Publication No. 28 July 2018
Bankieri
Toward a cashless economy
The Albanian Association of Banks (AAB) issues the 2017 Annual Report. We invite you to pay a visit (you can download it) at the AAB offical website under the "Publications" menu. www.aab.al
ANNUAL REPORT
AAB MEMBERS
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CONTENT
Editorial Cashless economy in Albania - between the Third and Fourth Industrial Revolution Prof. Asoc. Dr. Elvin MEKA
Bankieri No.28, July 2018
Bankieri
Publication No. 28 July 2018
Publication of Albanian Association of Banks
Toward a cashless economy
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Frontline Bank Cards - challenges and areas for future intervention Elisabeta GJONI Formalization of payments - the right time for legal changes Vasilika VJERO Towards a cashless society Vasilis PANAGIOTIDIS Card Payment’s transformation towards a cashless and digital economy Nevila Kovaci How consumers and government can combat the shadow economy Artur TUREMKA Card payments – a key pillar for building a cashless economy Vladimir DJORDJEVIC Fight against evasion for a cashless economy Petrit BALIJA Bank cards and tourism - issues to be resolved Zak TOPUZI Advantages of accepting cards as means of payment Eltion KOÇI Special - The National Payments System Committee holds its fourth annual meeting
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Interview ALPHA BANK - we put the heart in what we offer and how we serve our customers Georgios PAPANASTASIOU
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Banking System Internal Audit - the misunderstood profession, the profession of the future Ediola BIÇAKU The 10 dimensions of digital transition in banking David GYORI
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Elvin Meka Editor-in-Chief Eftali Peçi Coordinator Junida Tafaj (Katroshi) Collaborator Dorina Zarka Photographer Design & Layout: FCB Afirma
Experts' Forum Non-bank financial markets’ consolidation and their inclusion in European integration processes - AFSA pillars for development Ervin KOÇI Digital services - more efficiency and benefits for clients Suada MANSAKU National payment Scheme with SWITCH Card Irida HUTA
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Printed by:
Economist Corner New banking models in front of digital era challenges Prof.Dr. Adrian CIVICI
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Sustainable Development Goals
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EDITORIAL TEAM:
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AAB: Activities - Trainings
Bankieri is the official publication of the Albanian Association of Banks which mainly focuses on the Albanian banking industry. Bankieri provides readers with valuable information on the financial industry's developments in general, and of commercial banks in particular. ALBANIAN ASSOCIATION OF BANKS Street "Ibrahim Rugova" SKY TOWER, 9/3, Tirana Tel: ‘+355 4 2280371/2 Fax: +355 4 2280 359 E-mail: bankieri@aab-al.org; www.aab.al
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EDITORIAL BOARD: Silvio PEDRAZZI AAB Chairman & CEO of Intesa Sanpaolo Bank Albania
Dritan MUSTAFA AAB Executive Committee Member & CEO of Tirana Bank
Ervin KOÇI Chairman of Albanian Financial Supervision Authority
Adela LEKA AAB Vice Chairperson & Spokeperson of the Management Board, Procredit Bank
Andi BALLTA AAB Executive Committee Member & CEO of American Bank of Investments
Adrian CIVICI President of European University of Tirana
Maltin KORKUTI AAB Executive Committee Member & CEO of Credins Bank
Bozhidar TODOROV AAB Executive Committee Member & CEO of FIBank Albania
Hysen ÇELA Chairman of Albanian Institute of Authorized Chartered Auditors (IEKA) Spiro BRUMBULLI Secretary General, Albanian Association of Banks
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EDITORIAL
Cashless economy in Albania
Between the Third and Fourth Industrial Revolution When it comes to Albania, the pace of going cashless remains moderate and the economy is currently found between the Third and Fourth Industrial Revolution. However, it will be a matter of time, surely for not-so-many years, that technology “disruption” will be planted in Albania, too.
Prof. Asoc. Dr. Elvin MEKA1 Editor-in-Chief
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f we could paraphrase with one word the Fourth Industrial Revolution for sure it is: DISRUPTIVE! So far, we are witnessing, on a daily basis, such disruptive effect of technology, mainly in the financial system, throughout the world. As long as the world economy and the global financial system is being driven by technology and is heavily relying on technology to drive itself forward, it will, by no means, push them beyond traditional approaches, they were used to employ until recently. Surely, going cashless offers quite so many advantages and benefits, be they private or public, domestic or international, household or business-based. Typically, the ease of executing (financial) transactions is one of the biggest drivers to go
digital and cashless, within the economy. It saves time and queues, spares everyone from service fees and other financial costs, and makes everyone feel comfortable and safer, when travelling, and spending. Also, governments and taxpayers could avoid the costs to produce coins and bills, and in the same time, it makes easier the tax collection, if individuals and businesses cannot avoid reporting cash income, thus contributing to a more formalized economy. On the other hand, some costs will be borne, also, with regard to data & identity theft, cybercrime, money laundering, and threats to overall business operation security, etc. Notwithstanding this, we are now living in the era of Internet of Things, Artificial Intelligence and banking is a preferred area of operation in this regard. Moreover, some most advanced and biggest economies in the world are experiencing a great deal of endeavors to go cashless and digital, like Sweden, as it becomes one of the most cashless societies in the world and China where BAT (Baidu, Alibaba and Tencent) is seriously threatening the principals and foundation of the bank payment system in China and, slowly but increasingly, everywhere. When it comes to Albania, the pace of going cashless remains moderate and the economy is currently found between the Third and Fourth
Industrial Revolution. However, it will be a matter of time, surely for not-so-many years, that technology “disruption” will be planted in Albania, too. For the time being, the economy and the banking system is faced with the modest level of financial literacy and the deep-rooted cash culture, where strenuous efforts are required by all stakeholders, public and private ones, to make a substantial change. Additionally, some promising undertakings, in the field of payment system, are being taken by the banking system and government, aiming at a further modernization, capable to cope with near future challenges of formalizing the economy and leading it towards becoming cashless. It goes without saying that going cashless is a long lasting endeavor and it won’t be easily accepted and implemented in Albania, given the current state of affairs and development, in the economy and society. However, any step forward towards becoming cashless is a positive and welcome development, because as Mrs. Chanda Kochhar, CEO of ICICI Bank once said: “Even if it does not become cashless economy, it will become a less cash economy”! We will be all better off, indeed!
Administrator, "LUARASI" University College
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FRONTLINE
Bank Cards
Challenges and areas for future intervention Innovative instruments, such as: instant payment or e-wallet will soon be present in the Albanian market, as well. Moreover, the regulatory framework may be considered as favorable - the liberalization of payment systems’ market through the Law on Payments System has created the prerequisites for developing private initiatives that support clearing and settlement of innovative instruments. channeled by the banking system, today n the Albanian market, cards have become one of the most familiar payment instruments for Albanians. Cards may be considered for Albanians the most used instrument for payment in the purchases of everyday life, second to cash. In this regard, it is worth noting that, not later than the
Elisabeta GJONI First Deputy Governor BANK OF ALBANIA
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n the frame of accomplishing its legal mandate, in the field of payment systems, the Bank of Albania plays a proactive role in promoting the use of electronic instruments, both through their regulation and supervision, and from the viewpoint of the reformer and promoter through coordination of various actors' actions. National Payments System Committee plays a central role in this regard, as it promotes inter-institutional cooperation and supports initiatives of various actors, which promote Bank of Albania's objectives in the field of payments. In this respect, encouraging the use of cards is extremely important and constitutes a priority, in the field of payments. Thanks to efforts and energies
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Based on Findex data for end 2017
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Bank of Albania considers as necessary to establish a national SWITCH for domestic payments, which would significantly reduce the processing costs for card transactions, which according to Bank of Albania's studies, accounts for a high share of costs, even for banks, themselves. Setting up a national SWITCH would help not only for cards’ processing, but also for processing innovative payment instruments, such as: digital wallets and mobile payments.
beginning of 2000, bank cards and payment instruments in general were almost unknown and not used in the Albanian economy. Currently, there are more than 1 million cards available in the Albanian market. The main contributors in this positive development are the
efforts to formalize the economy, by channeling to banks the public sector’s payrolls, followed by the private one. Also, access to AIPS (Albanian Interbank Payments System) for ALL card transactions settlement has made it possible to reduce the costs incurred in this process. However, when analyzing the Albanian market, some important facts come to spotlight: • only 41% of the Albanian employees owns a bank card, • over 90% of cards are debit cards, • only 20% of total card transactions are for payments, the rest results to be cash withdrawals from ATMs, • the number of POS-s offered by merchants is small, compared to other countries in the region, and with a high concentration in urban areas, mainly in Tirana. Under these conditions, future challenges remain substantial, such as: • Penetration: to expand the population that owns a card a major effort is needed, supported by the simultaneous expansion of businesses, which do offer such payment option. • Improving the ratio of using cards, as a payment mean in physical and virtual POSes, versus their use for cash
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withdrawals. Expanding physical and virtual POS-es for use in strategic sectors, such as: tourism, which seems to experience a high growth, recently. Promoting innovative products that significantly contribute to financial inclusion, especially to those categories of population that do not have access to a bank account. An example in this regard are prepaid cards, which support a reduced use of physical money. Security is very important for any type of card transaction. Credibility for card security is guaranteed by banks and card industry, together with regulators. In case of Albania, security becomes even more challenging, in the light of a limited financial education and familiarity. Handling costs borne, by the use of this instrument, is also considered extremely important. Estimations are made over the costs for economy, users, and providers’ costs, such as: banks, or other institutions. A study undertaken by Bank of Albania, in cooperation with the World Bank, which assesses these costs will soon be presented at the National Payments System Committee, with the aim of expanding knowledge of market players and taking appropriate measures. Given the analysis on developments in this area, it is worth mentioning that, at a global level, there is an everincreasing trend in reducing these costs.
In some cases, measures to reduce money transfer costs are initiated by the market itself, which 2 3
has been pro-active in this regard, by developing and encouraging cards’ use as means of payment, often driven by competition, itself. On the other hand, in saturated markets and with a relatively more conservative approach, costcutting measures are initiated by regulators. An example in this regard id the European Union intervention, by setting caps for commissions applied on debit cards at 0.2% and for credit cards at 0.3%, levels at least 10 times lower than those applied in Albania. Rapid technological developments are changing the world around us. New payment methods emerge incessantly, both for payments of individuals to businesses (P2B), but ultimately for payments between individuals (P2P). The success of these innovations depends on many factors. One of the most commonly used alternatives to build a new payment service is to further develop an existing service, by utilizing the built-in infrastructure, so-called "network effects". Cards face these developments and/or combine common solutions, or sometimes compete with them. While in developed countries cards are part of everyday life and their use is consolidated and resists the competition, in emerging economies they may lose ground. The current stage of making payment in Albania is on the side of cards’ use. Such environment, combined with new technology, as well as new product or service providers, should be utilized to ensure further development. Innovative instruments, such as: instant payment or e-wallet will soon be present in the Albanian market, as well. Moreover, the regulatory framework may be considered as favorable - the
liberalization of payment systems’ market through the Law on Payments System has created the prerequisites for developing private initiatives that support clearing and settlement of innovative instruments. Meanwhile, the draft Law "On payment services" will contribute in promoting competition, innovation, transparency and consumer protection. This development is expected to have an impact and reduce costs of using payment services. Beyond regulatory developments, infrastructure developments are important, too. These developments should aim at eliminating prolonged payment cycles, involving many actors in the process, where in any case they cross Albanian borders, and therefore carry a lot of costs. In this context, Bank of Albania considers as necessary to establish a national SWITCH for domestic payments, which would significantly reduce the processing costs for card transactions, which according to Bank of Albania's studies, accounts for a high share of costs, even for banks, themselves. Setting up a national SWITCH would help not only for cards’ processing, but also for processing innovative payment instruments, such as: digital wallets and mobile payments. As for the above, Bank of Albania requires market involvement for accomplishing such project, which is also one of key priorities of the National Payments System Committee to reform the market payment systems for small value. Last but not least, the cooperation and support of common objectives is deemed as important, which maximizes the effects of measures taken by each market player. As per above, setting up and
The device which enable the use of bank cards in a Point-of-sale. A similar device with POS, which enables the excecution of transactions through internet or smartphones, through bank cards which work on an online basis.
