The emergence and development trends of electronic payment systems in the Republic of

Elena Fuior Trade Co-operative University of Moldova, Chisinau, Republic of Moldova [email protected] Filip Angela Moldova State University in Chisinau, Chisinau, Republic of Moldova [email protected]

Abstract. The rapid development of in the Republic of Moldova has enhanced the development of electronic payments since its inception in 2005. The development of these systems has been a significant over the past ten years. At present, Moldova has different means of payment for goods and services, such as bank cards, internet banking, online payments, and through different websites (PayPal, WebMoney and others). Considering all the benefits of electronic payments, as opposed to cash payments - safety, speed, convenience and security - only 30-35% of the population carries out such payments. Even bank cards, that offer the possibility of withdrawing cash and payment, are most often used to withdraw money. This trend will be maintained as long as the world realizes the benefits the electronic payments bring.

Key words: electronic payments, credit card, Internet

1. Introduction A payment always involves a transfer of funds; however, a transfer of funds is not always a payment [5; p.1]. In a broader sense, a payment is a voluntary execution of any obligation, but in a narrower sense this involves providing amounts of money. According to the Thesaurus Dictionary of the Romanian Language, a payment is way of offering someone a sum of money for a certain work, the counterpart of a purchased or used object. The emergence and development of trade has contributed to the modernization of payment methods. Since ancient times the payment method was barter, i.e. exchange of goods, then exchange goods and services for gold, and later receiving payment in cash and or cashless payments: based on checks, payment orders, letters of credit. Cash and cashless payments are used up to nowadays; however, currently, electronic payments have a development trend. Electronic payments represent the transfers of funds being based on different payment instruments, such as bank cards, electronic checks, payment instructions, wire transfers and all these types of payments can be performed at different payment terminals and are designed to pay the value of the purchased product or service.

2. The emergence of electronic payment systems in the Republic of Moldova Currently, electronic payments in the Republic of Moldova are still developing, and individuals prefer making payments in cash. This can be explained by the fact that people do not realize the benefits of electronic payments versus cash payments or, they consider the disadvantages of electronic payments are more significant than the disadvantages of cash

P – 88 payments. A number of factors have contributed to the emergence and growth of electronic payment systems in Moldova, such as:  emergence and rapid development of the ;  emergence and development of information technologies;  increase of number and value of payments;  development of trade Internet appeared in Moldova in the late 80s – beginning of 90s and since that time it is in continuous process of development. The 90s were not characterized by an intensive development of the Internet; however, the XXI century and especially starting with 2005- 2006, Internet had a rapid progress. Various Internet providers such as Moldtelecom, StarNet and Sun Communications offer new Internet applications and facilitate the access of large masses of users to Internet. Nowadays, Information Technologies is one of the main areas of development in Moldova. Moldtelecom is the national telecommunications operator and also the largest telecommunications company in Moldova. During its work, Moldtelecom has experienced a period of continuous development, initially as a state monopoly, and now it is a company open to collaboration, offering a wide range of services: fixed telephony, mobile telephony, Internet, data transmission and digital TV. At present, it is the leading company offering services (70.3%) and also first according to the sales volume on this market segment, with a share of about 57%. Moldtelecom annually invests MDL 700-800 million in the implementation of new technologies and new types of services [13]. StarNet, like Moldtelecom, is a telecommunications operator. The company was founded in 2003, providing Internet services, digital TV and fixed telephony in Chisinau and other cities. Currently, StarNet is part of the top companies in the field of electronic communications in Moldova and is one of the leaders of Internet providers, being the first provider in the country to offer Internet access and high-speed data transmission via optical fibre. During its activity, StarNet managed to develop and implement in Moldova a wide range of services of the latest generation needed in every home and business [13]:  access to fast Internet and data transport over optical fibre;  Wi-Fi network;  corporate networks;  Data Centre services;  IP transit services for other operators;  fixed telephony;  digital television;  licensed solutions to protect computers. Sun Communications is the third largest Internet provider in Moldova. Besides that, the company is an operator of digital television and telephony. The company was created in 1993 and currently has over 110 thousand customers of different types of services. In 2001 Sun Communications updated its network by replacing the existing wired network with optic fibre [13]. Generally speaking, during 2007-2011 the Internet speed grew by 690%, thus ranking Moldova second in the world. Since 2010 and up to now Moldova has variable positions in the world’s top 15 countries with the highest Internet speed [13]. In 2014 Audit Bureau of Circulations and Internet in Moldova (BATI) conducted a survey on the number of Internet users, their classification by age and sex, and other classifications [12]. According to the survey, the results are as follows:

P – 89 Internet users in Moldova Internet users in Chisinau

Figure 1. Internet users in Moldova Source: http://mediapoint.md/wp-content/uploads/2014/05/unde-locuiesc.jpg, accessed 5/8/2015. According to Figure 3.3, we conclude that about half of the Moldovan population accesses the Internet for different purposes, and about half of this population (45%) are residents of the capital city. No wonder this because the headquarters of the main Internet providers are in Chisinau.

