Iraq plans to introduce a $15-20 million central payment system within a year as it looks to tap into mobile and Internet banking to help boost transactions in its private retail banking sector, officials said on Monday.

The project, based on a memorandum of agreement between Iraq's central bank and the US Agency for International Development (USAID), will allow individuals and businesses to make and receive interbank and international payments electronically via a single gateway.

"It is a very important project, increasing the capacity of private banking ... so we co-operate fully with this project," said central bank Governor Sinan al-Shibibi, adding he expected the system to be online in the coming year.

"Access to information, access to accounts, movement of accounts. All these things will be very important to maintain stability of the system in general."

Iraq hopes the IPS (Iraq payment system), which will allow customers to bank using their mobile phones and the Internet, will help spur activity in its relatively dormant private retail banking sector.

Iraq's banking sector is dominated by two state-owned banks, Rafidain and Rashid. Many Iraqis trust these banks as they have known them for a long time compared to private banks, which are often reluctant to lend in the absence of an efficient court system which can settle disputes.

Regulatory framework

The mobile phone market, which did not exist under Saddam Hussein, has boomed since the 2003 US-led invasion that toppled him, although Internet penetration in the country remains low at three percent.

Carl Rosenquist, of banking technology company Monetics, which is involved in implementing the retail payments system, said he expected the project to cost around $15-20 million and hoped to finish it within 12 months.

However, the success of the project relies on Iraq approving the required legislation to mandate that local banks connect their banking systems to a central payments system.

"This is crucial. And the same goes for the mobile payment system and the SWIFT (global financial transaction system). If they do not mandate the use of it, then it is useless," Rosenquist said.

The IPS is also expected to help instill confidence among Iraqis in the country's banking system as a centralised electronic gateway that would help track any illegal transactions, reduce dependence on cash and would be a faster and more secure method for banking, officials said.

"We must create transactions because this is how the banking system works ... To make banking and payments available any time and for anybody," said Rosenquist, who has implemented similar banking systems in other places around the world including the Philippines and Maldives. – Reuters