Iraq’s recent history is well-documented, but away from
military, political and socioeconomic considerations, the country’s
payment system is undergoing a remarkable transformation, and
payment cards are beginning to make their mark. Victoria Conroy
reports on the challenges for payment players.

The upheaval that has taken place in Iraq over the last six years
has affected all aspects of its society, economy and governance,
and there is not enough space in CI to chronicle just how much the
country has been impacted since 2003.

However, what would be fair to say is that Iraq’s gradual economic
transition and the resulting improvements in its payment and
banking infrastructure have laid the foundations for electronic
payments of all kinds to facilitate both private and public trade
and commerce.

Uptake of electronic payments is expected to increase considerably
over the next few years thanks to its 30-million strong population
being dominated by a young and highly educated demographic segment
of those aged from their late teens to their early twenties.

Population, payment and infrastructure

As the country’s power and telecommunications infrastructure is
still being rebuilt following the 2003 war, Iraqis have become
enthusiastic users of mobile phones.

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According to the Brookings Institute, between 2003 and 2008 mobile
phone subscriptions expanded over a hundredfold, with over 14
million mobile phone subscribers as of 2008. No recent data exists
on the number of fixed telephone lines but a 2005 estimate put the
total at 1.54 million. The number of internet users as of 2008 was
just over 275,000 compared to just 25,000 in 2002.

Despite massive turmoil over the last six years, Iraq’s official
unemployment rate is slowly starting to recede from highs of 60
percent in 2003 to between 25 percent and 38 percent as of January
this year. Over 67 percent of the population live in urban areas
and nearly 80 percent of the total population is classed as

For various and obvious reasons, no historical data exists on the
level of cash and non-cash payments in Iraq, as the Central Bank of
Iraq, which supervises the country’s burgeoning banking sector, was
itself only established in 2004. However, the use of payment
instruments, be they credit transfers, cheques or card payments, is
very limited but is increasing year-on-year. The number of cheques
denominated in US dollars presented for clearing in Iraq gradually
increased from 607 with value of $48 million in 2004 to 2,121 and a
value of $418 million at the end of 2007.

It is payment cards that have garnered the attention of both
domestic and foreign banks over the last few years.

In the era of Saddam Hussein’s regime, payment cards were in use
but were suspended following the 1991 Gulf War up until the war of
2003. After that, the influx of foreign military personnel, foreign
contractors and government employees brought with them their own
foreign-issued payment cards and a desire not to have to carry
large amounts of cash for payment of goods and services. It is
estimated that as of 2008, there were over 2 million foreign
cardholders resident in Iraq.

The role of foreign banks

Foreign banks have by and large spurred Iraq’s banking renaissance
by providing expertise and investment to fledgling Iraqi

In 2003, Standard Chartered was among a consortium of 13
institutions headed by JPMorgan chosen to run the Trade Bank of
Iraq (TBI), following a bidding battle between 58 banks keen to
make their mark in the country. Other successful banks included
Bank Millenium of Poland, ANZ and Crédit Lyonnais.

Middle East banks have also established presences in the country,
mostly by forming alliances or taking stakes in Iraqi banks. Ahli
United Bank of Bahrain took a 49 percent stake in Commercial Bank
of Iraq in October 2005. Commercial Bank of Iraq became the first
bank in Iraq to receive a MasterCard licence in November 2008,
under which it was granted permission to issue MasterCard credit
and debit cards, Maestro debit cards and offer access to the Cirrus
interbank network.

The period between 2004 to the present day has seen an influx of
payment players keen to service these cardholders and also to
expand payment services and infrastructure in the country.

Of the payment networks, Visa was the first to establish operations
in Iraq in 2005, in conjunction with TBI, which issued the first
Visa-branded payment cards in the country.

During 2007, TBI restructured and expanded its card department with
the recruitment and training of a dedicated team to operate its
card systems. In the same year, it also increased the number of TBI
Visa cards in circulation by 84.2 percent to 4,771, compared to
just 385 as of December 2005.

TBI will also be introducing a range of new products in 2009,
including salary cards and pension cards, and a chip card with
biometric details.

First established in 1999 as a trade and investment bank, Warka
Bank now has a network of 120 branches and 350 ATMs located all
over Iraq, and offers services such as internet banking and mobile
phone banking. Its Visa cards are issued through its correspondent
bank in Jordan, the Housing Bank for Trade and Finance, but its
recent acquiring deal with MasterCard means it will be issuing
cards directly in Iraq.

Warka began its venture into the payment card space by rolling out
a payroll card programme and issuing debit cards to various state
companies. Warka now offers three kinds of payment cards: the
Midrar debit card; a prepaid card or salary card; and a revolving
credit card allowing the cardholder to make purchases in monthly

Warka is also in the process of importing around 15,000 POS
terminals which will be deployed at petrol stations, hotels,
shopping malls and other popular locations.