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FRONTLINE
Formalization of payments The right time for legal changes
At the current stage of economy’s development and the need for raising awareness of curbing cash in the economy, it is considered that it is the right time to undertake further legal changes and to create facilities for taxpayers towards more formalization of payments, by setting tighter caps on cash use.
not declare, or pay taxes, and consequently do not keep any data. All forms of "gray economy" have something in common; they promote "cash" payments, by giving the seller and the buyer the option of making unregistered transactions, unlike what would have happened, should such transaction had been done through the banking system.
Vasilika VJERO
General Director GENERAL DIRECTORATE OF TAXATION
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he fight against informality has been the focus of the activity of Tax administration, over the last three years, and it continues to be as such, focusing on risky sectors and taxpayers, or even on worrisome phenomena, and aims to promote voluntary compliance. This fight is focused around reducing the informality, or what we all know as “gray economy” and that appears in the following forms: • Illegal activities, where parties act voluntarily; • Economic activities, developed in an underground way, where transactions are not illegal, but unreported, in order to avoid tax administration controls; • Totally informal activities, where taxpayers are not registered, do
The fiscal legislation does not consider as cash transactions payments made through financial institutions of electronic money, licensed by Bank of Albania, or payments made by credit card. When a taxpayer who pays an invoice through electronic money institutions, even when the transaction’s value exceeds ALL 150,000, for purposes of applying the cap for transactions over ALL 150,000, such transaction is not considered as having been made in cash.
The "gray economy" can be reduced through promoting the electronic payments, as well as imposing caps on amounts that can be paid in cash. This is mainly the case for business - consumer transactions (where the customer pays, but often does not require the bill, thereby favoring the "gray economy", consciously), on the other hand, the business, voluntarily,
does not register such transaction. Based on the Law "On Tax Procedures", taxable persons cannot effect sale and purchase transactions between them in cash, when the value of each transaction exceeds ALL 150,000. Conducting transactions in cash and not through bank transfer from buyer's to seller's account, for amounts exceeding ALL 150,000, constitutes a breach, both for seller and buyer, and is punishable by a fine, at 10% of the value of each transaction, carried out in cash. Also, fractioning or dividing a normal transaction with unrelated persons on several bills, which would be realized as a single transaction, is considered as a breach, from taxable persons/sellers and buyers who try to avoid tax duties through banking channels, and sanctions are applied, properly. However, such restriction does not apply when payment is made for transactions between a business and an individual, even though the transaction’s value is over ALL 150,000. It should be noted, also, the fact that fiscal legislation does not consider as cash transactions payments made through financial institutions of electronic money, licensed by Bank of Albania, or payments made by credit card. When a taxpayer who pays an invoice through electronic money institutions, even when the transaction’s value exceeds ALL150,000, for purposes of applying the cap for transactions over ALL 150,000, such transaction is not
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considered as having been made in cash. Controlling the way how payment transactions are effected is part of on-site programs, or verifications, that the tax administration carries out to taxpayers, i.e. the environment where it conducts the activity. In any case, all identified cash payments that exceed the limit allowed by law, regarding business-to-business transactions, or even fractioning of transactions, will be penalized by the tax administration, pursuant to the legislation in force. The Law "On Tax Procedures" penalizes transactions’ fractioning, aiming at avoiding the compliance with the ALL 150,000 cap. The tax administration, in order to verify whether the fractioning into multiple invoices of a transaction is done with the aim to avoid payments through bank accounts, and to determine the cases of allocating an invoice that should normally be considered as a single one, carefully analyzes the transaction form completed, and the likelihood that it will be fractionated, in order to avoid payments through bank accounts, by considering: the nature and functions of the supply components that are fractionated in several invoices; the capacity of the vehicle with which the fractured supplies are transported, etc. However, beyond the abovementioned issues, it is deemed that there are other elements that affect the reduction of cash use in the economy, such as:
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Installation of fiscal devices The current fiscal devices system was installed back in 2010, and aims at overseeing transactions, as well as monitoring taxpayers’ behavior. Today, more than 143,000 Electronic Fiscal (Memory) Devices (EFD) are widely used by taxpayers, through which the tax administration is being informed about daily transactions, both in number and in value. POS-es Installing payment terminals at business premises allows individuals and businesses to make card payments through POS terminals. At the current stage of economy’s development and the need for raising awareness of curbing cash in the economy, it is considered that it is the right time to undertake further legal changes and to create facilities for taxpayers towards more formalization of payments. This can be achieved by setting tighter caps on cash use, as well as the following measures: Developing the payment system through e-Filing Actually, each entrepreneur or individual makes payments of 13 tax duties, online. This is done through e-Albania platform, at any time and without any printing costs. Payments can be made by taxpayer directly from the workplace, home or mobile, via log-in to e-Albania portal with her/his credentials. In this way, it is possible to perform partial or full payments for the following taxes and charges:
• Personal Income Tax of Small Business, • Gambling Taxes, • Employment Income Tax, • Withholding Taxes, •The Value-Added Tax, •Simplified Profit Tax, •Income tax, •Personal Income Tax, •National Taxes, •National Charges, •Mining Rents, •Social and health insurance contributions, •Global Obligations/Penalties • New fiscalization project The main objective of this project is the fight against tax fraud and fiscal evasion. This can be achieved through the use of a system which manages and controls, in real time, all "cash" and "non-cash" transactions. Also, the project aims at obtaining, in real time, information on cash transactions, through issuing a tax coupon (Business – to – Individuals) and non-cash transactions, issuing an electronic invoice (Business – to – Business). Prohibiting cash transactions executed between two businesses, when the transaction value exceeds ALL 50,000, down from the actual cap of ALL 150,000. • Prohibiting cash transactions executed between a business and an individual or imposing cap that should not be exceeded.
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FRONTLINE
Towards a cashless society There has been a sharp rise in the use of alternative bank customer service channels (internet, mobile, phone banking, Automated Teller Machines, Automated Payment Systems) over bank branches, in order to satisfy the growing “appetite” of their clientele.
Vasilis PANAGIOTIDIS
Head of Payment Systems Department HELLENIC BANK ASSOCIATION
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fter an 8-year-period of deep and prolonged recession, with the brief interval of anemic growth in 2014, Greece’s economy has started to confidently grow again in 2017. The country has seen 4 quarters of growth in gross domestic product, after all these years of economic implosion. Greece’s real GDP grew by 1,4% in 2017 compared to 2016, driven mainly by a high rise of exports by 6,8% and a significant increase of investment by 9,6%. On the fiscal front, the general government primary balance is estimated to have registered in 2017 a surplus –for the fourth time in the last five years– of 4% of GDP in ESA 2010 terms or 4,2% of GDP in Programme terms. The unemployment rate dropped further, at 20,8%, while employment
increased by 2,2%. With regard to the structure of the Greek banking system, the number of domestic banks was drastically reduced from 35 in 2009 to 17 today, of which 8 are commercial and 9 cooperative ones. Out of the 8 commercial banks only 4 are deemed “significant”, according to the respective Single Supervisory Mechanism’s (SSM) definition and, post consolidation, control ca. 95% of the banking assets. Foreign banks, albeit present in Greece, have insignificant market share, since all of them with retail customer service networks divested from Greece, with the exception of HSBC. Today, twenty one (21) foreign banks operate in Greece. In addition, the number of bank branches (2.168) has decreased by 46% since 2010 (4.005) and similarly, the number of employees (41.707) and of ATMs (5.532) dropped by 34% (63.408) and 22% (8.650), respectively. In June 2015, restrictions on capital transfers and cash withdrawals were imposed on the domestic financial system, as a result of the government’s failed attempt to reach an agreement with its creditors regarding a third macro-economic adjustment programme. Against this backdrop, limits on cash withdrawals were imposed and capital transfers tightened. Since then, the restrictions on capital transfers and cash withdrawals, although still in force, have materially relaxed. In this regard, a new domestic law was adopted in December 2016, by virtue of which more than 300.000
firms and sole proprietors have been obliged to accept card payments, as well as declare their business bank account numbers (IBANs) to the Independent Authority for Public Revenue (IAPR). Consumers have been benefited as well through incentives to use e-payments, including the establishment of a public lottery programme (i.e. 1.000 consumers receive, on a monthly basis, EUR1,000 through this program) and tax deductions using electronic payment transactions (i.e. card payments, credit transfers, direct debits and e-money wallets). Furthermore, there has been a sharp rise in the use of alternative bank customer service channels (internet, mobile, phone banking, Αutomated Τeller Μachines, Automated Payment Systems) over bank branches, in order to satisfy the growing “appetite” of their clientele. According to data collected from Hellenic Bank Association (HBA) member banks: •
the total number of payment cards issued has increased further during 2017, by 7% (compared with the respective total in 2016), to reach 16,1 million cards (1,5 cards per inhabitant),
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the number of point-of-sale (POS) terminals has increased between 2015 and 2017 considerably by 215% (690.575 in 2017 from 219.070 in 2015),
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the number of payment card July 2018
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transactions has increased between 2015 and 2017 by 285%, where 77% of those have been initiated through the use of debit cards, •
the value of payment card transactions has increased between 2015 and 2017 by 157%. Some 73% of those concern debit card transactions,
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the average value of transaction, through the use of payment cards, in 2017 was EUR 41 (-33% yoy). The average value of debit card transactions was EUR 38,
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the number and the value of internet banking transactions have increased on an annual basis by 40% and 29%, respectively,
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the number and the value of mobile banking transactions have increased on an annual basis by 142% and 82%, respectively, card fraud incidents were negligible (i.e. 1 out of 8.000 fraudulent transactions, in terms of numbers and EUR 1 out of EUR 9.000 fraudulent transactions, in terms of value).
Despite the spectacular progress of the past two years, the usage of electronic payment instruments and services is still much lower than in many other European
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countries. We are currently running at 100 e-payment transactions per inhabitant, compared to the EU average of 240 transactions per inhabitant. Nevertheless, domestic banks offer a range of innovative e-payment products and services, such as: • Instant credit transfers, •
Instant mobile payments through a mobile application using as alias the phone number for Person-to-Person (P2P) payments or creditor’s Tax Identification Number (TIN) for Person-to-Business (P2B) payments,
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MyBank e-commerce purchases payment solution, and
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Bill payments and payments at POS of the merchant, by using Quick Response (QR) codes, Near Field Communication (NFC) and Bluetooth Low Energy (BLE) technology.
Particularly, in April 2016 HBA member banks rolled out the MyBank internet purchases solution for their retail and corporate clientele. From March 2017 to March 2018, MyBank has registered a remarkable overall increase of over 350% in terms of transactions, 232% in terms of values and a growing adoption rate among businesses operating in Greece. With a transaction authorization rate of 78%, the average value of each payment made via MyBank is 199 euros, while the payment with the highest value was over 15.686
euros. Additionally, in May 2017 HBA member banks rolled out the IRIS online payments solution, which is an efficient instant payments tool (similar to the SEPA Instant Credit Transfer (SEPA Inst) scheme managed by the European Payments Council (EPC)) for their retail and corporate clientele, and IRIS mobile payments, a mobile app for P2P and P2B instant payments of up to 500 euros per day per registered payer. Given that cash is still the primary means of payment in Greece, the overarching goals of the Greek banking system are the following: •
further reduction of cash usage by consumers and firms via the provision of incentives for the use of electronic payments solutions (e.g. through the expansion of e-payments loyalty programmes),
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complying with the new EU regulatory framework, pertaining to payments and digital transformation (e.g. Payment Services Directive 2),
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sustainable producing profitability for payment services, and
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investing in security, technical infrastructures, user friendly payment methods, fastness of executing payment orders, accompanied by attractive pricing for payment service users (payers and payees).
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FRONTLINE
Card Payment’s transformation towards a cashless and digital economy The Forum accomplished its main goal to foster an open dialogue on the importance expanding of the usage and the acceptance of card payments as a great impact in the Cash reduction in the economy as well as in the development of innovations and Digital economy in Albania.
