Iran and the Question of International Payment Networks

Iran has no connection to International Payment Networks such as Visa and MasterCard. The country has remained an isolated island with few connections to the outside world. But what does it means for Iran and Iranians at large?

Payment cards have been used in Iran for almost two decades now and their popularity has only increased over the past few years. Banks, PSPs (Payment Service Provider) and other financial institutions constantly compete over customers by offering them new services and methods of payment, but the one critical feature that has hitherto remained out of their reach is a connection to International Payment Networks such as Visa and MasterCard. Iran’s banking system, due mostly to international sanctions, has remained an isolated island with few connections to the outside world. What this means for Iran and Iranians at large, is the subject of this article.

To Iranians, the word ‘sanctions’ is a very familiar word. As a country with a largely young population, most Iranians are born in a country that was constantly being punished by the international community. Be it by supporting Saddam in his aggression against Iran, or by making it very hard for Iranians to travel outside of their country. The validity (or lack thereof) of these sanctions and the ways in which they have affected Iran is the subject of different studies but one in particular is being discussed here. Sanctions put in place by international payment processors such as Visa and MasterCard are felt by the government and have effected the Iranian people. In simple terms, it means that average Iranians cannot have financial interactions with the outside world in terms of buying goods that are not being sold inside the country or offering their products outside of Iran. Most importantly, they cannot benefit from the international e-commerce platform that has been in place for a long time using the World Wide Web and the Internet. It makes traveling harder since every Iranian tourist has to carry cash when they go outside of the country. Simple transactions such as booking a hotel or a flight are a luxury to most Iranian citizens.

After the recent nuclear accord and the removal of some historical sanctions as its corollary, there were high hopes for a time that this issue can also be resolved. However, the election of Donald Trump as the U.S President and his apparent opposition to the accord killed a large part of that optimism for so many, although attempts at finding ways to circumvent this situation have not stopped. Even at the height of the sanctions, some Iranian banks (Private or State-owned) managed to establish partnerships with smaller banks, mostly in Central Asia to offer Visa and MasterCard branded cards to their customers. Although these cards were usually expensive to get and got tracked down occasionally by those companies, in most cases they were blocked and resulted in people losing their money and businesses.

In one instance, an Iranian bank started a co-branding project with a Turkish bank just to address Iranian tourists who visit Turkey and went as far as issuing 1000 cards. This coincided with the second period of Iran’s former president, Mr. Ahmadinejad, and a severe tightening of sanctions by the western block. The author of this article was informed by officials on both sides, thus the project was canceled due to direct interference from American authorities. As one source puts it, they threatened the Turkish bank’s CEO directly. The project was canceled the day after and the investment consequently went to waste. Furthermore, and as part of the sanctions, legal Iranian residents in Turkey were banned from even opening saving accounts in Turkey, a ban that remains intact to this day.

This is a delicate and an important matter for several reasons. Not having direct financial interactions with the outside world results in the isolation of Iranian people, yet it barely touches the government. Millions of Iranians go to other countries every year as tourists.  An estimated 2 million tourists visit Turkey every year and almost the same number of people visit Southern Iraq for pilgrimage. Hundreds of thousands of Iranians go to places such as Dubai, Malaysia, Armenia and countries with more relaxed visa regulations for Iranians.  Consequentially, the lack of internationally accepted cards means they have to carry cash with them all the time while managing important details last minute which is very hard.

Thousands of Iranians study abroad, from the U.S to Malaysia, from India to Sweden and their financial interaction with their homeland is done through ways that are, at least semi-illegal, risky and often expensive. Sending money to Malaysia or Turkey usually involves a commission rate of around 13% and there are problems every now and then. Scores of university students and researchers outside the country rely on their relatives inside the country or aforementioned Visa/MasterCard branded cards to pay for: books, online articles, software licenses and all sort of merchandise available on the internet.

Small and mid-size Iranian businesses are not able to easily offer their goods and services far from home. The few gateways that are available for financial interaction with the outside world are controlled by governmental banks/institutions that, in turn, add their own cost to the transaction. On high-level imports and exports, the extra cost is paid either by the government subsidies or added to the final price and charged to the end-user, but there is no practical way for small and medium sized businesses to conduct business. There is also another side to this problem. Iran’s thin and shaky tourism industry could benefit from connecting to these international networks. Every tourist, or even business person, visiting Iran needs to bring their monetary units into the country. Yet, every amateur tourist knows it is not a good idea to bring large amounts of cash with you to a country you know very little about.

All that said, there are no easy solutions to this issue. Politically, the allegations against Iran remain the same, although it is hard to imagine how payment cards can affect a major oil-exporting government with billions of dollars of annual revenue and money circulating all over the planet. There are few signs to show the entire regime of international sanctions has had any effect of Iran’s foreign policy during the past 4 decades. But there are more sides to this issue. Money laundry is a serious issue and especially in a country located next to Afghanistan on the silk road of drug trafficking. Although Iran’s banking system has taken many steps to fight money laundering over recent years and went as far as joining FATF (Financial Action Task Force), there are still steps to be taken.  Another major issue is the lack of regulations for credit cards. Out of millions of cards issued in Iran every year, almost all of them are debit cards, as opposed to credit cards.  The country does not have proper rules and regulations for credit cards in place, due partly to its special brand of Islamic banking, and partly to being a banking island for almost 4 decades. Technically, things are not easy either.  Almost none of Iran’s payment acquiring companies (There are 12 of them currently) are ready to conform to the industry’s massive amount of rules, regulations, protocols and certification programs such as EMV (A standard put in place in 1994 by EuroPay, MasterCard and Visa Inc), PCI-DSS (Payment Card Industry – Data Security Standard) and so on. Fraud detection and credit scoring software are a rarity, due to years of international sanctions on the country’s banking system with most of its IT infrastructure being obsolete and outdated. There is also the question of merchandise. Due to Iran’s lack of proper copyright regulations, some major software vendors such as Microsoft, Google and Apple do not provide licenses to Iranians citizens.  Although (and it is worth mentioning) they are more than happy to sell notebooks, phones and gadgets in the country by millions. 

Answering the question of Iran and its connection to the international community is a not easy and there is no overnight solution to it. The political climate does not herald a big opening.  Yet, Iran needs more than a handful of laws and regulations on topics such as: money laundering, fraud detection and credit cards.  While the technical side of this may actually take years to be fully accomplished, it is worth mentioning that the main benefactors will be ordinary Iranians and small and mid-sized private businesses. It will engender Iran’s thin and vulnerable private sector. To accomplish this: a full banking integration is not required, just removing of some basic limitations, the use of closed-loop cards and prepaid cards with spending limits would be enough.  These can make a significant difference and can indeed help regulate what is already being done through illegal and risky ways with almost no supervision whatsoever.