Challenges in banking system development in Iran

Challenges in Banking System Development in Iran
SHEIDA NOBAKHT
MAJID VESAL

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
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

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

 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

 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)
byendofyear
Number of Issued Credit Cards

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.

 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.
byendofyear

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.

 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)
TotalNumberofactiveATMs
byendofyear
Annualgrowthrate
Number of ATM Terminals

 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)
Annualgrowthrate
NumberofATMtransactions
peryear

 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
Annualgrowthrate
ValueofATMtransactions
peryear/inEuro
Value of ATM Transactions

 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
Annualgrowthrate
TotalNumberofactivePOSterminals
bytheendofyear
Number of POS Terminals

 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
Annualgrowthrate
NumberofPOStransactions
peryear
Number of POS Transactions

 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
Annualgrowthrate
ValueofPOStransactions
peryear/inEuro
Value of POS Transactions

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
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

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.

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.

…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.

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.

…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.

These kind of pages do not seem unfamiliar to our
experts!
22
Some times there might be difficulties even using free apps or documents.

Then, Why Banks do not go toward
foreign solution providers?
23
Foreign Banking Solutions Providers have not been very successful in Iran„s 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 it„s related
components.
 Risk of being affected by changble situation of forign
relations.

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
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
There could be seen screen shots of “Negin lite” client.

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.

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.

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.

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

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
References
» http://www.bis.org/cpss/
» http://www.cbi.ir/
» http://www.worldbank.org/
» www.tosan.ltd
» http://www.inntron.com/core_banking.html

Challenges in banking system development in Iran

Recommended

Recommended

More Related Content

Viewers also liked

Viewers also liked (14)

Recently uploaded

Recently uploaded (20)

Challenges in banking system development in Iran