Nevila Kovaci
Chairperson of AAB Card Committee
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t the beginning of May 2018, AAB and its Card Committee, organized the Forum on Card Payment’s transformation towards a cashless economy. It was a great opportunity for various stakeholders to come together and discuss on how to reduce cash in economy, through expanding card use in Albania. The first event of its kind brought together: government representatives, experts from Card Payment Organizations, such as: Visa and MasterCard, executives from banks and merchants and an array of FinTechs, especially in the card payment and ICT business and finance. The main actors brought firsthand experience from public and private sectors, and investigated how financial literacy, policies, trends and emerging technologies are impacting
the Albanian card payment industry. Cashless and digital financial services are becoming a fundamental part of banking, and the next generation of banking and mobile products and solutions are already heaving a disruptive effect on our everyday life. Nevertheless, Albania offers still an enormous potential on the card usage catch up with countries within the region. The expanded use of credit or debit cards as a payment instrument has a great contribution to the fight against informality. On the other hand, this has to be a concerted effort by all stakeholders, to enable cards being one of the most familyfriendly payment instruments for the Albanian consumer, in their everyday life. Numerous projects and plans by the regulators on development of payments and, in particular, on the cards in the forthcoming future could be a turning point on transforming our economy into an innovative and cashless one. The forum concept of a big open discussion with two panel discussions, gave the speakers and the audience the unique opportunity to identify some of the main reasons behind the actual card payment volumes generated and limited card acceptance in Albania, as well as threats and challenges, faced by the main actors involved on accepting and using cards, were also discussed thoroughly. The second
panel was more focused on concrete possibilities on a viable cooperation between banks and FinTechs and on the change of cardholders’ behavior. We successfully shared some of the best practices on how other countries in the region have managed to significantly increase the card usage and consequently cash reduction in their economies, somewhere through changes in legislation and cooperation between all the stakeholders in their respective countries. The most innovative initiative was the cutting edge new technologies that enable the transformation of our urban life towards Smart City and digital citizens. In an “Innovation room” different suppliers and FinTechs presented their latest products, giving participants the opportunity to see their demo or show cases. But the initiative does not stop here, as the actors in the market have been invited to strongly cooperate with each other and the regulators as the only successful way to reach the goals and leap forward in catching with the best players in the region. This involves also an increase in the focus for a targeted educational campaign, aimed at raising the use of the card as a payment instrument, as well as the commitment that the issues identified in this Forum to be followed up by all the actors on the coming period.
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FRONTLINE
How consumers and government can combat the shadow economy Perhaps the clue is in its name but the shadow economy’s drain on economic growth and public finances can be difficult to recognize. And unfortunately, consumers can often unwittingly contribute to its growth. It doesn’t have to be this way.
Artur TUREMKA
General Manager Balkans MASTERCARD
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he shadow- or undeclaredeconomy costs national governments billions in tax revenue, with a major impact on the public purse. The EU Country Specific recommendations (which amongst others give guidance to member states on economic management), due to be officially adopted next week, stress the importance of better fiscal management and the need to counter the shadow economy, due to its burden on tax and public finances. Indeed, the latest EU Commission VAT Gap Study highlighted the extent of the problem, with around EUR160 billion lost in the EU, in 2014. However, public awareness of
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how to combat the shadow economy is not widespread. A recent poll, conducted by IPSOS for Mastercard in ten Central and Eastern European countries , has found that while 81% of people want their governments to combat the shadow economy, many don’t realize that their own shopping habits can make a big difference and that one of the greatest contributing factors is the passive shadow economy, where consumers engage in a legitimate transaction with sellers who then don’t report it, in order to avoid tax. So how can we curb this? The most effective ways are to always ask for a receipt and/or by paying electronically. Cash is one of the main culprits in the shadow economy, as it reduces registration of transactions, thus enabling tax avoidance. Electronic payments can counter this by guaranteeing that the transaction is registered but consumers are often not aware that cashless payments can decrease the shadow economy. While 75% of people identified asking for receipts, as a way of combatting the shadow economy, only 37% of people pointed to card payments, as a solution. Action is really needed and it should come in the form of education and awareness raising activities for consumers on: (1) how greatly the shadow economy affects economic
growth and spending on public services, and (2) on how we as consumers can take steps to counter it. Simply asking for a receipt makes a difference, but often we don’t do it. By combining this type of behavioral change with a move to a cashless society we can effectively counter undeclared transactions. To enable this shift, investment and development of payment infrastructure is needed, at both private and public level. It can facilitate not only the registering of transactions, but also speed, reliability and security of payments and collection. Whether it be paying utility bills or tax online, or buying groceries at the supermarket, consumers have shown willingness towards this type of cashless transaction. Nearly 80% of respondents across the CEE region are eager to pay electronically more often and 86% would take receipts for each transaction. By raising awareness on how the shadow economy cycle affects the overall economy and our public services and working to empower and enable consumers to curb undeclared transactions, the EU and national governments can work together with citizens to improve economic growth, fair competition and public services.
Bosnia & Herzegovina, Bulgaria, Croatia, the Czech Republic, Hungary, Poland, Serbia, Slovakia, Slovenia and Romania
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FRONTLINE
Card payments – a key pillar for building a cashless economy Visa supports all initiatives which aim to facilitate usage, enable innovation and guarantee security of electronic payments. Our worldwide experience shows that the best results come when the whole industry works together and when private and public sector collaborate.
Vladimir DJORDJEVIC Country Manager VISA SOUTH EAST EUROPE
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ash is still dominant mean of payment in each market of South East Europe, meaning there is a lot of work to be done on our road towards a cashless economy over the region. Albania has strong habitual attachments to cash, where customers prefer to pay with hard currency. From time to time we ask consumers about their payment habits to better understand what hinders cashless payments on the consumers’ side. The reason behind is usually lack of knowledge, some misconceptions about cashless payments, or simply attachment to cash. That’s why we believe the education is the foundation for further progress and migration to
cashless payments. Once the citizens clearly realize the benefits of fast, easy and secure electronic payments and have the option to use their cards at merchants’ locations, they will change their habits. Visa supports all initiatives which aim to facilitate usage, enable innovation and guarantee security of electronic payments. Our worldwide experience shows that the best results come when the whole industry works together and when private and public sector collaborate. Expanding the acceptance is the key element on Albanian market. Through our partners – banks, Visa is ready to support merchants to grow their business with cashless payments and new commerce channels. In each market we operate, we are willing to run campaigns, join initiatives, bring some incentives or loyalty models. Relevant subject matter experts should work together to provide direction to the economics which would maximize electronic payment system volume growth by creating joint demand of cardholders and merchants. Such a format may contribute to the growth of electronic payments and maintaining a balanced ecosystem that ensures benefits to all involved parties. As a global payments technology company, we see one of the most
valuable contributions we can make is helping to bring more people into the formal financial system. Globally, we do so by partnering with banks, technology companies, governments and non-government organizations (NGOs) to extend electronic payments, financial services and financial education to underserved communities around the world. For Visa, success isn’t just opening accounts. It’s about making payments and financial services relevant to the consumers, so that we grow the number of people who are engaged into formal financial system. What is important to understand is that financial literacy is linked to the financial inclusion. Financial literacy helps people become self-sufficient and achieve financial stability. This includes being able to save money, distinguish the difference between wants and needs, manage a budget, pay their bills, buy a home, pay for college, and plan for retirement. Literacy helps them create a realistic roadmap that will take them through their daily lives making good financial decisions. Visa is a regional leader in driving financial literacy programs. In many countries of Visa CISSEE region Visa is a reliable partner for financial literacy projects, and we are open to discuss initiatives for financial literacy projects in Albania as well.
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FRONTLINE
Fight against evasion for a cashless economy The reduction of cash usage brings numerous benefits for the economy and the social well-being, by preventing fiscal evasion and producing significant benefits to society.
Petrit BALIJA
Executive Director KOSOVO BANKING ASSOCIATION
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ash in the Western Balkans region is considered, as in many countries, the main means of payment. Globally, cash accounts for approximately 85% of total transactions, while in the European Monetary Union countries such figure is lower, at around 79%. It is expected that this percentage will be even higher in the Western Balkan countries, something at 90%. These data show that cash is still vastly dominant in its use as a means of payment by consumers. However, there are differences between various countries, regarding the level of cash usage. There are also differences between sexes and age groups, identified in the studies conducted by European Central Bank. According to these studies, it turns out that Nordic countries, such as: Sweden and Finland, have the lowest 1
level of cash use, less than 45%. In an interesting viewpoint, studies show that men use cash more often than women as a means of payment, and it is evident that older people use cash more frequently than young ones. The financial behavior and culture of a society has a great impact on the use of payment instruments, but another important factor is the access to electronic payment terminals, as well as their respective security and cost. In the Western Balkans, the number of bank cards and e-banking accounts makes no difference, if the population size is taken into account, as shown in Figure 1. The biggest difference is seen in debit cards and POS, where Croatia and Serbia have significantly
high number, while other countries in the region are close. A negative phenomenon in the Western Balkans, which works and grows through cash usage, is tax evasion, or the gray economy. World Bank data for such indicator show a high average for it, at 20-30%. High economic informality is a major disadvantage for a country's ability to develop a free and fair market and reduces the state's ability to provide quality and transforming services to society. Tax evasion by irresponsible economic operators distorts the free market, by making it impossible for honest businesses to increase their position in the market. Also, tax evasion denies the opportunity for residents of a
Figure 1. Electronic payment instruments in the Western Balkans
2013 Studies by Tufts University, Fletcher School and Steinbeis University Research Center for Financial Services.
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country to have better infrastructure, better education and health, as the central, or local government, does not collect legitimate taxes from these businesses. One of the best opportunities to prevent and fight this phenomenon is to promote the use of electronic payment instruments, such as: bank cards, e-banking transactions and mobile banking. Based on the above data, it is evident that banking institutions have largely provided their clients with bank cards and e-banking accounts. However, it is important to analyze how such means are used in practice. Statistics give figures of an inadequate use, where on average about 90% of bank card transactions are cash withdrawals
at ATMs. This explains the paradox where the number of bank cards issued by banking institutions is very high, whereas the cash use remains at very high levels. The use of electronic payment means prevents such phenomenon, as it forces the economic operator to identify the sale through electronic transactions. However, in order to function properly, this system must have a good coordination with a country’s Tax Authority, so that at the sale/purchase moment, the transaction is recorded through fiscal cash registers, that are linked to the Tax Authority’s database, in a way that the proof of payment by bank card corresponds to the evidence of registration of the fiscal cash register. Therefore, this coordination of actions
between financial institutions and Tax Authority is a prerequisite for an effective use of electronic payment instruments to prevent tax evasion. The banking sector should continue to be proactive in developing and providing sizeable amounts of electronic payment opportunities, in order to reduce cash transactions, as it contributes to the fight against fiscal evasion, as well as at reducing the cost of money management ready for the banking institution itself, along with the economy in general. It is necessary for central banks of these countries to support such developments and to provide advanced payment rules and systems, in order to achieve faster and more significant results.
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FRONTLINE
Bank cards and tourism Issues to be resolved
Zak TOPUZI
Albanian Tourism Association, ATA
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he hospitality industry in Albania is new, chaotic, without lack of foreign and international brands, and even domestic ones. There are already 4,000 accommodation units, out of which 1,300 hotels, with a total number of 68,000 beds. This put our country out of competition in the region, where the tourism industry is the main contributor to GDP. Also, it is easily noted that the majority of facilities are with small capacities and are family run, as follows: • 80% of hotels are with 5 to 20 rooms • 13% hotels are with 20 - 40 rooms • 7% hotels have over 40 rooms • Only 7 hotels have over 100 rooms. Over the last years, about 3,500 accommodation units in Albania (including also the informal units) are included in online sales, thanks to a cooperation and agreement reached by two associations, where banks undertook the most difficult task, protecting clients who would carry
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out online transactions. International online sales engines: Booking, Expedia, HRS, Airbnb, etc., apply high sales commissions, as they provide customer warranty. These commissions range from 15% to 25% of sale price, given a minimum discount of 10% (from the base price applied by the subject at its website). This makes it difficult to survive, in a risky and high cost market (where the cost of labor is over 34%). A hotel starts direct sales with an incurred cost of 59 – 69% and this makes the cooperation with banks into a very important relationship for the successful run of the accommodation business. From the analysis that ATA (Albanian Tourism Association) have made about such cooperation, I think some relations between the bank and business should be reviewed, mainly in the following directions: 1. Excessive bank commissions for transfers with foreign operators such as: Booking, Expedia, HRS, etc. If a small business with 10 – 12 rooms pays a EUR 30 transfer fee in favor of Booking for a EUR 200 payment, it must think it twice. It should be understood that, the accommodation industry cannot function without agreements with such operators, which are a necessity for the market. 2. POS commissions are high at 1.8 3.5%. Entities that operate in the field of tourism should not be treated by banks as other entities involved in the field of commercial services, construction, fuels, etc. A unsold suit or blouse can be sold tomorrow, while the hotel room is considered lost, if it is not booked or used, just like the peasant who throws salad on the market, which he cannot
sell until noon, as waste. 3. A single POS use for all banks. I think that even banks themselves may consider this option, as it can reduce service costs, by setting up a coordinating infrastructure. 4. Notification after a banking transaction. Many banks have sophisticated and have significantly improved payment service through smart programs such as: e-commerce, online purchases, services or tax payments, tickets, hotels abroad, etc. Most of them use electronic notification and this makes the client feel more comfortable. Some banks require direct telephone communication, to confirm the transaction. This seems as a wrong choice as, in some cases, this communication is simply impossible, and it is not a client's fault. This happens typically when purchases are made at airports, or on travel times (of mobile devices are required to be turned off). In these cases, the bank blocks the card, making it difficult and unnecessary for the client, and this becomes even more problematic, especially at weekends, when clients go out and leave for vacation, but have to pay for hotels, car rentals, etc. 5. Providing employees with debit card for salary. In case of cash withdrawals at ATMs, some banks apply a commission, which for small wages, up to ALL 30,000 is sensitive and the employee's tendency is to transfer salaries towards banks that do not apply commissions on this occasion. These are some issues which can be solved easily and quickly, should a closer cooperation between banks and tourism associations is ensured.
