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Can Iran Become a Successful Emerging Fintech Market?

fintech iran

Neobanks, crypto and Digital Rial. In Iran fintech is rocketing, despite US sanctions. Around 137 FinTech startups are operating in Iran. Tehran’s goal? Being a regional hub for financial innovation

Fintech is gaining its momentum in Iran. As well as in other countries, the pandemic outbreak has boosted the whole sector, pushing Tehran to invest in fintech. By the way, despite internal political controversies, the country is worldwide known for its digital talents and its vibrant digital landscape.

Moreover, the country’s central bank, financial institutions and government agencies are taking steps to make Tehran a regional hub for financial innovation. Yes it is, all eyes are on Iran and step by step the country is emerging as a digital finance innovator in the Middle East. Let’s see why.

Fintech in Iran? An Overview

As we said, the government is pushing for innovation. This comes as part of the Iran Vision 2025, which seeks to turn Iran into a developed country by 2025, as well as “the first economic, scientific and technological power of the region”. An ambitious plan that the country could make possible, despite US sanctions.

Since 2017, the Central Bank of Iran (CBI) has proposed its 2025 Roadmap, which “aims for the development of a strong future for the banking system”. The roadmap is set to define an appropriate role for fintech companies in the Iranian banking system, including a separate regulatory body for monitoring and supporting innovative services.

In September 2018, the turning-point, when the Shaparak Company - the Central Bank of Iran’s arm for operating the country’s payment network - signed an agreement with six major fintech firms, the first such firms to work within CBI’s new legal framework. Few months later, in January 2019, the CBI announced 4 New Developments in E-Banking. Iran even has its own Fintech Association. In March 2017, a group of Iranian fintech companies joined hands to form an association representing the industry.

Called Fintech A, the organization is set to bring industry players under one roof, mainly to find a solution to their problems and boost innovators’ relations with regulatory bodies. Online payment services provider ZarinPal, peer-to-peer payment app Bahamta, online invoicing service Hesabit, money transfer service PayPing and crowdfunding platform Mehrabane were among founding members of the association.

Since 2020, when the country was hardly hitted by Covid-19, the Money and Credit Council - the highest supervisory and regulatory body of Iran's financial markets - gave the green light to banks and non-bank credit institutions to offer electronic wallets to facilitate micro transactions. Speaking in numbers, Iranian fintech is still in its early stages, but is moving fast.

According to Statista, the market's largest segment is Digital Payments with a total transaction value of US$ 22,225 m at the end of the year and is expected to amount to 58.45 m users by 2026. Neobanking is welcomed too with the average transaction value per user projected to amount to US$ 14,987 in 2022. The Neobanking segment is expected to show a revenue growth of 42.6% in 2023.

The Next step? Improving Digital Banking, Zamin Bank is on the right path

Digital banking is becoming more and more important in Iran, but customer-oriented digital banking is still an ideal that the country’s banking sector is not so close to. In the meantime, Bank Iran Zamin was able to provide the opportunity for its customers to prepare the necessary infrastructure and provide fast and easy electronic services to eliminate the need for customers to visit branches in person and make them the focus of digital banking.

Bank Zamin is a real forerunner. Its latest approach to digital banking is the launch of the first Iranian neo-bank called “Faraz”. Faraz Iran-Zamin Neobank tries to provide banking services and needs such as: authentication, account opening, getting a loan, repaying loan installments, transferring money, financial management of accounts, etc. as soon as possible and cheaply, safely and without visiting branches, offer mobile phones to customers on the platform.

Cryptocurrency, CBI is finally getting in on the action

And now the country is pushing bitcoin. The US, which imposed an almost total economic embargo on Iran,  has long accused Iran of using bitcoin to get around sanctions imposed to punish Iran for its nuclear program.

According to Reuters, around 4.5% of all bitcoin mining takes place in Iran, allowing the country to earn hundreds of millions of dollars in cryptocurrencies that can be used to buy imports and lessen the impact of sanctions.

Hamed Mirzaei, the CEO of Bitestan, quoted by Peyvast, said that cryptocurrency exchange claims that domestic platforms account for the majority of transactions by traders in the country. "Iranians’ daily crypto transactions are estimated between 30 and 50 trillion rials ($181 million), while there is no regulation over trade in cryptocurrencies. More than 88% of the deals are conducted via local exchange platforms", added Mirzaei.

But early this year, the Central Bank of Iran is getting in on the action, formally creating a system to allow businesses to make payments in cryptocurrencies. On Jan. 10, Iran’s Mehr News Agency reported that Alireza Peyman Pak, head of Iran's Trade Development Organization, said that it had reached an agreement with the Central Bank of Iran (CBI) to connect the country’s comprehensive trade system with a cryptocurrency system, Ramzarz, that will let the country’s businesses settle international transactions.

The move arrived after the political tsunami invaded Tehran’s Stock Exchange Market when it was revealed there were dozens of illegal cryptocurrencies miners discovered in its basement and after a blackout on Tehran caused by mining cryptos.

Despite all, local authorities has recognised that bitcoin mining represents an attractive opportunity for a sanctions-hit economy suffering from a shortage of hard cash, but as Elliptic Co-founder and chief scientist Tom Robinson warned last year, “financial institutions should consider the sanctions risk they are exposed to due to Iranian Bitcoin mining — particularly those that are beginning to offer crypto-asset services”.

It's time for “Digital Rial”

Iran is preparing its digital Rial after Supreme Leader Ali Khamenei green-light. According to the media, Ali Salehabadi, Central Bank governor, told the Seventh Islamic Financial Conference January 17, that the Money and Credit Council had approved such a currency. Mehran Moharramian, a Central Bank deputy governor, argued that a pilot phase would begin soon as the bank considered “several potential impacts of the new technology on the state, citizens and economic indices”.

Abutaleb Najafi, head of CBI’s information services company, added that the digital currency will be tested in a trial phase with banks, payment service providers and consumers. However the CBI will need at least one more year to examine the economic, social and legal aspects of launching the Digital Rial.

The official said state-run and private banks in Iran are expected to launch services that allow customers to open wallets to use the digital currency during the trial phase.

So, what’s next? Unofficial reports show that about 137 FinTech startups  are operating in Iran’s financial markets. Lack of a unique regulatory body and a proper legal framework, were named as Iranian Fintechs' main obstacles to its financial digital revolution, but the Ayatollahs' country already stepped up the gear.

The country is focusing itself to be a game changer in the region, despite US sanctions. Will Iran be able to succeed in this project?