According to the bank, its POS terminals use General Packet Radio
Service (GPRS) communications similar to mobile phone networks,
rather than fixed landline communications.

A major breakthrough, which is expected to accelerate the uptake of
payment cards in Iraq, came in June 2009 when a consortium of Iraqi
banks under the umbrella name of AMWAL announced that they would be
issuing MasterCard-branded debit and credit cards to Iraqis free of

AMWAL’s mission has evolved from building up a POS payment
infrastructure to the roll-out of payment cards, although, so far,
only around 150 POS terminals have been deployed to merchants such
as hotels and larger retailers.

AMWAL’s stated mission is to provide affordable electronic banking
products to every Iraqi citizen, and connect Iraqi banking services
to the larger international financial network. As such, it has
positioned itself as facilitating the use of
internationally-branded cards in Iraq while also enabling Iraqi
citizens to use their cards abroad.

Bank of Baghdad, Commercial Bank of Iraq and Ashur Bank Iraq are
the first AMWAL member banks to begin issuing MasterCard credit and
debit programmes.

Bank of Iraq

Logistical hurdles

The growth of conventional payment cards is only just beginning to
gain traction, but there are security and logistical hurdles which
make it relatively difficult for an ordinary Iraqi citizen to
obtain one – and for those without a bank account, the challenges
are only exacerbated.

It is estimated that only 24 percent of the Iraqi population has a
bank account and those wishing to open an account must provide
several forms of official documentation such as ID cards and a
letter of introduction from a “reputable” bank before they can
begin the application process.

Regulations laid down by the Central Bank of Iraq stipulate that
residents of Iraq and other Arab countries can hold foreign
exchange accounts domestically at commercial banks and are
permitted to use those accounts without restrictions as long as the
accounts are credited with foreign currency. Foreign currency
accounts can be held by residents abroad whereas domestic currency
accounts cannot.

Foreign residents must deposit $100,000 with an Iraqi bank in a
non-interest bearing account and foreign investors are not
permitted to possess ownership rights in property. For those who
qualify for a credit card, they are required to make a collateral
deposit as a guarantee.

When payment cards first made their entrance in 2005, the typical
annual fee was around $35, with cardholders required to make
collateral deposits of $1,000 or more. Currently, Dar Es Salaam
Bank, an affiliate of HSBC, requires Iraqi residents opening bank
accounts to have a minimum balance of $1,000 along with proof of
source of funds.

Also, questions have been asked as to how useful Iraqi-issued debit
cards will be, given many Iraqi nationals have Iraqi dinar
(IDR)-denominated accounts. Even though the cards can be used in
the global MasterCard ATM and merchant network, the IDR is a
currency scarcely accepted or used outside of Iraq as it is
virtually worthless, which could make it problematic for merchants
outside Iraq who are unsure of the validity of such cards, and for
banks performing currency conversions on card transactions.

A role for prepaid?

Obviously, the many challenges outlined above will, for the time
being, curtail the ability of Iraqi banks to expand in any
meaningful way into the consumer card space, but the vagaries of
the society mean that there could be a meaningful role to play for
corporate cards and prepaid cards.

It is likely that prepaid propositions in the country will grow
more quickly in the corporate or government space, as a way to pay
employees without bank accounts or as a way to disburse social
benefit payments. But banks such as TBI have also found that those
declined for traditional payment cards are willing adopters of
prepaid cards as an introductory product, enabling the bank to gain
an idea about their spending profile and to build stronger
relationships with a customer base that until recently was very
distrustful of the banking sector.

In 2004, Security Financial Services (SFS), based in the capital of
Baghdad and the first company to be granted a licence by the
central bank to sell financial services in the country, rolled out
MasterCard-branded prepaid cards and has seen positive uptake of
its products, particularly over the last couple of years as
security issues have become less pressing.

SFS, which issues cards in Iraq via a licence from a bank in
Lebanon, says given the lack of a widespread POS and ATM
infrastructure in Iraq, citizens in the country have turned to
online shopping in their droves and find prepaid cards an ideal
payment tool. According to the company, in 2008 there were around
12,000 SFS prepaid cardholders in the country with the majority
having become customers over the previous 12 months.

In August 2008, Net1, a South African payment solution provider,
announced that its UEPS system had been implemented in Iraq for the
distribution and payment of government grants to war victims and
martyrdom beneficiaries, as well as salary and wage distribution
and payment to employees of two state banks.

In December 2008, Net1 received an order for an additional 800,000
cards to be issued to war victim beneficiaries and pension payment
recipients, following an initial order of 200,000 cards in October
2008. Completion of cardholder registration was due to be completed
in June 2009.

Until full trust returns to the Iraqi private banking sector, and
until a widespread and reliable payment infrastructure is
implemented, it looks like it will be prepaid that enjoys the
biggest boost from the Iraqi banking renaissance – although cards
of all forms are slowly but surely gaining in popularity.