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FRONTLINE
Advantages of accepting cards as means of payment Based on our long experience in the market, in partnership and cooperation with main market players in the field of debit and credit cards, we assess that, regardless of costs, the domestic retail business needs to be increasingly oriented towards accepting cards as a means of payment. This is a collaboration that brings benefits to all involved parties: client, bank, and business.
Eltion KOÇI
Head of Treasury BALFIN GROUP
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alfin Group, as the largest group in Albania, with presence in many countries in the region and beyond, with an annual turnover of more than EUR 600 million and a total asset value over EUR 500 million, possesses a diversified investment portfolio. One of the main sectors in which the group operates, since 1993, is that of retail sales. The group has long been a leader in this sector, thanks to our companies, like: Neptun, the largest electronic and technology equipment network, SPAR, the largest international food products network, Fashion Group, a company that manages the most renowned international clothing brands, and Kid Zone (Jumbo), the largest and most successful toy, stationery and
seasonal and decorative products network in Albania, and in the Balkans. The presence in the market since the beginning of transition and group’s parallel development with country’s financial markets and products have, in many cases, caused the group to establish a partnership relationship with the banking sector, where one of the most fruitful collaborations to be mentioned is accepting cards as a means of payment, from our retail companies.
Balfin Group, along with other domestic and foreign businesses, has long been pursuing efforts to raise awareness of all actors in reducing informality, particularly faced by the retail sector. Reducing informality would consequently be accompanied by an increased fair competition, a process that would benefit all economic agents.
We have a very satisfactory ratio of card vs. cash payments, by putting our group’s companies among the leading companies in the country which have such a high ratio, in favor of card payments. Our group’s companies do not discriminate with regard to card payments,
either in terms of amount, i.e. refusing card payments for small purchases, as the reality shows, or with regard to POS’s issuing bank, thus make payments through POSs, that the customer requires. Such a practice has made us today to enjoy satisfactory ratios od POS payments, against cash ones, which, though being far higher than the country’s market average, still have room for improvement, especially if we consider the rate of cards’ use as payment instruments in other countries in the region, where the group is present with its network of companies, such as: Macedonia, Kosovo and Bosnia. This is not only as a result of a higher level of informality in Albania, but also as a fact that in the aforementioned countries, card payments have a familiar practice for a long time and the culture of using them as a means of payment is different from ours. Surely, accepting cards as a means of payment brings many benefits for businesses, where three of most important ones could be mentioned: 1. Improving cash management Accepting POS payments affects businesses positively, by reducing some of issues associated with cash payments, such as: •
risk of false money,
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transportation to the bank, transport costs, difficulties in having coins for customers, etc.
2. Service quality and customer satisfaction • High quality service and customer satisfaction are paramount to all our group’s companies. When customers make card purchases in our retail companies, this not only enhances the service quality, but given the benefits customers could get from using cards, it gives our service an added value. Additionally, the fact of accepting card payments, increases business responsibility to the customer thus making it much more trusted in her/his eyes. •
as a means of payment. Moreover, card payments offer a great convenience and are a preferred alternative from customers who could pay with installments, could benefit from loyalty programs offered by card issuing banks, or take advantage of other incentives.
As mentioned above, the opportunity of card payment will also benefit the client because, thanks to various offers by issuing banks, customers could collect points, benefit from bank’s cash back programs, making them to prefer purchases at the stores that accept card
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POS transaction lasts quite a fraction of time, is fast and verifiable. If a payment is made with the wrong value, it is verified easily and can be returned to the customer’s account.
3. Increasing sales • In addition to customers, businesses could also benefit from accepting cards as a means of payment. This is so, because customers are prone to buy more with cards, than cash. In case of cash payments, the value of their purchases will be limited by the amount of money they have in the wallet. Studies have shown that clients spend more with card payments, because they are particularly encouraged to make impulsive purchases, thus not being limited by the
amount of money they have in the wallet. However, the most important thing at the national level is the acceptance of cards as a means of payment, which would, above all, reduce informality, that exists in Albania. Balfin Group, along with other domestic and foreign businesses, has long been pursuing efforts to raise awareness of all actors in reducing informality, particularly faced by the retail sector. Reducing informality would consequently be accompanied by an increased fair competition, a process that would benefit all economic agents. To close, it should be said that, based on our long experience in the market, in partnership and cooperation with main market players in the field of debit and credit cards, we assess that, regardless of costs, the domestic retail business needs to be increasingly oriented towards accepting cards as a means of payment. This is a collaboration that brings benefits to all involved parties: client, bank, and business. We as a group are constantly striving to expand such cooperation with all banks in the market, not only by improving existing programs, but also by trying to bring the best domestic and foreign practices.
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SPECIAL
The National Payments System Committee holds its fourth annual meeting The committee adopted the strategy: "On development of retail payments" and presented the projects implemented so far, linked to this strategy, within the framework of modernizing the payment systems.
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he National Payments Systems Committee (NPSC) held its fourth annual meeting on 20th June 2018. The meeting was chaired by Mrs. Elisabeta Gjoni, First Deputy Governor of Bank of Albania, as Head of the Committee. At the meeting, the Albanian Association of Banks (AAB) was represented by Mr. Silvio Pedrazzi, AAB Chairman & CEO of Intesa Sanpaolo Bank Albania and Mrs. Najada Xhaxha, Chairwoman AAB Payment Committee, as members of the NPSC, as well as by Mr. Spiro Brumbulli, AAB Secretary General. The participants at the meeting got acquainted with the
payment systems. The adopted strategy will serve as a roadmap for joint commitments, in the short and medium term. It is based on a series of analysis and reports, drafted by Bank of Albania, with the support of the World Bank, which were presented during the meeting. Specifically, at the meeting followings were presented:
The draft law is expected to boost competition and innovation, in the field of retail payments and to balance the opportunities for the provision of payment services among banks and non-bank financial institutions
enlargement of the Committee with representatives from nonbank financial institutions and payment system operators, as new members, aiming at a fully inclusion of market players. The committee adopted the strategy: "On development of retail payments" and presented the projects implemented so far, linked to this strategy, within the framework of modernizing the 22
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Outcomes of market analysis on remittances, aiming to identify the need for interventions, which are addressed in the strategy's action plan;
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The results of a study, whose purpose was to measure payment instruments’ costs;
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Findings on the Albanian market analysis, from financial inclusion perspective.
The vision of the strategy is: "to create a modern and inclusive retail payments market, supported by safe and efficient payment infrastructures, and a wide range of payment instruments and services that meet the needs of users." Special attention was paid to the measures, projected to accomplish this vision through a detailed action plan, identifying steps to be taken by each stakeholder. Also, the Strategy aims to improve the legal and regulatory framework, where as a concrete initiative of the Committee was the discussion of the draft law "On payment services", which
transposes the respective, revised European Union Directive. The draft law was prepared by Bank of Albania, with the support of the World Bank, through SECO funding. Its approval and implementation is expected to boost competition and innovation, in the field of retail payments and to balance the opportunities for the provision of payment services among banks and non-bank financial institutions. The conclusions produced by discussions at the meeting are reflected on the following recommendations of the National Payments System Committee: Establish and implement the objectives set out in the strategy, with respect to the: •
Task Force for monitoring the implementation of: "National Strategy for Reforming Retail Payment Systems in Albania".
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group for the Working national infrastructures’ setup, supporting the security and efficiency of payment instruments (such as: cards and electronic credit transfers), according to the strategy provisions.
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Working Group for establishing the basic bank account (financial inclusion).
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Working Group for domestically clearing the euro-denominated retail payments.
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INTERVIEW
ALPHA BANK
we put the heart in what we offer and how we serve our customers Nowadays, it is easy to copy an offer, a product or service, but what really differentiates us is the heart we put in what we offer and how we serve our customers. of Albania is stable and very liquid. After the financial crisis of 2008, all economies were impacted, which – for the Albanian economy in general - was translated in low level of remittances from the neighbouring countries (i.e. Greece and Italy), decrease in trade balances etc.; the prompt measures taken by the Bank of
Georgios PAPANASTASIOU CEO ALPHA BANK ALBANIA
First of all, I wish you all best for your new position with the bank. What are your very first impressions about the Albanian banking system in terms of development, competition and products? Thank you! First of all, I want to express my best considerations for Albania, as a country. Although relatively new here, I confess that I felt immediately very welcome, and not only by my colleagues in Alpha Bank. The Albanian economy has prospered over the past quarter of the century. In part, this can be attributed to the robustness and competitiveness of its financial system. Both these factors have contributed towards improving consumer welfare. Having said that, my first impression is that the Albanian banking system under the supervision of the Bank
We generate an added value for our shareholders, our clients, our employees and the society at large, while safeguarding at the same time, stringent environmental and social norms to support a sustainable future of the country we operate. We continuously aim to improve our environmental culture and performance; we encourage inclusion of our employees; we support talents and offer them an attractive work environment that promotes the best possible worklife balance. Albania, aiming at market stability and reinforcing the system’s invulnerability had a very positive outcome. Figures in hands suggest that the credit to the private sector in 2017 grew by 3.3%, in annual terms (excluding the impact from written off loans), compared to 3.1% of the previous year. The accommodative monetary policy,
implemented in the last years, strongly supported the increase in domestic demand and improved customers’ confidence – a much needed incentive under the current economic circumstances. The banking system continued to show stability – in terms of liquidity and capitalization – and the nonperforming loans reduced to 13.2%, from 25% some years ago. Competition within the Albanian banking system is present and is driving efficiency, lower pricing and encouraged innovation, offering a range of choices. Banks in Albania have offered, and constantly continue to offer, innovative products at relatively affordable price, fully utilizing different distribution channels, different sources of funds and up-to-date technologies like in more advanced markets. As one of the leading banks in Greece, and in the framework of big regulatory movements in the Eurozone and Greece, is there any change in the bank’s business strategy in Albania, for the years to come? Greece has played an important role in the development of the Albanian economy, when opened to private field. It remains the Albania’s second largest trading partner and the leading foreign investor in the country, with a share exceeding 20% of the Albania’s total FDIs stock, according to the Bank of Albania. Greek businesses in Albania are July 2018
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present for more than 20 years in strategic and important areas, such as: telecommunication, construction and raw materials (buildings, infrastructure, industrial and mining), finance and banking, trade (import-export, production, distribution, and investments), aquaculture and food, education, as well as health and beauty sector. More than EUR 1.5 billion have been invested from Greek businesses in Albania, establishing and maintaining strong, long lasting and healthy business relationships among the Greek business community and the local businesses. Furthermore, this community has facilitated and enhanced market interlinkages between both countries, promoted mutual trade and investment, diversified the economic cooperation and most importantly, it has not served as a transmitter of the Greek crisis in the Albanian economy, but on the contrary, it has contributed in building resilience to external economic and financial shocks. As I previously pointed out, the aftermath of the financial crisis was the global re-shaping of financial institutions and the rules they adhere to; Greece, Italy and other important business partners of Albania, entered a reforming process, which inevitably impacted their subsidiaries. Nevertheless, Greece continues to be a strategic economic partner for Albania and Greek business community in Albania continues to be one of the key players among foreign business communities in the country. As far as Alpha Bank Albania is concerned, we are sure that there is definitely an important role for us in the local banking
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market which can bring value both to our customers and to our shareholders. What are some key achievements of Alpha Bank – Albania for 2017 and several key priorities for 2018? Our work during 2017 had tangible results, in all areas of our activity. We continue to be a top-ranking bank in the lending business, with a loan market share of 5.6%. Deposits continue to record a natural growth, currently accounting at 5.4% of the market. A strong capital and liquidity position is evidenced by our CAR ratio of over 22% and a liquidity ratio of 49%; (gross) Loans-toDeposits, as of December 2017, was below 55%. More than 250,000 customers have at disposal a national network of 34 branches, 50 ATMs and more than 800 POSs to meet their needs. All these figures picture a strong and stable bank. Our priorities in 2018 include, but not limited to, the maintenance of high customer-satisfaction, the provision of the most innovative and hands-on service to our customers, the further improvement of our ranking in the top 5 of foreign banks in the country, the increase of shareholder’s value and the further enhancement of our brand name recognition, rewarding loyalty (already started with the Alpha Bonus program); convenience in accessing and managing funds (improving our e-banking app); personalized, consistent banking experience (tailor-made financial services); leveraging our banking knowledge for the benefit of our customers and providing advice how they can succeed in their
financial life (financial counselling by our employees). What could be the most distinguishing feature of Alpha Bank Albania? During the 20 years that we operate in Albania our key focus has always been the client. It can sound like a typical CEO “cliché” but is not. Nowadays, it is easy to copy an offer, a product or service, but what really differentiates us is the heart we put in what we offer and how we serve our customers. Without doubt a second key feature is our employees and the fact that we share altogether the same values. The third important factor is our Social Responsibility, a part of our corporate governance and culture, developed through a system of values, objectives and activities. We generate an added value for our shareholders, our clients, our employees and the society at large, while safeguarding at the same time, stringent environmental and social norms to support a sustainable future of the country we operate. We continuously aim to improve our environmental culture and performance; we encourage inclusion of our employees; we support talents and offer them an attractive work environment that promotes the best possible worklife balance. Our high standards of ethics and integrity and our willingness to be a reliable partner and proud contributor to the local economy and society, makes us firmly believe that our responsibility expands beyond our core business. For that reason, we seriously invest in the society that we live and operate - and consequently we invest in our own future.
