farhad emam Farhad Emam
Publish Date : 02/19/2016

Electronic Payment Law in Iran, Iyzico or PayPal

EXECUTIVE SUMMARY

Key terms

Electronic payment, Paypal, Iyzico, PECCO, Parsian Bank

Summary

It is reported on the website of bloomberg.com on February 15, 2016 (Isobel Finkel:  Turkey's Iyzico Beats PayPal to Unlock Iran's E-Commerce System):

An Istanbul-based payments startup says it’s signed a deal that smooths the way for companies seeking to follow it into Iran’s $400 billion economy. Iyzico’s agreement with Tehran-based electronic payments platform PECCO lets its customers process transactions from some 230 million payment cards that until recently weren’t connected to any financial system outside Iran, according to Barbaros Ozbugutu, Iyzico’s German-Turkish chief executive. The deal is the first of its kind, he said in an interview in Istanbul.

The questions to be raised in this Legal Report:

·         What are the ups and downs of concluding an agreement with Iyzico?

·         Comparatively speaking, what would be the advantages or disadvantages of concluding an agreement with Paypal on electronic transfer services?

·         What are the policies, laws and regulations that apply to electronic transfer in Iran?

I. Agreement with Iyzico

According to the available information, the agreement with Iyzico comprises the following elements:

·         The agreement is signed with Tehran-based electronic payments platform PECCO;

·         PECCO is the acronym used for Parsian E-Commerce Co.

·         It is a public joint stock company.

·         Eighty percent of its shares belong to Parsian Bank.

·         Iyzico is a payment receipt system management platform designed on speed and efficiency. iyzico is the version abbreviated and adapted to Turkish pronunciation of the words “Easy Check Out” which means “Easy Payment” and creates a world completely built on convenience in payment systems as it is understood from its name. 1.1. Business related travel to Iran following the conclusion of the JCPOA (July 14, 2015). (Retrieved from the Linkedin account of Iyzico on February 15, 2016).

·         What is the main advantage of getting electronic payment services from Iyzico according to the linkedin account of this company? Iyzico integration relieves you from dealing with infrastructural investments, tests and security concerns. You simply register to iyzico system and enter the code required to receive payments to the website. Moreover, you will pay neither subscription nor installation fees.

·         Further, according to Bloomberg.com, Iyzico last year raised $6.2 million in a round led by the International Finance Corporation, or IFC, the investing arm of the World Bank. Its customers in Turkey include BMW, Allianz and online marketplace Sahibinden.com.

·         Why is Paypal not present in the Iranian market? According to bloomberg Paypal is a San Francisco-based Stripe that doesn’t support transactions in the Iranian Rial.

·         It must also be reminded that PayPal Inc. agreed to pay $7.7 million in a settlement with U.S. regulators because the payments company allowed violations of U.S. sanctions against countries including Iran. It was claimed that Paypal didn’t adequately screen transactions so it could detect those by people or entities subject to sanctions against Iran, Cuba and Sudan. OFAC says the lapses occurred over several years through 2013 (PayPal To Pay $7.7M For Violating US Sanctions Against Iran, Cuba, Sudan, March 25, 2015).

II. Electronic payment policy and law in Iran

2.1. Applicable policy

The legal system of Iran has not developed a specific policy for electronic payment yet. Two general policy-related texts are applicable to electronic payment: a) The “Electronic Commerce Policy of the Islamic Republic of Iran”; and b) the “Comprehensive Plan for Development of Electronic Commerce in Iran”.

2.2. Applicable laws and regulations

The following texts shape the legal regime of electronic payment in Iran:

·         Relevant Articles of the Fourth Economic, Social and Cultural Development Plan of Iran;

·         Electronic Commerce Act of Iran;

·         Executive Regulations of Articles 38 and 42 of the Electronic Commerce Act;

·         Executive Regulations of Article 48 of the Electronic Commerce Act.

In this brief Legal Report, the essential elements that are present in the Electronic Commerce Act of Iran (ECAI) are explained with the objective of showing the lacunae of the Iranian legal regime in this respect.

1. Required elements that are covered by ECAI

Article 2 of the Electronic Commerce Act of Iran includes the following definitions:

a) “Data Message”: Any representation of facts, information, and concepts generated, sent, received, stored, or processed by use of electronic, optical or other information technology means.

b) “Originator”: The original source of “data message” by whom, or on whose behalf, the “data message” have been generated or sent but it does not include a person acting as an intermediary with respect to that “data message”. […]

f) “Computer System”: Any type of system or a set of networked hardware/software-based systems applying auto-processing programs on “data messages”.

g) “Information System”: A system for generating (originating), sending, receiving, storing or processing “data message”. […]

j) “Electronic Signature”: Any sign appended or logically affixed to a “data message” which may be used to identify its signatory.

k) “Secure/Enhanced/Advanced Electronic Signature”: Any electronic signature that is in compliance with Article 10 of this Act.

l) “Signatory”: Any person, or someone who acts on his/her behalf, who generates an electronic signature.

Further, Articles 10 and 11 of the above Act regulate the security of electronic messages and records:

Article 10 – A secure electronic signature must contain the following requirements:

a) Be unique to the signatory.

b) Identify the signatory of "data message".

c) Be signed by the signatory or under his/her sole intention.

d) Be affixed to “data message” in a way that any change in data message can be detected and identified.

Article 11 – A secure electronic record is a “data message” which is stored by the observance of the requirements of a secure information system and is accessible and perceivable when needed.

2. Required missing elements in the ECAI

The Electronic Commerce Act of Iran is silent about the following issues:

2.1. Electronic instructions for payment: An electronic payment regime turns around the concept of electronic instructions issued by the system to initiate the process of electronic payment. By definition these instructions must be issued electronically on media or by on-line transfer. They are addressed to a financial institution to credit the account of a particular payee with a specific payment.

2.2. Financial institution: The Act is also silent about the financial institutions that hold deposits and honor cheques and other payment instructions on behalf of their clients. In the Iranian context, this term includes banks, Islamic financial institutions as well as credit institutions.

2.3. Authentication: The Act has no provisions about authentication of the electronic instructions for payment. This means that electronic instructions for payment that are issued by on-line transfer cannot be acknowledged by the financial institution that receives it. As a result, electronic authorizations cannot be verified by the financial institutions to ensure the integrity of the received instructions.

CONCLUSION

The electronic payment policy and law in Iran needs to be developed rapidly in order to make them compatible with the international standards defined and applied by international banking and finance system. A new Act on electronic payment should be passed by Majlis urgently. In the next phase, the executive regulations of the Act should be submitted by the Central Bank of Iran to the Council of Ministers for its approval.

GOOD TO KNOW

To learn more about the issues mentioned in this Legal Report, you may read the following texts on the website of www.lawiniran.com. If after reading this Legal Report and the following texts, you still have questions that call for detailed responses, you may send them to us by clicking on “Our Services” button on the website of www.lawiniran.com and following the procedure explained there.

RELEVANT LEGAL NEWS:

1. Law in Iran Legal News: House Passes Visa Waiver Program Bill, Friday, December 11, 2015.

2. Law in Iran Legal News: Balancing Tourism against Terrorism, Friday, December 11, 2015.

3. Law in Iran Legal News: Visa Waiver Program Reforms & Senate, Friday, December 11, 2015.

RELEVANT LEGAL REPORT:

Law in Iran Legal Report: The Visa Waiver Act of 2015 and Tourism of Iran, Friday, December 11, 2015.

 

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