50+; 15,80% 15-19; 18,30%

40-49; 17,90% 20-29; 29,70% 30-39; 18,30%

Figure 2. Classification of Internet users by age Source: http://mediapoint.md/wp-content/uploads/2014/05/virste.jpg, accessed 5/8/2015 According to the above figure we can see that in 2014 most Internet users age 20-29 (30%), followed by teenagers and people aged 30-39 years (18.3% each), followed by people aged between 40-49 years (17.9%) and persons under the age of 50 years (15.8%).

Men; 48% Women; 52%

Figure 3. Classification of users by gender Source: http://mediapoint.md/wp-content/uploads/2014/05/sexe.jpg, accessed 4/8/2015. According to the survey conducted by the Audit Bureau of Circulations and Internet in Moldova (BATI), women access the Internet more often. Concerning the electronic payments in electronic trade, the figure below presents the results of the survey.

P – 90 Buying goods online Internet Banking

Figure 4. Electronic payments in e-commerce Source:http://mediapoint.md/cine-sunt-utilizatorii-internetului-din-republica-moldova-pentru-luna- martie2014/, accessed 4/8/2015.

According to the above mentioned, we can observe the major influence of the factor that contributed to the development of electronic payment systems. Basically, without the Internet it would be impossible for electronic payment systems to exist, and also it would be impossible the existence of the concept of electronic payment. Thus, the Internet is the main factor that contributed to the emergence of electronic payments and contributed to their development through new technologies. According to the survey, 36% of Internet users are buying goods online. Although this number is low compared to developed countries, where more than 80% of payments are electronic payments, these 36% show that there is a development trend in this segment, which is considered as being positive. Another important factor that contributed to the advancement of electronic payment systems in Moldova is developing techniques and technologies. Payments are made via various electronic devices: computer, mobile phone, tablet, payment terminals. All these devices are imported by Moldova from developed countries in this type of industry, such as: the USA, Japan, South Korea, Taiwan and China. The increase of payments and of their value is directly related to the wide range of goods and services that are offered to citizens. Payments may be different, cash or cashless, but when performing considerable payments it is likely to lose this amount. Typically, large payments are made between organizations, different companies and in case of loss or theft of money, the person bears responsibility for it. So, people began to invent faster and safer ways of payment. This is how electronic payments appeared, which, to some extent are based on primary documents: payment order, checks, letters of credit, i.e. according to the principle of non-use of banknotes. The development of electronic payment systems in the Republic of Moldova is one of the state’s major plans. In 2013 was adopted the Government Decision no. 857 on the National Strategy for Information Society Development “Digital Moldova 2020”, according to which any legal or official document can be achieved by using electronic signature in the ID [2].

3. The modalities of electronic payments in the Republic of Moldova Similarly, any bill can be paid online from anywhere in the country, just by entering the code on bank card. The initiative belongs to the e-Government Centre, aiming to facilitate people’s access to public services. Experts in information technology, mention that due to such business methods there is no longer needed to present stacks of documents. According to Strategy “Digital Moldova 2020”, cash payments will be replaced by electronic payments. Thus, the world will be able to make various payments in a quicker way and receive notifications without losing time standing in queues at counters [1].

P – 91 Although electronic payments have a development trend in Moldova, individuals still prefer to make cash payments in our country. A great number of population has not realised the benefits that electronic payments bring, others do not even know about the existence of such payments. The update of electronic payment systems in the Republic of Moldova cannot be compared to that of developed countries. This significant difference can be explained by the following factors: . Moldova does not have such advanced technologies as the USA, China, Japan and other developed countries; . intensive development of the Internet and technology has begun in the XXI century while in the world in the mid-late of 80s; . Moldovan citizens have more confidence in cash payments, and, the more they trust the cash payments, the slower the electronic payments will develop. However, electronic payments in Moldova are not something out of the ordinary and they can be made through the following instruments: - Credit cards; - Payments via the Internet; - Internet banking; - Payment terminals Bank cards are issued by commercial banks in Moldova, whose activity is regulated by the . Thus, the entire banking system in Moldova consists of the Central Bank and commercial banks. Bank cards can be issued to both individuals, as well as legal persons. In order to do so, any person should contact any branch of one of the commercial banks and submit the necessary documents. For individuals are necessary the following documents:  Account opening application;  ID. For legal entities are necessary the following documents:  Account opening application and for the use of bank cards;  contract on MasterCard Business card usage;  copy of the ID of the cardholder;  other documents required for account opening. Once the person has obtained the bank card and has a certain amount of money on its account, he can perform different payments, such as booking a hotel, making a ticket reservation, pay his cheque in a restaurant etc. This person can also withdraw money from ATMs. The figure below shows the structure of cards use by purpose.