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BANKING SYSTEM
Internal Audit
The misunderstood profession, the profession of the future The global market demand for internal auditors far exceeds the professional supply. The demand for internal auditors is expected to increase annually as public and private companies continue to expand their audit needs in response to today’s dynamic and disruptive business environment, as well as regulatory and corporate reforms.
Ediola BIÇAKU
Head of Internal Audit INTESA SANPAOLO BANK ALBANIA
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he month of May is the International Internal Audit Awareness Month. It is a special opportunity to celebrate this profession by building awareness and uplifting its visibility in the business community regarding the Internal Audit’s role in the organizational governance, risk management, effective internal control and efficient operations. The misunderstood profession “It is a necessary evil... when they are around to audit, they distract us and don’t allow us to do our jobs... they are eager to report two-three mistakes, mentioning nothing about hundreds of things done well…their nasty reports can ruin the reputations of the people who
do the real work…” While each of these statements are what we call “myths” and generally untrue, the fact that they are persistent in time might be an indicator to reflect on how internal audit is perceived in the organization and what should internal audit professionals do to dispel such myths. Nowadays, we are systematically reading news on corporate scandals and frauds, privacy breaches, compromised ethics and governance lapses. These and increasing legislation and regulations are carrying out important compliance implications. The growing interaction with international companies in the country is increasing the complexity of principles, regulations and the cultures in which our organizations operate. Today, more than ever, internal auditing is critical to strong corporate governance, risk management, effective internal control and efficient operations. At its simplest, internal audit’s most fundamental role is to identify the risks that could keep an organization from achieving its goals, making sure the organization’s leaders/decisionmakers know about these risks and proactively recommending improvements to help reduce the risks. Internal auditors keep an eye on the corporate climate and perform a variety of activities such as assessing risks, analyzing opportunities, suggesting
improvements, promoting ethics, ensuring accuracy of reco-rds and financial statements, advising senior management and the board on critical issues, investigating fraud, raising red flags, recommending stronger controls, monitoring compliance with rules and regulations, and much more! It’s certainly not easy, but for skilled and competent audit professionals, “it’s all in a day’s work” (The Institute of Internal Auditors. “All In A Day's Work Brochure”. 2016). At its best, internal audit acts like a “mirror” where the organization’s counterparties present themselves to and check on how they look. The looking mirror reflects the unpleasant spots, suggesting better placing. Then the counterparties develop what they consider appropriate adjustments to themselves. Internal auditors are explorers, analysts, reporters and trusted advisors. They bring objectivity and a variety of skills and expertise to the organization. They are praised for their critical thinking and communication skills, as well as their general IT and industry-specific business knowledge. Internal auditors are well-disciplined, methodical professionals and they are committed to enhancing their skills through continuing professional education. They are coaches, risk and control experts, efficiency specialists, fact-checkers and July 2018
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problem-solvers. Their main goal is to identify both risks and opportunities, and they are liable to tell it like it is. Internal auditors are in a continuous challenge to be able to anticipate emerging issues and create solutions. They have business acumen and inject to the working environment objectivity, integrity and expertise in communication. As the profession requires a lot of work in the field and interaction with many people across the business, internal auditors get equipped with also a level of extroversion. The profession of the future The global market demand for internal auditors far exceeds the professional supply. The demand for internal auditors is expected to increase annually as public and private companies continue to expand their audit needs in response to today’s dynamic and disruptive business environment, as well as regulatory and corporate reforms.
Corporative boards need to have the comfort that as they take their next steps, they can see the potential obstacles and understand what they need to do to get around them. In this context, they see internal audit playing a vital role in their efforts to sail safely through the fast-moving business environment. Today’s companies are seeking candidates who have studied or majored in a wide variety of subjects such as engineering, economics, marketing, computer science, management information systems, finance or business. In addition to the formal education requirements, internal auditors need to be well-rounded, logical, business-oriented professionals. That is great news for current internal auditors and prospective ones, but it preserves also a challenge that internal audit professionals should recognize and embrace. Internal auditors must fuel their innovation engines and have the courage to drive change and include themselves where they feel they can add value. Internal
auditors should self-promote by disposing quality of service and support the organization in ensuring good governance and business performance. They are in a privileged position within the organization, able to join the dots that others don’t see in their entirety, connect people and in this way, become a catalyst for change in their own organizations. Changing perceptions is challenging and it takes time, often requiring combined efforts of multiple actors in the business community to break down a myth/ stereotype. However, it is now a fact that internal audit profession's image is rapidly improving, becoming a vital component of modern business models. With some research, one will discover that internal audit is a unique career path for more-thanfinancial professionals that can lead them to duties and fields they never dreamed would be part of their jobs.
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BANKING SYSTEM
The 10 dimensions of digital transition in banking Numerous new dimensions are rising, making banking an even more complex and sophisticated industry. There has hardly ever been a time when it was more challenging to be an excellent banker. i.e. clients being born in and after 1982. This new segment of clients prefer digital banking, over faceto-face channels.
David GYORI1
CEO BANKING REPORTS LTD LONDON
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anking is going through digital disruption at an unprecedented pace. This is high stakes challenge for incumbent, traditional financial services providers. Large organizations are excellent in evolution, yet, now they are facing potential revolution induced by digital transition. Senior bankers struggle with the complexity, as well as the pace of change. This article takes a brief look at the 10 key dimensions of digital transition in banking: New Clients: Millennials. . Millennials are step by step reaching position of peak profitability, pushing Generation X, as well as Baby Boomers behind. Millennials are people becoming adults in the new millennium –
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New Competitors: GAFA. GAFA stands for Google, Apple, Facebook and Amazon. BAT stands for BaiDu, Alibaba and Tencent. Technology giants are now coming to banking. They are dangerous, because they have excellent technology skills, as well as huge existing clientele – for example Facebook currently has 2.2 billion active users. New Products: Digital Wallets. New, digitally oriented financial products are being driven to market with huge success. The most disruptive category is “digital wallets”. PayPal is the largest digital wallet in the western world, with 220 million clients, while WeChat Pay in China recently reached 800 million monthly active users. New Channels: Social Media. New, digital banking channels are popping up at high speed, while traditional channels are still remaining active. This puts banks into a hard situation: the number of channels is expanding and the complexity of an omnichannel strategy is exponentially increasing. A new paradigm called “optichannel” will presumably rise. Optichannel consciously limits the number of channels a bank decides to focus at. One area of channel expansion is social media, which is
an especially problematic terrain for banks, since it cultivates twoway communication, as opposed to the asymmetric nature of traditional marketing channels. New Risks: Cybersecurity. Cybersecurity is now a key issue within banks. Banks are typically well protected and manage cyberrisks, in a programmatic and organized way, yet they are prime targets. While physical risks related to banks are diminishing with gradual reduction of cash, digital uncertainties are on the rise. New Internal Structure: Ambidextrous. Banks try to adjust to the accelerated pace of innovation around them. This leads to strategic decisions, often impacting organizational structure. One key way banks are changing is the “ambidextrous organization” paradigm. The concept of “the ambidextrous organization” has been first described by Charles A. O’Reilly and Michael L. Tushman in their 2004 article published by Harvard Business Review. According to their research organizations splitting into two units – traditional versus emerging business – while keeping top management intact are capable of surviving periods of disruption. This is what we see in some major banks: innovation is elevated to strategic importance and some forward-looking banks are becoming ambidextrous.
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New External Structure: PSD2 and API Banking. Third-party Banking, Open Banking, PSD2 Banking, API Banking – these are quasi-synonyms, little known a decade ago. These expressions all refer to third parties, new entities getting in between banks and their clients, providing new, smart, progressive, modern, mobile optimized, aggregating interfaces. The real challenge for banks is not only that these third parties are bank agnostic – thereby providing a holistic overview of a client’s finances – but also that they can potentially eventually become banks themselves. New Partners: Accelerators, CVC. Banks try to bring Financial Technology startups closer to them, in a controlled way. There are now approximately 20 thousand small, nimble, flexible and creative financial technology startups globally. Over 90 % of these startups came to market following the 2008 crisis. Some of them are outstandingly successful – such as TransferWise, FundingCircle, Zopa, Nutmeg, Square, Revolut and many others – yet, most of them are struggling with growth, ready to share their technology and knowledge. Incumbent banks try to get closer to FinTech startups in a controlled, dominant way. One of these ways is to set up CVC
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(Corporate Venture Capital) Funds and buy equity into FinTech startups, another is to set up incubator and accelerator programs to assist them while learning from them. These attempts are controversial and ambivalent, because they typically lack the harmonization between different organizational values and cultures – traditional, conservative, risk aversive banks versus Silicon Valley style startups. New Management: Coopetition. FinTech startups and technology giants are powerful business partners, as well as fierce competitors of banks. This complex relationship optimally requires new management paradigms. While banks find are strong and ready for competition on traditional terrain, the winning corporate behavior in the fast evolving, complex digital ecosystem is more sophisticated. “Coopetition” is the new paradigm: the coexistence of strong competition and cooperation simultaneously. As FinTech entrepreneurs often say: “we are frenemies with banks”.
through digital interfaces, banks are now hiring designers and ergonomists and some of them are setting dedicated departments up. Loyalty is changing as a concept. It is much more fragile in a digital environment. While Baby Boomers typically kept one banking relationship for decades, their children – the Millennials – are ready to set up a new banking app in minutes. Digital transition narratives are becoming essential elements of marketing communication. These narratives explain to clients why and how their traditional bank is, all of the sudden, becoming so innovative and how they – as clients – can benefit from this. Regulatory Affairs are gaining a new edge, a new dimension. Banks are now in intense communication with regulators, regarding FinTech regulation, as well as regulatory issues related to innovation within banks. This edge of the regulatory relationship is relatively new and it differs from the traditional financial risk and stability focused communication.
New Dimensions: Changing Objectives. While digital transition is revamping some existing key dimensions of banking (new clients, new channels, new products, etc.) it also creates entirely new ones. Design is becoming a key element
Numerous other new dimensions are rising, making banking an even more complex and sophisticated industry. There has hardly ever been a time when it was more challenging to be an excellent banker.
David Gyori is a globally renowned FinTech consultant, trainer, author and keynote speaker. He is CEO of Banking Reports Ltd London, providing top quality ‘FinTech Training for Bankers’ all over the world. David is frequent Keynote Speaker of premier international banking and FinTech events: he recently gave Keynote Address at the World FinTech Forum in Seoul, South Korea as well as in Brussels at the annual conference of the European Banking & Financial Services Training Association. David holds a number of key international positions: He is Founding Member of the World FinTech Association and Member of the Panel of Judges of the European FinTech Awards as well as the UK National Technology Awards. He is co-author of ‘The FINTECH Book’, published by Wiley and Sons in 2016, quickly becoming a global category best-seller. David is Faculty Member of the Retail Banking Academy (London), one of the most prestigious banker-training facilities globally. He serves on the Advisory Board of multiple FinTech companies in the United Kingdom. David spends significant time in London as well as in Budapest, but when you contact him, chances are he is on a trip to a third destination, delivering training, speeches or consulting services.
