The Central Bank of Iran in a bid to help facilitate micropayments on Tuesday unveiled a regulatory framework for fintechs dealing with electronic wallets. Banks and credit institutions are now permitted to offer e-wallet service connected to customers’ bank accounts. Banks also can work with non-bank entities for handling payment transactions.

The document calls for a set of requirements from fintechs. Companies should have a minimum capital of 50 billion rials. Board members of one company cannot sit on the board(s) of other e-wallet companies. Moreover, e-wallet fintechs can sign contracts with no more than three banks or credit institutions.

Rules announced earlier by the CBI to make one-time password obligatory has helped foster the business of e-wallet startups. More Iranians now rely on e-wallets, especially for small payments, as they do not need to go through the cumbersome process of obtaining an OTP.

A digital wallet (or e-wallet) is a software-based system that securely stores users’ payment information and passwords for payment methods and websites.

The Money and Credit Council, the top financial decision-making body, last week said banks and non-banking credit institutions can offer electronic wallets to help facilitate micro transactions.

It said using electronic wallets should not lead to money creation or expand money supply and uphold the CBI’s technical requirements.

Users are allowed to increase or reduce funds in their wallets, make payments, ask for refunds or transfer funds to other users’ e-wallets, the CBI document said. Individuals can own a maximum of three e-wallets.

However, the balance in e-wallets are not interest-bearing.

The CBI stressed that banks and credit institutions are responsible for monitoring customers’ funds. “They need to closely supervise the operation of e-wallet companies.” Banks are obliged to submit regular reports about the operation of e-wallet companies to the CBI.

Exercising Caution

Moreover, banks need to keep the e-wallet’s balance in an escrow account and be cautious about any unusual activities by owners of e-wallets.

Providers of e-wallet services are required to inform their customers about transaction fees. Banks and e-wallets are free to set the fees in accord with their business plans and customers’ needs.

Startups “should not focus on raising deposits” because if they do they will be in breach of their legal framework and be seen as interfering in the work of banks and credit institutions. The main function of electronic wallet providers should be collecting fees, the CBI said.

Defining a framework for the operation of electronic wallets, as part of a plan to regulate operations of fintech startups, has long been on the CBI agenda.

The regulatory body has so far published frameworks for the operation of payment aggregators, payment facilitators, personal finance management services and fintechs offering cryptocurrency services.