Amidst rapid technological advancements, the financial and banking sectors are undergoing significant transformations aimed at improving efficiency, enhancing transparency, and promoting financial inclusion. One prominent development in this context is the electronic payment system, which plays a vital role in reforming banking systems, particularly in developing nations like Iraq. Despite facing long-standing structural challenges and inadequate infrastructure, the Iraqi banking sector is beginning to experience positive changes attributed to the implementation of electronic payment technologies.
Impact of Electronic Payment Systems on Banking
The integration of electronic payment systems within the banking framework offers several key benefits:
- Increased Confidence in the Banking System: Electronic payment solutions instill greater customer trust in banking by providing secure and rapid transaction methods. When individuals perceive their financial transactions as protected and straightforward, they are more likely to deposit funds in banks rather than keeping them in cash.
- Promotion of Financial Inclusion: Electronic payment systems enhance accessibility to banking services for individuals and small businesses, especially in remote or underserved areas. As more people are able to open bank accounts and conduct financial transactions easily, this leads to higher deposit rates, positioning banking deposits as a more attractive alternative to holding cash.
- Reduction in Cash Dependence: In economies heavily reliant on cash transactions, low deposit rates often prevail due to a culture centered around monetary use. By adopting electronic payments, the reliance on cash diminishes, encouraging individuals to deposit their money in banks, which in turn raises deposit rates.
- Enhanced Banking Process Efficiency: Electronic payment systems lower operational costs for banks by reducing the need for physical branches and their associated staff. This improvement in efficiency is likely to result in better returns on deposits, appealing to savers.
- Increased Transparency and Anti-Corruption Measures: The electronic payment framework enhances transparency in the financial system by ensuring that transactions are documented and traceable. This diminishes the risks associated with corruption and tax evasion, boosting customer trust in the banking system and encouraging deposits.
Global Examples of Electronic Payment Success
International data underscores the strong positive relationship between the proliferation of electronic payment systems and the rise in banking deposit rates. Noteworthy examples include:
- China: As a front-runner in electronic payments, over 80% of the population utilizes platforms like Alipay and WeChat Pay. Reports indicate that deposit rates in China surged significantly, with deposits reaching more than 180% of the gross domestic product (GDP) in 2022. Electronic payment technologies have also contributed to enhanced financial inclusion, increasing the percentage of individuals with bank accounts from 64% in 2011 to over 90% in 2022.
- India: Following the introduction of the Unified Payments Interface (UPI), bank deposits in India soared. In 2022, the deposit-to-GDP ratio reached 75%, up from 60% in 2016. Similarly, the number of bank accounts grew from 35% in 2011 to over 80% in 2022.
- Kenya: A leader in mobile payment solutions via M-PESA, Kenya saw the percentage of bank deposits rise from 20% in 2007 to over 70% by 2022, driven by the widespread adoption of electronic payment and improved financial inclusion.
- Sweden: Notably reliant on electronic payments, Sweden records cash transactions at less than 1% of total transactions, with the deposit-to-GDP ratio at approximately 90%, showcasing significant trust in the banking system.
Challenges Facing Iraq’s Banking System
In contrast, Iraq’s deposit-to-GDP ratio remains relatively low, having decreased by 9%. As of 2024, the total value of deposits fell to 123.5 trillion dinars from 133.5 trillion in 2023, despite a 23% increase in bank accounts attributed to the adoption of electronic payments. This highlights several challenges impacting deposit values in the banking sector, especially as the Central Bank of Iraq pushes for enhanced electronic payment tools:
- Weak Technological Infrastructure: Iraq’s communication networks and Internet services suffer from quality and coverage issues, impeding the effective implementation of electronic payment systems.
- Low Financial Literacy Levels: A significant portion of the population remains dependent on cash transactions due to limited awareness of the advantages and utilization of electronic payment systems.
- Lack of Legal and Regulatory Frameworks: The successful application of electronic payment solutions necessitates clear laws and regulations that govern these operations and protect consumer rights, facilitating ease of use.
- Security Concerns: Some individuals express apprehension regarding cyber threats and data security, which constrains their willingness to engage with electronic payment systems.