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EXPERTS' FORUM
Non-bank financial markets’ consolidation and their inclusion in European integration processes AFSA pillars for development Albanian Supervision Authority (AFSA) aims to consolidate non-bank financial markets, by trying not simply their expansion with new products and services but focusing on consumer and investor protection in such markets. That is what the adoption of “Strategy on the Development of AFSA and of the Markets under its supervision 2018-2022”, aims for. serious commitment of the Authority to implement a practical action plan,
Ervin KOÇI
Executive General Director ALBANIAN FINANCIAL SUPERVISION AUTHORITY
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n April 2017, when I took office as one of the heads of the Authority, I was aware that together with other managing staff we would cope with many existing issues and many new challenges. Moreover, when dynamism is prevalent within a financial environment, then facing challenges requires long-term action plans. In this regard, the Albanian Financial Supervisory Authority drafted: " Strategy on the Development of AFSA and of the Markets under its supervision 2018-2022 ", quite indispensable not only for the institution, but also for stepping into another stage for financial markets in our country. This strategy is a
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The "Strategy on the Development of AFSA and of the Markets under its supervision 2018-2022" is a detailed plan which contain 72 recommendations, which AFSA has turned them into 72 priorities, that will be subject of joint work during the next 5 years. AFSA aims to implement such strategy that will foster the development of a competitive and efficient market, by creating, at the same time, a long-term stability, as well as enabling the creation and development of innovative products. that we will be jointly undertaken with other interest groups, during the next five years. The strategy is drafted upon: •
A concrete and accurate analysis of actual market situation and their oversight;
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Responsibilities arising from integration processes, as well as on.
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Success models of financial markets development in South East Europe.
This strategy reflects today's situation in the actually underdeveloped non-bank financial markets with untapped potential for investors and the economy, as well as the perception that the development of such markets is linked, among other things, to the public’s financial culture, which is still modest. Our belief is that all stakeholders and factors, with courage and by joining positive energies in these markets, could bring substantial changes to the non-bank financial markets. This is also related to the main objective of the Strategy, which is the transformation from a fragile market to the most consolidated market of the Western Balkans, thus being a leader in the region, towards the EU integration process. The Authority considers that now is the proper climate to achieve the objectives of each stakeholder, as follows: • Government and Ministry of Finance have set the financial markets’ development as a priority, as part of the economic development project, to achieve an economic growth of 5%;
http://amf.gov.al/files2/File/Strategjia2018-2022.pdf
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Investors and shareholders are quite enthusiastic about markets’ development;
ensure the integrity of these markets as a factor with a positive impact on the country’s economic development.
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The Authority (AFSA) is aware that it should continue to increase and strengthen its supervisory and regulatory role at a faster pace;
The Strategy has set some key priorities, as medium-term development challenges, as follows: • Markets’ development and their progress at a rapid pace;
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International partners expect proper changes, supporting AFSA at every step, both in terms of legislation and human capacity building;
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Improvement of the quality and effectiveness of supervision and regulation;
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Technological innovation, which will facilitate the growing needs of consumers and investors;
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Drafting and adopting a legal framework harmonized with European Union directives.
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The public is aware of the important role we have to play and expects AFSA to accomplish it carefully.
All the above objectives have a point in common: consumer investor protection and education in the markets under AFSA supervision. AFSA aims to restore consumer confidence in financial markets through exercising the supervisory and regulatory functions, in order to
The "Strategy on the Development of AFSA and of the Markets under its supervision 2018-2022" is a detailed plan which contain 72 recommendations, which AFSA has turned them into 72 priorities, that
will be subject of joint work during the next 5 years. AFSA aims to implement such strategy that will foster the development of a competitive and efficient market, by creating, at the same time, a long-term stability, as well as enabling the creation and development of innovative products. The Authority is convinced that the implementation of the strategy, accompanied annually with clear priorities and a concrete action plan, will transform financial markets, by turning them into promoters of the country's economic development. An analysis will be conducted at the end of each year, and if necessary, the Strategy will be adjusted according to the development and dynamics of the market performance, over the year. Personally, I do believe that, in cooperation with all stakeholders and influencing factors, we will succeed in implementing this Strategy successfully, and by turning the Authority into a positive model of a financial institution.
Insurance Market - Premiums performance, 2008-2017 (in mio. ALL) 16,000 15,000 14,000 13,000 12,000 11,000 10,000 9,000 8,000 7,000 6,000 5,000 4,000 3,000 2,000 1,000 Non-life Insurance Life Insurance
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2008 6,561 515
July 2018
2009 7,156 721
2010 7,352 848
2011 7,274 941
2012 8,070 880
2013 7,578 960
2014 10,597 1,026
2015 13,056 1,028
2016 14,391 978
2017 14,993 1,205
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EXPERTS' FORUM
Digital services More efficiency and benefits for clients For ProCredit - Albania, applying best practices to other group’s bank and the latest technology is really a priority. Thanks to such approach, today the bank has managed to transfer 99% of transactions through electronic banking channels, a figure which clearly demonstrates the focus to achieve total automation of transactions, that can be accomplished through electronic ways. they are, quickly, securely, but also with more favorable terms than before. Led by technology ProCredit Bank, during its 23 years of operation in the Albanian market, has continuously introduced innovative solutions in banking services, besides focusing on providing responsible and specialized financial advice to
Suada MANSAKU
Specialist, Business Development Department PROCREDIT BANK – ALBANIA
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he use of technology is now an integral part of our everyday life. The same effect is also transmitted to banks, which consider the implementation of technological innovations as an indisputable opportunity to develop their services. Following the introduction of modern banking services infrastructure, the bank has the duty to review its business unit network and define priority channels, through which it serves customers, such as: internet banking, or mobile banking. Given the current experience of ProCredit Bank in this regard, it is easily noticed that the result of this digital transformation is quite satisfactory. Clients are continuously appreciating the comfort they are provided with, by getting banking service wherever
Me prezantimin në treg të “ProCredit Bank Direkt”, Banka ProCredit përmbush një tjetër qëllim: atë të ofrimit të zgjidhjeve bankare të thjeshta e transaprente. “ProCredit Bank Direkt” është një koncept i ri, i cili përfshin një paketë të plotë shërbimesh që mund të përdoren lehtësisht nëpërmjet kanaleve elektronike.
businesses. As part of ProCredit Holding, which consists of a group of banks operating in different countries in Europe and Germany, banks follow the same strategies, by implementing them in each country where they operate. Presenting such innovative banking services in these markets is now part of ProCredit's identity. It has been the first bank in the country to introduce innovations in the field of banking services, such
as: bank cards for ATM operations, electronic e-banking platform and 24/7 zones. A incessant attention has been paid to a continuous improvement of e-banking, both in the service range and ease of use. In 2015, we introduced the concept of self-service, through 24/7 zone, in order to continue and further promote this innovative approach and in response to demands of our customers. For ProCredit - Albania, applying best practices to other group’s bank and the latest technology is really a priority. Thanks to such approach, today the bank has managed to transfer 99% of transactions through electronic banking channels, a figure which clearly demonstrates the focus to achieve total automation of transactions, that can be accomplished through electronic ways. Moreover, providing digital solutions to businesses promotes efficiency, and thus contributes directly to creating competitive advantages for them in the market. In a society that keeps developing, time is invaluable, so digital transformation will continue, even with faster steps. Given that digital services offer time savings, 24/7 availability, security, favorable commissions, and easy access through computer, phone, or tablet, make them "a must" for businesses and individuals. With the increase of formalization, the economy in general and business access in the international markets, mean July 2018
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that the need for digital banking services is constantly increasing. Bank with a different appearance Zone 24/7 and cash channeling through electronic equipment has met the investment objectives. As a result, customers have now the opportunity to save time, by choosing the most appropriate time to perform banking services, without being influenced by the schedule. If you visit any of ProCredit agencies, it is noticed that there are no waiting clients in the queue. Meanwhile, Customer Advisers are there to create and develop business relationships, know clients' needs and provide financial counseling, in accordance with their banking needs. Direct Banking - Simple, fast and secure banking Following the introduction of "ProCredit Bank Direct" in
the market, ProCredit Bank accomplishes another goal: providing simple and transparent banking solutions. "ProCredit Bank Direct" is a new concept, which includes a full range of services, that can be easily used through electronic channels. Clients could maximize the benefits of technological innovations, meeting their most common banking needs in a quick, simple and safe way. Under this concept, they are provided with not only convenience in accessing banking services and conducting transactions, but also with more efficiency, and therefore with favorable commissions. Presenting new services, their all-time availability, flexibility and their ease-of-use, have increased the demand of customers to use these services. In this context, ProCredit Bank, in order to avoid the payment of special commissions and increase
transparency, has implemented a simple method for its retail clients: Fixed Service Commission. Customers pay this monthly commission only, and benefit without any further commissions all banking services they need, as part of their service package. Also, they could earn favorable rates for their savings, through FlexSave and deposits. Clients benefit from interest each day that funds are in their savings account. The interest is automatically credited and available to their current account every month. In addition to banking services, regular-income clients may benefit from loans or advances with favorable terms, competitive market interests, and flexibility in collateral. Summing up, thanks to embracing the cutting-edge banking technology, the bank itself has been able to provide added value to its customers.
About ProCredit Bank ProCredit Bank - Albania is wholly-owned by ProCredit Holding, based in Frankfurt am Main, Germany, whose shareholders are internationally-oriented development institutions. The Group is supervised, in a consolidated way, by senior German authorities (BaFin and Bundesbank), ensuring that the ProCredit Group operates in accordance with best international banking practices and German standards. Another element that confirms the stability of the bank is its periodic classification by international company Fitch Ratings. ProCredit Bank - Albania holds the 'BB-' rating. I would like to emphasize that all the above elements reaffirm the credibility, sustainability and stability of ProCredit Bank.
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EXPERTS' FORUM
National payment Scheme with SWITCH Card country, by enabling all bank customers to make domestic payments for exchanging interbank transactions.
Irida HUTA
Business Development Manager PAYLINK1
Creating a common payment scheme offers a number of opportunities for commercial banks and affects cardholders and traders positively, in these directions: • • •
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•
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opportunity for banks to launch new products, faster and at a lower cost; opportunity of creating common infrastructures, both for POSs and ATMs; setting "Intercharge fees" in agreement with central bank, bypassing those established by international schemes; provides lower costs in processing financial transactions, compared to international operators, with which banks operate today; the settlement process is concluded in a faster cycle, by offering merchants access to their accounts within a shorter time; set the foundation for creating a network with all banks in the
What is required for such national scheme’s implementation? • Switch Platform for H2H Transaction Authorization • Switch Platform for authorizations and establishing Host-to-Host connections with card issuers and card acquirers. This platform allows for configuration of authorization rules between issuers and card acquirers. • Transaction “Clearing” Platform • The “clearing” platform generates "clearing" files, based on authorizations given and depending on the rules set by the national scheme, provides the option of “cutoffs” configuration. The Back Office platform can be used to monitor day-today transactions and handle respective disputes. • Settlement calculation • For each "cut-off" the “clearing” platform it should generate totals to complete the settlement process. • "Test" platform for certification of issuing and acquiring banks (or both) • The platform should offer "test" systems, which may be used by different banks simultaneously, to simulate tests, whether in issuing or in acquiring. "Test" systems must be configured with "test" data, which facilitates simulation of situations. for transaction • Security
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processing and encryption keys’ management Maximum security for card data that will be exchanged between processors, including security through computer networks, data encryption stored in the database, as well as secure exchange and storage of encryption keys.
Legal aspect of scheme creation The legal aspect of the national scheme may require the signing of a legal agreement by banks, that would pave the way for establishing of a common scheme for processing national transactions, bypassing international schemes. The agreement may be implemented through the Albanian Association of Banks, or through a bank-owned company. Rules for operating the scheme Banks, following the signing of cooperation agreement, should elect a scheme’s steering board, which will adopt the rules and procedures for operating the scheme, and will monitor and audit all participants in the scheme. The rules of operation for the scheme will focus on the following points: • acceptance rules for issuing banks; • acceptance rules for acquiring banks; • authorization and “clearing” commissions; • operation rules; • scheme governance; • licensing; • requirements for issuing and acquiring processors; • commissions for interbank transactions (interchange); • risk management rules;
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• • •
• •
arbitration rules, in case of disputes; security rules and encryption keys’ management; definition of technical communication standards and protocols, during authorizations and “clearing” for all participants in the scheme; certification of participating parties; network rules management.
