The currency market is one of the busiest parts of the old bazaar in the Iraqi Kurdish city of Sulaymaniyah. Currency-counting machines whir as porters ferry stacks of Iraqi dinars, Iranian tomans, and U.S. dollars around the tight warren of offices, and groups of men clamor to take advantage of minor fluctuations. Merchants and brokers share cigarettes and the latest prices. Their mobile devices lie near at hand but are mostly used to call counterparts in other cities to authorize cash payments. While businesses and customers around the world increasingly employ digital transactions, cash remains king in Iraq.

There are a number of e-payment platforms available for Iraqi consumers. The Central Bank of Iraq (CBI) has issued licenses for 17 companies to operate digital wallets, including notables like AsiaHawala, Zain Cash, NassWallet, and FastPay. Another 15 licenses have been issued for services related to e-payments.

But entrepreneurs and business owners trying to grow the country’s anemic private sector face a dual challenge: Domestic consumers are reluctant to adopt locally available e-payment platforms, and Iraqis are cut off from the digitized payment systems that most businesses around the world take for granted.

“People here do not understand digital currency,” Anas Fadhil, a market data analyst working in the bazaar, told Rest of World. “Everyone is used to cash and has more trust in it than digital payments. But me and my colleagues definitely need it if we want to send money to the U.S. or Europe.” Doing so is no easy matter, Fadhil said. Most Iraqis do not use credit or debit cards  — less than a fifth have the required bank account, according to the World Bank — and global payment service providers (PSPs) like PayPal, Apple Pay, and Stripe are not available in the country. Experts told Rest of World that in their opinion, this is likely because these companies view operations there as a high-risk proposition.

Digital payments are increasingly the standard worldwide — a trend that had accelerated during the Covid-19 pandemic. According to the World Bank’s analysis, two-thirds of adults globally now make or receive digital payments. In the developing world, that number has increased from 35% in 2014 to 57% in 2021. This transition is especially pronounced in regions like Africa and Asia.

The wars, displacement, and sanctions that have devastated Iraq since the early 1980s have left its economy underdeveloped and dependent on oil exports. Efforts to reform outmoded legal and financial regulations, grow the private sector, and diversify Iraq’s economic base are routinely stymied by entrenched interests. Corruption is a major deterrent: nonprofit watchdog Transparency International ranked Iraq as one of the most graft-prone countries in the world in 2021.

As a result, ambitious entrepreneurs — who many see as critical to Iraq’s future — are unable to perform many basic financial transactions that are common in economies around the world. Their businesses are dependent on cash transactions with their domestic customers, and are unable to expand overseas or readily secure funding from abroad. These challenges discourage people from pursuing their economic dreams, adding to the socioeconomic frustrations with the post-2003 order in Iraq that had contributed to the 2019 Tishreen protests.

Dheyaa Sattar, founder and CEO of the Baghdad-based professional services startup Seven Professions, told Rest of World that increased access to e-payments would help create opportunities for entrepreneurs, women, and unemployed workers. Rather than keeping them dependent on government employment and political patronage systems, it would make it easier for them to work for themselves.

But, with limited access to digital financial services, running his business has been a series of complications, Sattar said. He added that it took him more than five months to find a way to pay and register his app on Apple’s App Store because he had no means to make the transaction himself. The Visa card associated with his Iraqi bank account only works inside the country and he cannot link it to an Apple account.

“Everyone is used to cash and has more trust in it than digital payments.”

“This simple thing makes a big challenge for new startups,” said Sattar. “This makes the process not easy for a startup to grow and scale up.”

Ultimately, Sattar convinced a developer living abroad to make the payment on his behalf, but he conceded that this was “neither safe nor professional.”

Business owners across Iraq — from ordinary merchants in the bazaar to technophile entrepreneurs — may want to use e-payments, but most of their customers are unwilling to use anything other than cash.

On Iraqi e-commerce platform Miswag, for example, online payments make up only 2% of the total transactions. Ali Hilli, the company’s head of marketing and communications, told Rest of World that the remaining 98% are cash-on-delivery.

The most common digital transaction in the country involves Iraqi public servants and pensioners withdrawing their monthly salary from prepaid cards at currency exchanges, banks, and ATMs. They then use cash for everyday transactions, savings, and making big purchases.

