Finance goes digital: Azerbaijan builds the banking system of the future Review by Khazar Akhundov

By steadily expanding its cashless payment infrastructure, Azerbaijan has, within a relatively short period, made significant progress in the digitalisation of banking services and the broader payments ecosystem. To accelerate these efforts, two and a half years ago, the Board of the Central Bank of Azerbaijan (CBA) approved the Financial Sector Development Strategy for 2024–2026. The strategy aims to enhance transparency and further digitalise the country's financial sector through the adoption of FinTech solutions and the implementation of an Open Banking platform. The achievements to date and future plans in this area were discussed at the Digital Financial Agenda of Azerbaijan forum.

The new strategy of the Central Bank of Azerbaijan (CBA) is aimed at accelerating the digitalisation of the financial market and the liberalisation of the national payment system, as well as creating a favourable environment for new market participants and consumers. In particular, the document sets out the goal of using alternative payment instruments through the widespread adoption of FinTech solutions. These steps will speed up the introduction of an Open Banking platform in Azerbaijan, providing access to various international payment systems and enabling the use of new digital platforms and tools.

This is a highly ambitious objective, as the global FinTech market is projected to reach $700 billion by 2030, and Azerbaijan has already made significant progress in order to tap into this potential. As noted at the forum by Fidan Tofidi, Director of the Department of Financial Technologies and Innovation at the Central Bank, “if a few years ago we spoke about digitalisation and the future of digital financial services, we are now already living in that future.”

“Alongside technological development, user expectations have also changed, with consumers increasingly oriented towards fast, accessible and convenient financial services. In Azerbaijan, the era of branchless banking has already begun: today, there is practically no need to physically visit a bank branch or service point to open an account, make a transfer, or access various financial services. Many services are provided in an online format, and this has become possible thanks to technological development,” she said.

The Director of the department also emphasised that, in this context, alongside ensuring financial stability and regulating the credit market, a key priority of the Central Bank of Azerbaijan is the development of an innovative ecosystem. This includes decentralised finance (DeFi) based on blockchain technologies, embedded finance, regulatory technologies (RegTech), artificial intelligence (AI), and green technologies (GreenTech), all of which are expected to be gradually integrated into the platform-based model of Azerbaijani banks. At the same time, the use of QR codes as an alternative payment instrument is expanding in the country, along with the introduction of more innovative payment tools based on NFC technologies in smart devices.

In parallel, the new banking model is being shaped around risk forecasting using artificial intelligence: advanced regulatory standards for AI and big data open new opportunities in assessing credit, liquidity, market, and operational risks. According to research by the international payment system Visa, the future of the payments industry will depend on tokenisation, credential protection, passkeys, and investment in artificial intelligence infrastructure. In the next five years, AI agents are expected to assist users in selecting goods and services, placing orders, and making payments, while innovative technologies such as click-to-pay and invisible payment systems will become major trends in the financial sector, particularly across e-commerce.

One of the most significant achievements in recent years, according to Tofidi, has been the launch of a special regulatory regime (a sandbox) that allows new financial products and services to be tested before their full-scale market rollout. “The CBA provides a temporary licence and creates a test environment for a new product or service: if successful, the product is introduced to the wider market, and if necessary, adjustments are made to legislation and new regulatory rules are implemented,” she said.

Over the past two years, more than 35 applications for new financial products have been submitted to the Central Bank of Azerbaijan under the regulatory “sandbox” mechanism, with a certain number of them approved.

An important trend in the development of the domestic digital payment ecosystem is the potential for joint use of sandbox frameworks with neighbouring countries, including Türkiye, Kazakhstan, Georgia, and others.

In the longer term, Azerbaijan aims to export its payment products to foreign markets. “The CBA seeks to ensure that payment products and services developed by Azerbaijani FinTech companies and banks are actively used in other countries, and projects are being implemented in this direction, including integration with foreign payment systems for cross-border payments,” said Ramil Mahmudov, Deputy Director of the Department of Payment Systems and Product Inclusivity at the Central Bank. According to him, in the future the country has the potential to become a regional payment hub.

Nevertheless, the key focus of digitalisation today remains the expansion of FinTech solutions in the domestic market. To achieve this, it is essential first and foremost to establish effective cooperation between banks, FinTech companies, regulatory authorities, and all participants in the financial ecosystem. These objectives are supported by the new “State Programme on Financial Inclusion for 2027–2030” being developed by the Central Bank, which is expected to create new opportunities for the further development of the sector.

“FinTech companies are not competitors to banks, but rather their innovative partners, and the further development of the country’s digital financial ecosystem depends on strengthening this cooperation,” said Edgar Abdullayev, Chairman of the Executive Board of the Azerbaijan FinTech Association (AzFina), addressing participants of the forum. According to him, without a strong banking sector, it is impossible to build a strong FinTech ecosystem, just as without specialised innovative digital companies, it will be difficult to ensure the long-term competitiveness of credit institutions. The ultimate goal of this convergence is to combine innovation with principles of security and reliability, providing citizens with more accessible, faster, and more resilient financial services.

However, significant efforts are also required to increase the level of digitalisation among the 822,000 small and medium-sized enterprises (SMEs) operating in the country. “In the future, the majority of SMEs will undergo digital transformation, but unfortunately, current trends show that less than 1% of entrepreneurs are fully digitalised,” noted Zeynal Karimzade, Board Member of AzFina.

An equally important task is ensuring the security of the financial sector’s digital transformation. Against the backdrop of an innovation boom, consumer behaviour is changing, technologies are accelerating, and risks are becoming more complex and more dangerous. To strengthen financial security, the Central Bank of Azerbaijan is improving its regulatory framework, including in the area of Antifraud — a set of measures and technological solutions aimed at preventing bank card fraud.

In this context, artificial intelligence technologies, blockchain, and distributed ledger–based payment systems are seen as key directions for protecting the country’s financial and banking sector from cybercrime. Equally important in this regard is strengthening human capital and ensuring the resilience of domestic payment systems against force majeure events such as systemic failures. The latter is particularly critical in light of the recent major crisis involving the operator LLC Azericard, which led to repeated debits from the accounts of customers across more than a dozen banks in the country.

As these technical issues are addressed and regulatory frameworks are optimised, the next stage is expected to be a full transition to an “open finance” model with a flexible and transparent regulatory environment, where the entire industry is connected to a unified API ecosystem and is able to offer new service models. In the coming years, Open Banking tools will provide FinTech companies and payment systems with access to bank data, enabling customers to obtain more comprehensive information, carry out transactions, open accounts and access loans, analyse their financial data, optimise credit burdens and tax obligations, simplify financial accounting, and automate payment processes, among other functions.

At the same time, with the implementation of an Open API system in banks — an ecosystem of multiple tools — all this information will be made available through application programming interfaces developed by third-party developers and secured by blockchain technologies. As a result, bank customers will be freed from the need to use inconvenient applications, limited functionality, or pay high banking fees, and will be able, via a unified interface, to integrate various data on cards, accounts, loans, and deposits held across one or multiple banks.