Scheme’s participants will set out the rules on how network communication standards will be and what security standards will apply, including PCI DSS standards. How can a national scheme be implemented? In the frame od national scheme, a close cooperation between participating banks is required, which will take a number of steps, as follows: Step 1 - Creating a domestic scheme entity. Step 2 - Creating a governing structure. Step 3 - Creating an organizational structure. Step 4 - Drafting rules and procedures. Step 5 - Implementing the Scheme. Step 6 - Certification and "Go-Live". Full payment cycle in the domestic scheme The domestic scheme will not change the current infrastructure of banks operating in Albania. The domestic scheme will serve as a link between banks’ existing processors, so that all local transactions are authorized and settled domestically, without any need for intermediation from 1
Bank 1
Bank 2
Bank 3
InterBanking Agreement
Provider and banks agreement, for domestic transactions switching!
SWITCH
• Rules of operations • Commissions of the “authorizations” and "clearing“ • Security Rules • Etc..
The whole process will be monitored or may be managed from the Bank of Albania. The provider offers the technical Platform!
international schemes. Example of a typical transaction between two banks operating locally: Bank A card holder makes a payment to through a merchant’s POS, which is acquired by Bank B. In this case, the authorization’s flow will be as per following: 1. Transaction initiated at POS will go to the current processor of the acquiring Bank B. 2. The acquiring Bank B processor verifies whether the transaction is ON-US or OFF-US, and in case of the second option, conducts a second verification, if BIN is issued by the Albanian or international bank. In case of a BIN issued by international banks, it redirects transactions towards the relevant scheme (VISA, MasterCard). 3. If the BIN belongs to the Albanian issuing banks, the processor of the acquiring bank redirects the transaction to the national scheme and the local operating structure is redirected to the issuing bank, thus bypassing international schemes (Bank A in this case).
4. The issuing bank authorizes, or not, the transaction and sends it back to the local operating structures; it redirects it to the acquiring bank processor. 5. Acquiring Bank B redirects the response to the merchant’s POS. Meanwhile, the settlement will be made in this way: Bank B shall, upon the approved regulations, periodically submit a "clearing file" to the local operating structure (in the role of the Local Scheme Switch), which contains all domestic transactions executed during that period. Such structure identifies the issuing banks and prepares a "clearing file" for each of the issuing banks, including Bank A, and sends them within the deadline, set out in the Scheme. Under the scheme's regulation, the local operating structure will facilitate the resolution of chargeback cases, which are expected to be very low. At the end of the day a payment file is prepared, which is sent to AIPS, according to the rules set by the central bank.
PayLink is a technology company, which has a track record in the domestic market and beyond. The platform PayLink offers with regard to National Paymednt Scheme with SWITCH Card is compliant to industry’s international standards.
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ECONOMST CORNER
New banking models in front of digital era challenges Neo-banks are the newest phenomenon that is spreading rapidly across the banking sector landscape; they are the youngest actors that are joining this sector. Unlike deeply digitized traditional banks, neo-banks are new structures created "ex-nihilo" i.e. created from scratch, which are joining the banking sector.
are the latest example of such developments.
Prof.Dr. Adrian CIVICI
President EUROPEAN UNIVERSITY OF TIRANA, UET-EUT
T
he extreme expansion and ease of internet use after the 2000s, especially “mobile data terminals” or “mobile digital computers”, such as: smartphones, tablets, laptops, etc., have created new consumer behavior and habits. The impact on banks and their activity, as central economic and financial actors was and continues to be considerable. Within less than two decades the entire banking sector, faced with the competition challenge, had to cope with the necessity of a rapid adaptation to this new, but rapidly evolving, phenomenon. The consequences of digital revolution in the banking sector have stimulated new and previously unknown models and perspectives. Neo-banks
Banks and the Digital Revolution In the late 1990s, when the internet hit the stage, it was almost unimaginable to what extent the internet would substantially transform the foundations of the economy’s ecosystem, markets, business actors, and above all, customers’ habits and behavior. Within a few years, banks – as important economic and financial actors – found that their business model was facing new challenges. For all financial and banking institutions new previously unknown threats were emerging, such as: - Loss of importance and the "scene exits" of banking advisers, direct customer contacts with bank staff and the inevitable closure of many banking agencies. - The emergence of a new type of competition. Digitization has made it easy for the new actors - smartphones, electronic and digital tablets, laptops, etc., - which challenge the traditional financial institutions with tariffs and service facilities on a 24/7 basis. - A faster and more complete banking information access for customers. - Loss of some monopoly positions. The emergence of FinTechs and specialized startups in financial technologies created opportunities for rapid growth in
supplying new products and new banking services. Faced with such situation of losing a classic monopoly on client and market, banks adopted numerous adaptation and modernization strategies, but without sacrificing the core of the classic "brick and mortar" model, i.e. keeping their branches and direct contacts with customers. The best response in this regard is the re-design and re-shaping of banks’ branches and agencies, in line with the new customer’s behavior and needs, coupled with fully "digital" furniture of these banking environments. Financial digitalization experts suggest that "banks do not need specific digital strategies, but a broader and qualitative digitalization of their strategies". This new spirit gave birth to a new banking model: "distant banking, with no real distance". During recent years, banks are facing new challenges: blockchain, virtual bitcoins, etherium, etc., cybersecurity, artificial intelligence, etc. Advances in FinTechs witness for their will and far-sightedness in seeking and coping with new opportunities. Nevertheless, their involvement in the digital adventure is facing two constraints or difficulties, which require complex solutions by banks, such as: regulatory constraints, stemming from the fact that July 2018
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supervisory authorities are becoming increasingly rigorous versus banks’ will "to go far with their products and innovations", - human resource constraints, as banks’ management in the digital age and their tendency toward "digital addiction" is seeking increasingly high-quality teams of experts and specialists. Banks are increasingly shifting towards changes to total digital openness, in order to avoid the so-called "Kodak syndrome" or "fears of structural changes" that have adversely affected the destiny of many major international corporations. Banks are facing the challenge of need for new ideas and finding necessary funding, in order to transform their business models. Neo-banks - the youngest actors in the banking sector Neo-banks are the newest phenomenon that is spreading rapidly across the banking sector landscape; they are the youngest actors that are joining this sector. Unlike deeply digitized traditional banks, neo-banks are new structures created "ex-nihilo" i.e. created from scratch, which are joining the banking sector, such as: Anytime, Hello Bank, Morning, Number26, Soon, Revolut, Hello Watch, etc., or "derivative" type neo-banks from other sectors, such as: commercial corporations, telecommunications, such as:
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C-Zam, Orange Bank, Carrefour Bank, Lydia, Soon, etc. Meanwhile, even big banks seem to be ready to create their neo-banks, thus ensuring their presence in this rapidly growing sector. In the United States there are: Simple, Moven, Go Bank, Final, Simple, Abra; in Canada we see: Koho; in Europe, the neo-banker pioneer is Great Britain with Atom Bank, Monzo, Revolt, Starling bank, Monese, N26, Finland with Ferrtum, France with C-Zam, EKO, Morning, Max, Russia with InstaBank and RocketBank, etc. Neo-banks do not obtain all kinds of bank licenses, even though they propose and offer full digital banking services. They are primarily "payment agencies", which offer quick, simple and easyto-use services. A payment through a neo-bank can take a few minutes, or seconds, only. Their banking offer, at least for the moment, is limited to three items: bank account, credit card and various applications. Currently, neobanks are expanding across the banking market, thus increasing competition in the sector. These new players, a FinTech "product", own a bank license, but their products and services are limited to smartphones, tablet computers, laptops, etc. Payments via SMS can be made through neo-banks, as well as changing caps for daily payment limits, commissionfree payments with a bank card,
quick opening or closing of bank accounts, etc. The Basel Committee has recently published a report on "The Future of the Banking Sector", which devotes a special slot to neobanks and their role in the next decade, highlighting in particular two important elements, as follows: - "in the future, traditional banks will face difficulties in surviving technological developments, thus being imminently replaced by banks that are fully relying on digital technologies, - "banks may survive and continue to be key players in financial services, but their role will become less and less visible, by becoming a simply service provider. They will put their knowledge and experience at the service of FinTechs, or internet giants, who will keep direct links with final consumers." According to BCG (Boston Consulting Group), future banks will no longer be "parent banks", where clients need to go through ot get a “Yes” or “No” for their banking operations, nor they will be "pure players" digital models. According to BCG, future banks will be increasingly oriented towards the "bionic model", i.e. a mix of digital technologies and human contacts, thus adapting to digital revolution, which is contemplating and, at the same time, completely defying the banking system.
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SUSTAINABLE DEVELOPMENT GOALS
GOAL 3 On June 18th, Alpha Bank Albania, in cooperation with "Weekend Different" Foundation, organized “Blood Donation Day” for the seventh consecutive year. On Volunteering Day, the bank supported "You Are a Sunflower" Foundation, where 419 bank employees were engaged on May 18th, by wearing the symbol of such initiative, throughout the working day. Also, on May 20th, an event with children's bank staff was organized near Tirana's Artificial Lake, as a message of solidarity to their peers with various blood diseases.
GOAL 3 ABI Bank, as the general sponsor of "Flamurtari" women's basketball team, which was officially declared the champion of Albania. GOAL 4 On May 15th, the "Support the success story" fundraising gala evening, was held in Prishtina, organized by R.I.T Kosovo, the only institution of higher education in Kosovo that issues American diplomas, recognized throughout the world. ABI provided 3 scholarships for talented students but in financial difficulties. GOAL 8 The bank attended the 2018 Labor Fair, organized on May 1st . The bank supported "Partners Albania for Change and Development" in its initiative to encourage the development of social enterprises in Albania, at the event” "Presentation of entrepreneurship models - Partnership with Business", on June 8th.
GOAL 10 The American Bank for Investments supported, for the third consecutive year, "Love is All" gala event, organized by LGBT community activists in Tirana. GOAL 11 Sponsor of "Green Stations" project in Korca. This project will carry on other 9 different villages. On May 22nd, the bank sponsored the project in Drenova and on June 30th, the event: "Confess Voskopoja", which brought in tourists and personalities. Sponsor of “Smile Albania" project, launched on the evening of May 24th at Artificial Lake Amphitheater. The Ministry of Tourism and Environment, in cooperation with various actors, public and private, aims to provide novelties to explore opportunities at supporting Albanian tourism through engagement of young people. Art, sport, culture ABI Bank supported: • "Wine and Oranges", the biggest moving comic spectacle from Top Channel's "Orange" (Portokallia) show, in Korca and Berat. • "Socrates’ True Apology", monodrama, on June 29th, 2018 in Gjirokastra. • "Hostel by Anabel," a co-production by Anabel Entertainment and INTV. • Festival of Children’s Folk Song Interpreters, in Fushë – Kruja town. • Big concerts with Ermal Meta and Rita Ora at “Skanderbeg” Square, on June 1st & 3rd, respectively. • Italian film: "Rimetti a noi i nostri debiti", at Millennium Cinema, on May 21st. • Hall of Fame inauguration, on May 4th, at “Alexander Moisiu” Theater in Durrës, accompanied by the premiere of: "Comedy that goes to Hell". • General Sponsor of “Master Chef” Junior. • General Sponsor of "Dancing with the Stars". July 2018
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• In Memoriam evening honoring Tonin Harapi, People's Artist (composer), organized in April by University of Arts.
