Cashless Transactions, Banking Commissions: Central Bank Addresses Public Concerns

The Central Bank of the Republic of Armenia has published answers to frequently asked questions regarding the law on "Cashless Transactions," which came into effect on July 1, 2022.

1. What does the Law on Cashless Transactions regulate?
According to the Law on Cashless Transactions, starting from July 1, 2022, transactions exceeding 300,000 AMD within the territory of the Republic of Armenia must be conducted in cashless form. Moreover, specific transactions, such as payments for scholarships, public procurement, medical, educational, notarial, legal services, including consultancy services, regardless of the amount, must be conducted entirely in a cashless manner. Salary payments and the provision of loans and advances by banks and credit organizations will also be cashless. The repayment of loans and insurance compensations will also take place in a cashless manner.

2. What is the purpose of the Law and what impact will it have?
The primary aim is the realization of the right of citizens to make cashless payments. Citizens should have the opportunity to pay cashless if they wish, and service providers must ensure the proper implementation of this right. The law has both short-term and long-term positive effects. Citizens will have the ability to maintain a cashless lifestyle, which not only helps to avoid short-term risks and inconveniences associated with cash but also grants access to a broader range of financial services in the long run.

In particular, having an account and conducting cashless transactions will allow for better management of funds, savings, the accumulation of a credit history, and access to credit lines, among others. In the long run, the law will also contribute to the digitalization process in our country and reduction of the shadow economy, which means more tax collection and increased financing for education, science, and healthcare. Additionally, alongside digitalization, more effective data analysis will become accessible, creating the opportunity to provide citizens with improved and personalized financial services.

3. Will consumers pay a higher price for cashless transactions compared to cash?
In a cashless transaction, citizens should pay the same price as they would for a cash transaction. The law clearly regulates this, stating that enterprises providing services or selling goods cannot offer or receive a higher price for cashless payments than they do for cash transactions.

4. What will be the commissions paid to commercial banks for cashless transactions?
First, it should be understood that commercial banks operate in a free competitive environment and are free to set the prices for the services they provide, including the commissions charged for cashless transactions. However, it should be noted that commercial banks incur various expenses in providing these services, including commissions to international payment systems and cybersecurity maintenance. In any case, the Central Bank can set maximum and minimum limits for commissions for cashless transactions through normative legal acts.

Currently, the Central Bank continues to study the limits of commissions charged by banks in Armenia and is working on optimizing them, taking into account the need for businesses to comply with the law as smoothly as possible. Trends indicating a reduction in commission fees have already been recorded. For instance, in banks participating in the program, the commission for ArCa payment cards is set at 1%, for VISA and MasterCard cards of banks that are members of the Armenian Card processing center it is 1.8%, and for cards not belonging to the processing center (including those issued by non-resident banks) it is 2.5%.

On the other hand, we are confident that as the volume of cashless transactions increases, more favorable conditions for reducing commissions can be created.

5. Who will pay the commissions for cashless transactions?
Citizens will not pay any commissions for these transactions. This issue resides within the contractual relationships between enterprises and banks. However, it may seem that transitioning to cashless payments inherently involves costs and could lead to price increases. It is crucial to understand that the costs associated with activating cashless payments and maintaining their service are not significant. Still, some entrepreneurs may account for costs related to coming out of the shadow economy during this process. However, since such developments primarily occur in the retail sector, where competition is quite acute, it is expected that competition will not lead to additional unjustified price increases. However, it cannot be ruled out that some entrepreneurs may try to raise prices through anti-competitive agreements. In such cases, it is necessary to contact the state body responsible for price regulation, the Competition Protection Commission.

6. Is payment through terminals considered a cashless transaction?
According to the law, payments initiated in cash that are directed to an entrepreneur's bank account are considered cashless. Thus, transfers to entrepreneurs' bank accounts via payment terminals are regarded as cashless transactions, unless there are other regulations in the legislation or other legal acts.

7. Why should I pay cash, which "does not involve costs," rather than cashless, which "implies additional costs"?
In reality, cash also has a cost, for example, expenses related to printing, storing, and transferring it. These costs are simply not "visible" to consumers since financial institutions and enterprises include this expense in the value of the services provided. The Central Bank also incurs significant costs for maintaining and updating cash. In this regard, it is expected that alongside a reduction in the use of cash, conditions will also be created for decreasing the commissions for cashless transactions. The Central Bank will periodically monitor market prices to assess the justifiability of their levels.

8. Is there a need to acquire new cash register machines (CRM)?
The system for conducting cashless payments can be activated on all CRM devices compliant with the law via Armenian commercial banks. There is no need to replace these devices at this time. However, it should be noted that with the development of payment systems and the emergence of new financial instruments and solutions, the requirements for these devices may expand and change. Therefore, over time, older models of CRM devices will need to be replaced with new ones.

9. What issues are associated with the operation of the so-called "MF" model CRMs?
The Partner MF-2351 terminal has been operational since May 2015. Its compliance with safety requirements was set to expire on April 30, 2020. Due to the COVID-19 pandemic, this deadline was extended by one year, until April 30, 2021. According to requirements set by international payment systems, starting from October 12, 2018, new registered sales points must have terminals that support contactless cards and comply with specified safety requirements. A deadline was set for April 1, 2023, by which all terminals installed at sales points must support contactless cards and comply with the stated safety conditions.

10. Who will activate the cashless payment system?
There have been discussions between the Central Bank and all commercial banks operating in Armenia regarding the activation of the cashless payment system for more than 50,000 businesses across the country. The "ACBA BANK" CJSC and "AMERIA BANK" LLC have expressed readiness to participate in the implementation of this program. Notably, the proposal from the Central Bank to be part of the program has been directed to all commercial banks operating in Armenia; only these two organizations responded.

It should be emphasized that activating the cashless payment system among businesses in all cities and villages of Armenia is less profitable and involves significant investment. Necessary investments have already been made by the two participating banks to create the required infrastructure to provide services to businesses at the lowest possible prices.

11. Will the regulations regarding CRMs create additional costs?
Given the necessity not to create an additional financial burden for enterprises at this stage, efforts have been made in collaboration with the banking system to understand how to optimize charges and conditions related to activating cashless payment systems on CRMs as much as possible. Specifically, according to the proposal from the two participating banks, a monthly fee will be charged for zero turnover: 4,600 AMD in Yerevan, 3,000 AMD in other cities, and 1,000 AMD in villages, while commissions for cashless payments will decrease from this amount as turnover increases.

12. Are the system and entrepreneurs ready for cashless transactions from July 1?
If entrepreneurs have not yet implemented the necessary regulations, they will receive notifications from the State Revenue Committee of the Republic of Armenia regarding the implementation of these arrangements through one of the mentioned banks. After receiving the relevant notification, learning about the servicing bank, and completing the corresponding application on the SRS platform, the activation of the program on the CRM will be carried out by the bank or a specialized organization.