The Iranian banking systems didn’t create that new innovative solutions despite the closed market they lived in. They rely on known and long used mechanism to pay within the country or get money transferred throughout the world. Why? Because it is simple convenient and understandable for them. Maybe this is also some sort of answer what future banking should be?
Nou Ruz in Iran
We try to be every New Year, the so called Nou Ruz, in Iran with my wives family and friends. This year we made it again, so I am lucky to write now with a perfect view on the hills of Teheran. I love to be here with all the friends and family to go out talk and see how life goes. As expected, actually now a few days after sanctions lift nothing real and concrete has changed for the normal people. Maybe there is some big business ongoing, but the biggest change I saw right now was the big advertisement for BMW on the way from the airport to city instead of the usual Samsung. But that’s another topic. Today I want to try to compare Iranian banking inventions with the rise of Fintechs in Germany and the lessons one can learn from Iranian banking.
And as I have often mentioned, Iran is not really a banking paradise. It may become somehow in the future a paradise for clever agents selling insurances and saving plans or such stuff. But actually Iran shows the same pattern of banking as we have in Europe. Checking accounts, credit cards, saving accounts with great interest for foreigners, but relativized for Iranians and the raise of financing activities for cars, washing machines and so on. Even the stock exchange is regularized to a high extend. This is as astonishing as the country was separated from the rest of world by cutting the swift connection. So one would assume, the banking has developed itself in another direction or there are at least new ways of payment services, like the mobile phone based payment services in Africa or something like the messenger based money transfer like the Chinese Weibo. This would be soar as mobile phones more or less a non-human extension to Iranians. So there is nothing like this. This solutions are really convenient for the people in their countries but obviously not for the people in Iran. On the other side, one would think they have found new ways of international banking. There is no swift so they have to find clever and very sophisticated ways. But there is no funky new app on the market, nothing new in terms of service to get money from Iran to the rest of world in a smooth way. For this they still use the kind of old Hawala system.
Payment services adapted to the circumstances
All this is pretty interesting and astonishing as I would have thought in a closed market like the Iranian market there they come up with some new ideas adapted especially to this market. But people obviously adapted the obstacles in their market in another, more common and for them convenient enough way: What one can find here and what is pretty normal in Iran is the extensive card usage. And this with a lot of providers.
As there are a lot of different and not compatible systems out there, every trader or shop needs some, or mostly three different applications for paying with cards. And this is absolute not usual, even the smallest shop around the corner has this environment and card payment is very welcome. If I compare this with Germany, where we have several more or less intelligent payment systems and everything works fine, but all are complaining about the way of payment. The shop doesn’t want to pay the high fees, the clients wobble between cash and card, never having the right one with them. In between the banks are laying the infrastructure for payments. But did any of these banks go out on the market and ask the people what they want? In the end everyone is either paying cash or EC-Card, as always.
I guess, what we can see in Iran is the only reasonable adoption of the situation. Cash is senseless when you carry millions of Rial or Toman with you. It is really obvious when you imagine that you have as 100.000 Rial the highest note that’s worth more or less 3 EURO. What do you think how much you need as cash money for a normal purchasing of a week’s food and other basic stuff? Guess what – we all would skip this and pay with cards. And the shop owner has the only choice to offer all system available on the market. But this is just a behavior guided development, forced by the circumstances not by efficiency. So the people adapted the situation and took the solution that was there, get warmed with it and used it.
Service centric thinking?
So coming back to Germany and banking itself and especially Fintechs. You know I am a friend of Fintechs in terms of banking disruption. I was one of the first to have accounts with online banks and did my stuff on the internet. I am since four years with Smava and made a good experience and I am right now testing the Ayondo approach of investing money. So to say I like to try out new services. But what is the real expectation of the clients? Do this new ideas meet them? I do not think so. As in Iran, the people uses the system that works and that is reliable enough for them. So here they have all several accounts for card payment due to the senseless value of bank notes and all are living up with this method. And they need to get money from Iran to rest of world, they use old ways. And this gives a little bit the answer, I assume a new successful banking has to find: what do people need and what do they want to do for it? And for my point it is to have a place for getting loans and being able to invest money reliable for their retirement or the marriage of their children. It should not be so sophisticated that clients cannot understand and should deliver an outcome that is countable and visible. This is the world people want to see. And if you risk a small glance on the cash especially we Germans have on our accounts for no or nearly no interest, it is easy to derive the need for better solutions and for a trustful relationship. So for me, the picture of Iran gives a good example what banker should create for the people and not try to impress other bankers....
Yours K-Street6 team