GOAL 3 The Directorate Public of Health of Gjirokastra restoration process was supported by the Bank Kombëtare Tregtare donating assets for properly furnishing the premises. GOAL 4 BKT’s asset donation to the “Institute for hearing impaired students”, provides all of them better learning conditions. In 30th of May Banka Kombëtare Tregtare sponsored the annual painting contest of RSU No.1. For a several consecutive years, BKT has been the only sponsor to have supported the most gifted and talented students of the Arts University. BKT has been continuously supporting DAR Qarku Tiranë to organize the annual Sports Project for the Schools of Regional Education Directorate of Tirana District, during the closing of the academic year. On 1st of June, the International Children’s day, BKT joined the joyful celebration for the little prescholars of Mustafa Kemal Ataturk School. The bank donated different furniture and office equipment for Kamëz Education Office (KEO) GOAL 8 During May, Banka Kombëtare Tregtare participated in Work Fairs in Tirana, Durrës and Gjirokastra and also in the annual Work Fair, held at European University of Tirana and New York University of Tirana. GOAL 11 During April, Banka Kombëtare Tregtare made an asset donation for
General Directorate of State Police. The reallocation of Banka Kombëtare Tregtare (BKT) assets supports every institution that gives a special service in our community. “Shoqata Vëllazërore Humanitare Istanbul” plays a significant role in our society’s life, therefore BKT’s contribution has a big impact improving the quality of benefits, the community gets. The reallocation of BKT’s assets supports these institutions in creating sustainable and resilient building utilizing the efficiency of these furniture. GOAL 15 BKT joined the "Green Revolution", an initiative of Tirana Municipality for the afforestation of Tirana, by sponsoring the tree planting project in the Artificial Lake area. Planting trees in a newly constructed road of Kamëz Municipality was part of BKT’s the contribution under the initiative of the Municipality "Give life to Kamza – donate a tree”. GOAL 17 On May 10th, Arnavutluk – Türkie Ticaret Ve Sanayi Odsi (ATTSO) held its Annual General Assembly and Banka Kombëtare Tregtare was its general sponsor.
GOAL 4 Supported the publication of "Gimjani - Albanian Stamps" Catalog. On the occasion of 105th anniversary of the first Albanian stamp, Muharem Gimjani brings the catalog of stamps issued by the Albanian Post during 1913 - 2017. Supported the Albanian Association of Banks in organizing the European Money Quiz. GOAL 9 Supported Health Center of Katundi i Ri, Shkozet, by donating chairs for polyclinic’s internal premises.
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GOAL 10 The bank covered the expenses for the activity held at Tirana Women's Prison and donated beauty sets to all inmates. GOAL 11 On International Environment Day, the bank introduced a short video: “Ryan”, a small entrepreneur, who not only educates us financially, but also makes environmental awareness. On June 1st, the bank chose to be part of "International Children's Day" with students of "Adem Myrta" school in the village of Shpërdhet, Mamurras, accompanied by teacher Angjelina Gjonikaj, and their trainers Agustin Luli and Julian Gjonikaj, who donated their works to the Tirana hospital’s oncopediatric pavillon, realized at "Children, Art and Recycle". GOAL 17 During May, the bank attended the activity: "Presentation of Enterprise Models, Networking and Partnership with Business", organized by Partners Albania. In cooperation with Tirana Municipality, organized and supported sport activities for children of Tirana, near the Artificial Lake Park. About 170 studies from Albania, the region and beyond, participated the 8th edition of International Conference of Business Faculties at "Aleksandër Moisiu" University, on: "Economic Policies and European Integration". Culture, Art and Sport The Bank supported the international athletics tournament, held at "Elbasan Arena" National Stadium. On April 14th, the bank supported the jubilee concert: "Nostalgia", organized at Concert Hall of Orthodox Cathedral. Also,
the bank sponsored the project "Be DiFFeREnt" by ARKU Foundation.
Lezha Branch employees were settled in the new branch facilities, which has undergone radical change and are now a model in everything. #celebrateHer campaign is a call for justice and addressing inequalities, faced by women and girls, through positive messages, rather than directly addressing Violence against Women. Fibank aims to promote a positive message: We believe that change is possible! Fibank supported DSA's participation in the Bulgarian Alliance for Social Responsibility (NASO) in Varna, Bulgaria June 2 – 17th, 2018 at the Conference: "Social Economy as an Effective Model for Social Inclusion". FIBank celebrated June 1st with DSA children. Fibank was part of UET 2018 Labor Fair.
GOAL 3 On May 23rd and 24th, the bank organized the voluntary blood donation initiative. The bank distributed an awareness Postcard and Video on May 31, World No Tobacco Day, under the WHO motto: Choose Health, Not Tobacco! GOAL 4 Mr. Silvio Pedrazzi, Chief Executive Officer and Mr. Dario Grassani, Deputy Chief Executive Officer, delivered an open lecture at University of New York - Tirana on: "Budgeting and Monitoring Cycle".
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Following a continuous cooperation with Junior Achievement - Albania organization, the bank also supported this year's activity: "Leader for One Day". GOAL 8, 10, 11 The bank attended the OXFAM national conference on the project and analysis, carried out in Malësia e Madhe, funded by Intesa Sanpaolo Group, as part of the project: "The Comprehensive Agriculture Value Chain for a Sustainable Development of Rural Areas, in Bosnia & Herzegovina and Albania", FAI (agriculturally inclusive). GOAL 8, 11 The Bank comes with a new project for financing agri-tourism in Albania, through 4 new products: 3 Investment Loans and 1 Bank Advance. On World Environment Day, the Bank undertook a one-week awareness-raising initiative, through postcards focused on conveying messages about the impact plastics has today on environment, especially in the oceans and seas. Communication with customers and the public was done through ATM screens, email exchange footer, bank website and official bank pages on social media. The bank granted 3 prizes for the Recycled Material Competition: "You Can", organized by ECO Tirana & Tirana Municipality, aiming at educating and raising awareness of 9-year and middle school children, on waste separation and recycling value.
GOAL 4 Banka ishte pjesë e nismës: “Drejtues për një Ditë” nga Junior Achievement Shqipëri, ku nxënësja me rezultate të shkëlqyera Erisa Hasani qëndroi për një ditë pune me Drejtoreshën e Përgjithshme të ProCredit Bank, Znj. Adela Leka. 42
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GOAL 8 The bank attended Agrotech Agribusiness Fair - a conference and fair, focused on institutional and financial approach in the agricultural sector, innovative technologies and bio production and quality certification. GOAL 12 The bank invested at the Head Office building, for a Power Generation unit, with photovoltaic panels. The bank increased the number of eco-cars with 3 electric cars for daily use by bank staff, where such use is expected to reduce fuel consumption by about 1,450 liters per year and carbon emissions by about 3,850 kg/ year. GOAL 15 ProCredit Bank’s staff in action to clean Farke Lake Park. GOAL 17 ProCredit Bank offered a thanking trophy for the contribution that German business has given to the development of Albanian economy. DIHA (German Industry and Trade Association in Albania) organized an event that invited its members and partners, on the 10th anniversary of its operation in Albania.
GOAL 3 N(YOU) FESTIVAL came with its first edition, aiming to educate through art and raise awareness on social and health issues, focusing its first edition on the Down syndrome and integrating children with the syndrome in society. Raiffeisen supported this initiative. GOAL 4 The bank supported the National Conference: "On Financial Education", organized by Albanian
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Financial Supervisory Authority on May 24th, 2018, with a focus on students. GOAL 5 On May 30th, ACT for Society center concluded the closing event of the contest: "Living with gender equality", which aims to foster youth reflection on the current situation of gender equality in Albania. GOAL 9 ICT AWARDS - Raiffeisen Bank Albania supported, for the 6th consecutive year the Albanian ICT awards, the most acclaimed gathering of innovative ideas. INFOCOM 9th Edition - Raiffeisen supported the 9th edition of the INFOCOM conference, themed: Embrace the Digital Transformation. GOAL 11 The Cloud Fest was held near the Art Gallery, on the occasion of second anniversary of Fujimoto’s “Reja” (Cloud) installation artwork in Tirana. GOAL 12 Conference of European Data Protection Authorities was held on 3-4 May, as the largest and most important co-operation forum of our continent in the field of personal data protection, currently gathering 62 accredited members and 6 observers. GOAL 13 ECO Fashion Show 25-26 May was part of "Street Fest" organized by Tirana Municipality and the German Embassy, on the occasion of the 30th anniversary of Germany – Albania co-operation.
GOAL 4 & 9 Societe Generale Albania: Official Partner of the Seventh Edition of Startup Live Tirana! Startup Live
Tirana, held its seventh annual edition, and brought innovative businessoriented ideas. The closing ceremony featured the vote of the selected jury, comprised of distinguished members of business community, part of which was, also, Societe Generale Albania Bank. The event offered prizes to 5 winning contestants and promised its commitment to further develop their creative proposed ideas.
GOAL 10 Showing a strong commitment to social affairs, Tirana Bank continued its commitment to the "adoption" of three SOS village children. GOAL 3 Tirana Bank joined the initiative of the municipality, by supporting the planting of 60 decorative trees in Kurbin area. May 20th is the International Day of Orphan Children and June 1st, the International Day of All Children. Tirana Bank, in cooperation with the Albanian Red Cross, supported the organization of a festive day, during which the children attended a puppet theater play, at Metropolitan Theater and also received gifts form the bank.
GOAL 15 The bank supported the action launched in April in the city of Elbasan: "Sow your tree", contributing to increasing the number of new trees. In "Qemal Stafa" main boulevard, the Elbasan branch’s staff and the marketing team at Union Bank, along with representatives of the municipality, planted new "Magnolia" trees. July 2018
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AAB ACTIVITIES AAB Card Forum On May 4th, 2018, the Albanian Association of Banks (AAB), organized the Card Forum with the topic: “Transforming Cards and Payments toward a Cashless Economy”. This forum was organized with the support of PayLink and Asseco. Representatives from public institutions, central bank, commercial banks, non-bank financial institutions, international financial institutions, private companies, business organizations, Hellenic Associations of Banks and Kosovo as well, attended the event. Financial Education Forum On June 29th, 2018, the forum: "Empowering Financial Inclusion through Financial Education" was held. The activity was organized by the AAB, in cooperation with Bank of Albania and the support of the Albanian Securities Exchange (ALSE), Albanian Securities Trading Association (ASTA) and the Albanian Micro-finance Association (AMA). At the forum, the signing ceremony of a Memorandum of Cooperation was held, between the Albanian Association of Banks, Albanian Insurers Association, Albanian Micro-finance Association, Life Insurers, Pensions and Investment Funds Association, Albanian Securities Trading Association, Albanian Securities Exchange ALSE, Junior Achievement Albania, Partners Albania for Change and Development and the National Youth Service. This Memorandum of Understanding aims at establishing the Albanian Financial Education Network and increasing the inter-institutional cooperation and coordination, as regards the financial education. European Money Quiz in Albania: Promoting Financial Education On April 12, 2018, the Albanian Association of Banks in cooperation with Bank of Albania and the support of the Ministry of Education, Sports and Youth, hosted the European Money Quiz in which roughly 500 high schools’ students, 13-to-1544
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www.aab.al year-old, from 35 schools, across Albania competed in a live national contest hosted via Kahoot! online learning platform. The final round was held on 8th May, in Brussels, where 30 countries competed directly. The teams qualified for the European finals by winning their respective national finals, in an international competition that has attracted more than 41,000 participants across Europe. Open lectures on Internal Audit During May, the International Internal Audit Awareness Month, AAB organized several open lectures with the participation of the members of the Internal Audit Committee. Student Conference on Economics, Finance, Business and Social Sciences, SCE-2018 On June 25th, 2018, Economics Department of EPOKA University, in collaboration with Economic Society of Albania (ESA), AAB and Young Economist Network organized the Conference. Dr. Spiro Brumbulli, AAB Secretary General, as a keynote speaker, gave some hints and insights for the society challenges in Albania and beyond. The annual SWIFT User Group Meeting (“UGM”) On June 7th, AAB hosted the annual meeting of UGM. The meeting consisted of two parts and was attended by member banks representatives. Digital Transformation in Banking The meeting was organized on June 26th, in the context of the AAB strategy for promoting digital transformation and on the challenges of digitization. Roundtable on the General Data Protection Regulation (GDPR) On 29 May 2018, AAB organized a round table on the General Data Protection Regulation (GDPR). Raiffeisen Bank experts presented the changes and main requirements of the regulation.
TRAININGS
AAB organizes trainings April - June 2018 Credit Assessment and Cash Flow Analysis, April 17-19th.
Excellence in treasury sales, May 1415th.
Effective Risk Management _Tools & Practice, April 19-20th.
CIA exam review part 1, May 22- 23rd.
Excellence in Conflict Management, April 23-24th. “Model Contracts” on April 17-18th. “Risk Management and Negotiation in International Contracts” on April 19th. Fundamentals of Blockchain in Banking, Maj 7-8th. Open Banking, APIs and PSD2, May 9-10th.
Leading with Emotional Intelligence, May 23-24th. Selling Financial Services and Managing Clients Relations, May 2830th. Talent Assessment, June 12-13th. GARP Course “Foundations of Financial Risk” and Training of Trainers, June 18-22nd.
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