100 80

60 Cash withdrawals 40 Paying by card 20 0 2012 2013 2014

Figure 5. The value of transactions in Moldova with cards issued in Moldova for 2012-2014

P – 92 In 2012, out of the value of card transactions in Moldova with cards issued in Moldova, the biggest share is given to cash withdrawals (MDL 19,170,073. 5 out of MDL 20,038,111. 6, about 96%). In 2013, the tendency of paying by card increased, but not significantly (from 4.3% to 4.7%). In 2014 compared to 2012 and 2013, the share of card payments has increased at a higher rate, but this increase was not significant. In 2014, card payments represent 5.62% of all card operations.

70 60 50 40 cash withdrawals 30 Paying by card 20 10 0 2012 2013 2014

Figure 6. Transactions in Moldova with cards issued abroad for 2012-2014 Out of the value of transactions with cards issued abroad and transactions made in Moldova a higher percentage is given to cash withdrawals. On average, about 65% of transactions carried out in Moldova with cards issued abroad, represent the cash withdrawals, while payments amounted to about 35%. Foreigners prefer to withdraw money than pay by card, which demonstrates the growth of cash withdrawals during the last 3 years (from 60.4% to 66.71%).

100 80 60 Cash withdrawals 40 Payments 20 0 2012 2013 2014

Figure 7. Average value of transactions made abroad with cards issued in Moldova The value of transactions carried out abroad with cards issued in Moldova is characterized by the fact that the share of payments exceeds the average share of withdrawals – 77%. However, the value of payments is higher only abroad, while in Moldova individuals prefer withdrawing cash, especially those with cards issued in the country and making payments here. This again demonstrates the high level of development of electronic payment systems outside the Republic of Moldova. This can be explained by people’s confidence in security and efficiency of electronic payment systems while being abroad, which is currently not specific for electronic payments in the country. According to statistics presented by the National Bank we see an increase in the number of cards in circulation for the last 3 years, from 1,011,673 cards to 1,150,969 and 1,302,225 cards, which means an increase by 13.8% in 2013 compared to 2012 and 13,1% in 2014 compared to 2013. Both types of transactions, with cards issued in Moldova and abroad and carried out in the country or abroad, had an increasing trend. The value of all these transactions varies depending on the place of operations and the country of issuance. The number of payment devices, namely ATMs and POS-terminals during these three years was

P – 93 only growing. This growth emphasises that banks and different economic entities offer more possibilities for card payments, thus making easier the process of payment for services and promoting cash payments limiting policy. Internet payments are made through certain websites. In Moldova the largest sites where payments can be made online are:  www.paypal.com (PayPal);  www.wmtransfer.com (WebMoney); PayPal is considered the largest company processing online payments globally. It is the biggest site that deals with brokering of transfers and electronic payments to and from users of this site. Through this website individuals can buy different products from various online stores that accept PayPal. In order to perform a payment via PayPal, the person must open an account on this site and charge his account using a bank card that is compatible with online payments. In this way the money from the traditional account is transferred to the electronic account. PayPal added Moldova to its list in June 2014. Taking into account that PayPal has recently appeared in Moldova, it is not very popular in our country. For example, in developed countries PayPal enables money transfers through mobile phones. Its appearance in Moldova is considered a great advantage for the economy, because besides facilitating money flow, it encourages the development of trade in the country and abroad [9]. WebMoney system is most widespread in CIS countries and in Moldova. In order to use this system, it needed to have installed the WebMoney program on the computer which is called “WebMoney KeeperClassic” [9]. Once this program is installed, the person can perform the following operations:  pay for various products and services: mobile telephony, television, utilities;  visualize the account;  receive messages from different users of the system and also receive messages from the system. Account replenishment is carried out similar to the PayPal system, i.e. via a bank card compatible with online payments [13]. On account of the individual can have several deposits in different currencies and for each currency he can create a special electronic wallet:  WMR for Russian rubbles;  WME for Euro;  WMZ for USD. According to statistics provided by this site, more than 55% of users have at least one electronic wallet. The problem is that the transfer of funds can be done only between the wallets of the same type [13]. Besides PayPal and Web Money, there are other sites but of a smaller size, which also can make instant payments. These sites are: . www.oplata.md; . www.dostavka.md; . www.darwin.md; . www.plati.md Just as with PayPal and WebMoney, they allow making payments for services like:  mobile and fixed telephony;  utilities, financial services, Internet;  television;  games, social networking donations.

