Arrival of Iraq’s First Pre-paid Card Pulls Modern Commerce to Iraq

…and Iraq into the Global Economy

Until a few days ago, 26 million Iraqis could hardly imagine that familiar cash register refrain, “paper or plastic?” Iraq has been a cash economy. No credit cards. Zero debit cards. Are you trying to be funny with that personal check? Something as simple as holding a hotel room on a foreign trip would require the average Iraqi to mobilize a web of compensating cash transactions or call on the goodwill of overseas connections. Given the volume of bills one had to carry, a trip to one of Baghdad’s popular gold jewelry markets could be a pulse-quickening experience.

But the beginning of the end of cash-only was heralded on April second. On that day Security Financial Services, Inc. (SFS), unveiled its “AMAN” cards, pre-paid purchase and Internet shopping cards, offered under the MasterCard International logo. Now Iraqis can “charge up” a plastic card with as little as $25 for the Internet version, and $100 for the standard one. The maximum values are $5,000 and $10,000, respectively, and the funds can be input at banks throughout Iraq. In a plastic-starved consumer culture the appetite has been, not surprisingly, voracious: a reported 1,200 applications were received in the first 18 hours of operation and some 3,000 inquiries logged. SFS believes it will sign up 100,000 users for each of the two cards by the end of 2006. Younger Iraqis and others under the spell of e-commerce are expected to be the most eager adopters of the less-paper trend. However, Iraqis are traditionally skeptical of banks as a place to store wealth, so it remains to see how readily they will trust a non-bank banker.

Over time the obvious safety and convenience benefits of the new cards will be joined by an increase in goods and services coming into Iraq from abroad. Product launches that are not yet profitable, given the slowness and cost of cash transactions, will become viable for foreign suppliers. Competition will rise, and still more innovative financial and marketing schemes will be offered, fueling a virtuous cycle for the consumer and the economy. The backbone of a modern financial system has been under painstaking construction for the last two and a half years, and the impact is finally hitting the consumer squarely in the wallet with breakthroughs such as “AMAN,” Arabic for “safety.”

SFS Inc. is a Southfield, Michigan-based financial services firm that grew out of the convenience store business http://www.sfsent.com. The parent company leveraged Iraqi-American roots into a Middle Eastern business lines with bases in Baghdad and Amman, Jordan. The company received its approvals and licenses from Iraq’s Ministry of Finance and Central Bank after a two-year effort to convince the authorities that not only banks have financial products that consumers need. Private banking itself is undergoing a major capital and know-how infusion thanks, in part, to foreign investment, but these institutions have not yet proven as fleet of foot as SFS. The firm has invested some $4 million in training staff and setting up an internal network that will link offices in Irbil, Suleimaniyah and Basra, in addition to the initial marketing center in Baghdad.

As novel as the pre-paid cards are, they are only the vanguard. SFS has its sites set on establishing 2,500 point of sale stations in shops, hotels and restaurants throughout Baghdad by the end of the year. They hope to rollout ATMs and a “moneygram” product, as well, on a similarly ambitious schedule. (Western Union has recently introduced its wire services in Iraq, as well). By starting with pre-paids, SFS aims to establish the credit histories and consumer practices that are necessary to be able to offer standard credit cards or the American Express card. The Trade Bank of Iraq has had a debit card on the market for about six months, but due to a few missing vertebrae in the country’s banking communications backbone and the paucity of merchants accepting it, their use has been limited to date. Even if all of SFS’ grand targets are not reached in the next months, in a long stretch of gridlock punctuated by bad news in Iraq, a strike for economic progress such as the pre-paid cards constitute is more than welcome. The value of a little “aman” for Iraq’s beleaguered people? Priceless.

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