Changing Times : Methods of payment

June 12th, 2016 Sections: Business, Economy, Life In Kyrgyzstan
Photo credit: Sean MacEntee via Foter.com / CC BY

Photo credit: Sean MacEntee via Foter.com / CC BY

Because I have been here for over twenty years, people often ask me about the changes I have observed in that time.

My answer usually starts with something like, “There have been lots of changes, and in many ways it was a different world,” and then concentrates on three examples: the number of vehicles on the roads, restaurants and construction projects.

They are all symbols of the money that is available in the country’s economy and also the standard of living … examples of discretionary income.

There are lots of other things I could mention : such as the revolution in communication – mobile telephones, internet use and social media … and the development of the banking system – especially the range of different payment methods, (which is something that has been in the news quite a lot recently – hence the postcard).

It used to be said, and it’s still largely true, that Kyrgyzstan is a cash based society … but that is beginning to change.

Twenty years ago, back in the UK, although I handled cash everyday and used it to pay for lots of things … there were a whole range of other options open to me.  I hardly ever paid a utility bill, for example, because the banks offered a variety of other options.

Regular bills, where there was a set charge and the sum never changed, were paid direct from my bank account by a Standing Order … “Pay xxx the sum of £00.00 every month on the xxth day of the month until 00/00/00 or further notice“.

Where the sum changed each time, (for example – the telephone bill, where the amount depended on the number of calls I had made, where to and and for how long), then, there was a Direct Debit system … the utility company sent out a bill and sent a request for the funds to my bank … who paid it because I had given them authorization to pay such requests … of course there were built in protections to make sure that the sums on the bill and the Direct Debit request identical.)

For occasional purchases, in shops or restaurants I could write a cheque, (which could also be sent through the post), use a Debit Card and the necessary funds were taken from my account and credited to that of the shop, or whatever … or I could use a Credit Card which had the advantage that if I didn’t have enough in my account gave me a small overdraft … mind you, at a cost.

It was always possible to go to the bank and arrange a Bank transfer for some transactions, or telephone banking where you telephone the bank and give an oral instruction to effect a payment … and internet banking was just about beginning, but still in its infancy, when I left to come to Kyrgyzstan.

Then, if I actually needed cash, then I could obtain some from a bank or, using one of my cards, from an ATM or as Cashback from the supermarket.

Not all of those options are available here in Kyrgyzstan – but cheques, bank transfers, debit and credit cards are found here and there are also a growing number of ATM terminals appearing throughout the country.

Add to that the possibility of using money transfer services, Webmoney and payment terminals there are a whole host of non-cash methods of payment … and they are growing in popularity.  Although there are only about one and a quarter million cards issued in the country, that still represents a 50% increase on the number over the winter.  About a quarter of them are issued by Zolotaya Korona (Golden Crown) or Elcart, two of the local domestic systems … but a surprising three quarters belong to one or other of the international card processing networks, such as Visa or Mastercard.

That probably means VISA because, for some reason, Mastercard have not really penetrated the local market.

According to a recent report, card transactions increased by a third during the first quarter of 2016 … although it seems that most of the transactions were for obtaining cash rather than making purchases in retail outlets.

Last December, the parliament passed a law requiring all retail outlets to install POS terminals so that consumers could, if they so wanted, pay using a noon-cash method of payment.  Apparently, however, businesses are dragging their feet implementing this measure – ostensibly due to a shortage of terminals.

The authorities are quite keen in spreading the use of cards … even the President weighed ion on the theme this last week, urging the Chairman of the National Bank to intensify efforts to implement such methods of non-cash payments.

Among the advantages they cite are security and safety … not having to carry large sums of money around with you.  There is also thought to be better consumer protection, because transactions can be challenge more easily. It gives the account holder greater access and control of their money – as these systems are available kroogloosutochnaya – around the clock – 24 hours a day and not limited to banking hours.

They also help to fix transactions and thus will help to avoid the Shadow economy, (unrecorded transactions), thus also increasing the income (tax revenue) for the state.

It should also lead to greater independence from the US dollar, which has proved to be a significant problem in the past … both here and in other countries … especially where people have found themselves in considerable financial difficulty as a result of exchange rate fluctuations.

Indeed, now there are even proposals to the effect that will outlaw certain types of transaction in cash.  Under the current draft legislation – individuals will be entitled to pay others using foreign currency, (US dollars, Euro, etc.) without any limitations.  When it comes to businesses, however, there are going to be restrictions … including a limit for cash transactions … any sum over that limit will need to be paid through the banking system … and all transactions between businesses will have to be processed by a non-cash method of payment.

I am hoping that I have misunderstood that point … but I suspect that I haven’t.  It seems a little ‘over the top’.  I appreciate that using a non-cash method of payment (such as by bank transfer or using a ‘company card’) will give increase bank revenues, give the authorities the ability to supervise economic activity … and have some advantages for businesses – but there are times when using petty cash can be a convenient and appropriate means of payment – especially for small or sudden, unplanned, expenses … and to have the use of petty cash forbidden like ‘using a sledgehammer to crack a nut’.

This follows on from measures that not only prohibit the use of foreign currency in settling bills but also in quoting prices and tariffs in foreign currency …

I hope that someone  gets round to ensuring that goschenovniki, civil servants, get that message … we still get asked (by people who should know better) for our prices in US Dollars and people who want to pay in US Dollars.

… and threats to close exchange offices (unless they are in a Bank),

As, according to the Civil Code, the only form of legal tender in the country is the national currency, the Som

… which presumably means that barter is not an acceptable as a method of settling bills, either.

Please, do not misunderstand me … it is not that I don’t appreciate the logic … just that I wonder if it the best way of solving the problem(s) that have been identified … and not a case of ‘throwing the baby out with the bathwater’.

Still, it’s nice to see that Kyrgyzstan is moving forward, and changing with the times.

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