Wallah, what to say? I’m not in need of [e-payments],” Jwana Abubakir, a small-business owner in Sulaymaniyah, told Rest of World. “Everything I want, I can pay for in cash. That’s why I don’t think to use them.”

Some others are eager to use digital payments, but claim the local platforms can be unreliable.

Ali Zalzala, an engineer living in Baghdad, told Rest of World e-payments are easier and quicker than cash, but admitted “there is the chance that they either don’t work or are disconnected, which has happened a lot of times.”

Many entrepreneurs find it frustrating that e-payments are not more widely used and feel this impedes the growth of their businesses.

Ahmed Jamal is the co-founder and COO of Kurdivia, an Erbil-based startup that offers live, online trivia games. These attract tens of thousands of users each night. Winners receive digital coupons from brick-and-mortar businesses looking to find new customers.

“The biggest challenges we have with cash-based transactions is bookkeeping,” Jamal told Rest of World, explaining that it takes time, effort, and money to track down clients who are spread out over a wide geographic area and collect cash from them. 

“If it was e-payments, everything would be automated and quick. It would be much easier,” he said.

Reflecting customer preferences, however, many businesses do not offer e-payment options, despite recognizing their advantages over cash.

“These platforms do not officially support accounts created in Iraq.”

After noticing that women in Iraq often face harassment while accessing routine car care services, Shahad Noaman Adil founded AutoCare, an app-based business in Baghdad that lets customers book car washes and maintenance appointments online, and gives them a safe place to wait.

Adil told Rest of World she has not offered a digital payment option yet, but hopes to add one soon.

“Iraqi people still do not trust e-payments … but through awareness and guidance, we seek to change this,” she said. 

Iraqi business owners and entrepreneurs who are eager to increase their connection with the global economy want to leverage e-payments to obtain services and supplies from abroad via PSPs.

“There is demand from Iraqi business owners and entrepreneurs for payment platforms such as PayPal, but unfortunately, these platforms do not officially support accounts created in Iraq,” Adam Hasan, project development specialist at the Baghdad-headquartered coworking space The Station, told Rest of World.

Historically, the international community had heavily sanctioned Iraq to punish the former Saddam Hussein regime and monitored its financial sector to undercut support for terrorist groups like Islamic State (ISIS). 

Formal designations have now largely been lifted. For example, in January 2022, the European Union took Iraq off its list of countries at high risk of money laundering and financing terrorism.

Miswag’s Hilli and Alice Bosley, co-founder and executive director of the Sulaymaniyah-based entrepreneurship incubator Five One Labs, told Rest of World that they were not aware of any external restrictions that would prevent global PSPs from working in Iraq.

“We have been led to understand that there are not specific [Office of Foreign Assets Control] regulations against Iraq related to the issue,” Bosley said, referring to the section of the U.S. Treasury Department responsible for economic sanctions. “It is more about risk” for the fintech companies, she said.

Hilli added that ultimately, the PSPs are “private entities and they decide whether they enter the Iraqi market or not … Maybe Iraq is still not too compelling as a digital payment market to them.”

Deficiencies in Iraq’s domestic legal and financial framework are viewed as the most significant barriers for global PSPs to enter the country.

Hilli cites the example of California-based AlgoPay, which was closely linked with PayPal and tried to enter Iraq in 2020. “The public reception [for AlgoPay] was great, but then the CBI banned its usage because it is not regulated and doesn’t have a local license to operate in Iraq,” he said.

If the Iraqi government were to address these challenges, the opportunities would be huge, making “the Iraqi startup ecosystem much more scalable,” said Bosley.

“A lot of startups and businesses would like to use services that are available outside the country and aren’t able to do that because they can’t pay,” she added.

Fully realizing the potential of digital payments in Iraq would take significant regulatory reforms by the government in Baghdad to make it easier for local and global PSPs to operate, along with a mindset change among consumers to move away from their reliance on cash transactions.

Sattar, the entrepreneur from Baghdad, feels this dual shift would provide a desperately needed boost for Iraqis who are struggling to find a future in the country’s dysfunctional economy.

“Activating e-payments in Iraq will not only help the startups and businesses, but will create many job opportunities for unemployed people in Iraq,” he said.