P – 94 Internet banking is an information solution offered by the bank to its customers, which allows the bank account holder to remotely access resources available on this account for electronic payment transactions, to obtain information on performed payments, as well as visualizing the account statements. Internet banking allows the use of banking services anytime and anywhere. It also gives the possibility avoids queues and go to the counter. This payment instrument enables the remote management of finances quickly and affordable [10]. In order to access the online account through Internet Banking is needed a computer, a mobile phone, a tablet or any other device connected to the Internet. All financial institutions in Moldova offer the possibility to perform various transactions online. The figure below renders the use of Internet banking scheme. Payment terminals represent payment devices offered by some companies. Payment is made through different payment instruments; the person chooses the required service and then enters the data required for payment. In Moldova these terminals are provided by the following companies: 1. QIWI; 2. Netto Pro; 3. Premier Telecom; QIWI company is a market leader, offering its subscribers a convenient, safe and fast method of payment for mobile operators, Internet providers, digital television, IP telephony. Its purpose is to provide consumers a modern, safe and convenient payment service. QIWI brand was established in 2007 and became the first brand on the instant payments market. The priority of QIWI brand is the final user. QIWI has created for its users a unique system of payments, which combines almost all worldwide used payment technologies, providing a simple, fast and convenient way to pay a wide range of services anytime and anywhere in the world. International payment service QIWI appeared on the Moldovan market in 2011 and offers Moldovan users a technology of micro payment collection points, operating 24 hours a day, 7 days a week [7]. Among the services that can be paid through the terminals QIWI are: utilities, Internet, lotteries, games, social networking, donations, E-money, banking service, online payments, cable TV, flight tickets, mobile phone charges, State taxes and fines, etc. Netto Pro Company is a big processing centre, which has more than 300 terminals in Moldova in more than 15 cities. The company was founded in 2007 and registered its first transaction in the system in March 2008. The company was founded in order to meet the payments system that will meet the entire cycle of technical, legal and financial projects in the field of payments acceptance; achieve a stable increase in the volume of accepted payments based on active incorporation of new technologies, that would enable the development of electronic payment market segments that have not been yet covered. Currently, the company’s terminals allow the payment of more than 20 services. The company’s terminals were used by more than 500 000 users, and the number is constantly growing. Compared with QIWI terminals, Netto Pro terminals offer a more restricted range payment services, including:  Mobile telephony  Cable Television  Internet and IP telephony  E-Commerce  Utilities, etc. Premier Telecom specializes in the development of telephone communications and IP- telephony worldwide. The purpose of this company is to provide a high-quality telephone connection and customer satisfaction [8].

P – 95 Terminals offered by this company are called MMPS and its services are: - International connection; - Lease of phone numbers abroad; - Classic IP-telephony; - IP-telephony for mobile phones; The payment of these services can be made through the following instruments: - PayPal; - Bank transfer to the company’s bank account; - Directly through MMPS terminals; - Via www.oplata.md web site; The company also offers a wide range of benefits, such as cheap calls, call forwarding, additional bonuses, calls statistics, etc. Moldova has also implemented a special service for the payment of utilities. This service is called Government e-payment gateway (MPay Service). MPay service represents a unique mechanism of electronic payment of public services available via such payment instruments like: credit card, Internet banking or even cash. Operation of this service is performed by “E-Government Centre” and in terms of providing technical and technological platform for the technical infrastructure, required for electronic payments, is responsible S.E. “Special Telecommunications Centre” [1]. The participants of the MPay Service are: 1. public service providers and payment services (Ministries, other central administrative authorities subordinated to the Government and organizational structures); 2. payers (individuals and businesses); Any payer decides on the payment instrument of public services and the following actions to be taken depend on the chosen payment instrument. For example, if he chooses to pay with a bank card, the MPay service will identify the bank which will carry out the transaction, after which it will offer the payer to choose the bank that issued the card and will direct the payment to the accepting bank that serves the bank that issued the card. If the issuing bank cannot be identified, MPay Service will distribute equally the transactions between banks participating in MPay service [1]. The Government e-payment gateway offer to individuals and businesses the following public services: criminal record, payment for standard forms of primary documents, Appostile services, identification means for domestic animals, transport authorizations, payment of police fines, payment of income tax, licensing activity, services of SE “CSIR “Registru”, e- Visa, service SE “Cadastre”, payment of real estate tax, payment for civil services, payment for AGEPI services, eSignature. 4. Tendencies of development of electronic payment systems in the Republic of Moldova Electronic payment systems in Moldova are developing and their development is hampered by the mass use of cash payments. It is obvious that cash payments are still popular, as most of Moldova’s population hitherto only knew about the existence of this type of payment. A more intensive development of electronic payments is due to the rapid development of the Internet in Moldova, i.e. since 2005. During the last 10 years, the development of these systems has been significant. Currently, different payment instruments are available for the payment of goods and services, such as bank cards, Internet banking, online payments through different sites: PayPal, WebMoney and others. Although the advantages of electronic payments are obvious, compared to the cash payments: safety, speed, convenience, security,

P – 96 only 30-35% of the population carries out such payments. Even bank cards that offer the possibility of cash withdrawal and payment; it is often used to withdraw money. This tendency will persist, as long as the individuals shall not realise, the benefits of electronic payments. Another reason in favour of cash against electronic payments is the low level of security of electronic payments in Moldova. Even though in developed electronic payments are also subject to fraud, however, the security measures are at a higher level, encouraging people to conduct electronic payments. Thus, the problems that determine a poor use of electronic payments in Moldova are:  lack of information about the benefits of electronic payments;  low security level determined by attacks on electronic payments;  e-commerce is not developed;  mass use of cash payments; If we solve these four big problems, electronic payments have a chance of rapid development. Considering separately each issue (mentioned above) we can establish measures to solve them:  a wide range of information sources are currently available: newspapers, magazines, books, television, Internet. People must be informed about the availability of these payments, about the way they are performed, the instruments used for these payments and of course about the benefits they bring. Billboards can be displayed all over the city and also information brochures can be edited, offering useful information about these services.  offering bonuses for electronic payments. For example, in October of 2014 a campaign was launched by the E-Government Centre, in partnership with the National Bank of Moldova and with the support of VISA, offering a bonus of MDL 25 lei on the mobile phone to those paying for the public services via MPay and using VISA card. Anyone paying for a service a minimum of MDL 100 can benefit of this offer, thus promoting cashless payments [4, p.14]. The security of electronic payments can be enhanced through advanced technology, but since Moldova still lacks such technology, combating fraud such as skimming, creating ghost web pages, cloning of cards, the following measures can be taken:[3; p.18] a) purchase products only in trustworthy stores with security certifications; b) using a credit card instead of a debit card; c) while shopping online, make sure the financial information is transmitted via SSL - Secure Sockets Layer - which provides a secure connection without interfering with the process of sale; Limiting cash payments can also be achieved by implementing certain laws. Once the person violates the law, he will be liable to pay a fine or risk years in prison. Thus, we can implement a Law limiting cash payment, just as it was implemented in some European countries [6; p.287]. Development of e-commerce will have a positive impact on the development of electronic payment systems. For example, transactions between businesses generally represent high value transactions. The greater is the number of successful value transactions, the less will be fear of making small value payments. Development of e-commerce can be encouraged by the following measures, carried out by companies:  operate non-stop;  be present on the Web;  maintain regular contact with customers, partners, employees, suppliers;

P – 97  have network storage solutions that enable the management of huge volumes of information [11];  have solutions for virtual applications, which ensure permanent availability, scalability, performance and security [11]. If talking about the role of government, there are two aspects: • The first is related to financial literacy; • The second is related to infrastructure development, especially in rural areas. The problem is not just that people withdraw cash from ATMs, but also that there are no businesses willing to accept cards. We cannot blame people for not using cards, as they actually do not have where to use them [14]. Government should encourage businesses, especially smaller ones, to accept payments by cards. In this situation, the state is interested in cashless payments, as cash payments bring prejudice to the state budget. The card is a key product in the banking business and these institutions are interested in promoting them in the first place [14]. 5. Conclusion In conclusion we can say that the implementation of such measures would contribute significantly to the development of electronic payment systems. Their development is necessary for the country’s economy, as electronic transactions have become an important component of economy and the modern world. These payment systems can remove some processes that cause state regress, like: the shadow economy and tax evasion.

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