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Improving regulation, expanding government support for innovation, and deepening cooperation with financial institutions and banks are the key conditions for Azerbaijan’s fintech ecosystem to move to a new stage of development.

Startup.az reports, citing a report by the Asian Development Bank (ADB), that “in an environment where sources of financing for innovation are limited, government incentives play a decisive role by helping innovative solutions move from the development stage to practical application and meet real consumer needs,” the Bank emphasizes.

ADB notes that the Central Bank of Azerbaijan (CBA) has established a regulatory sandbox to accelerate the adoption of innovations in the financial market, enhance competition, and support sustainable financial solutions.

“Using this testing mechanism can contribute to an increase in the number of payment services, including the issuance of payment cards and electronic money (e-money), as well as the formation of agent networks to expand financial inclusion. The introduction and application of new payment services such as money transfers, e-money, and payment cards, along with wider use of application programming interface (API) technologies, will create new competitive opportunities in the market,” the report says.

ADB believes that another important area for supporting innovation is the development of cooperation between the banking and fintech sectors. A number of financial institutions are already partnering with fintech companies in an effort to maintain competitiveness and adapt to changing market conditions.

In particular, some fintech companies operate as payment aggregators, providing commercial banks with infrastructure solutions for accepting digital payments for mass services. They offer extensive networks of payment terminals that accept cash payments on behalf of banks, while commercial banks provide fintech companies with platforms for digital settlements. Such cooperation helps expand the digital financial services market.

ADB also emphasizes that financial inclusion has become an important driver of economic growth in Azerbaijan and is accompanied by the active development of financial technologies.

“Services aimed at expanding access to financial services are mainly provided by banks, non-bank credit institutions, and insurance companies,” the report states.

The Bank believes that the Law “On Payment Services and Payment Systems” has made it possible to expand the regulatory sandbox regime for fintech startups, creating more favorable conditions for testing products and services. The implementation of open API technologies should be one of the priority areas. Based on the government’s Open Banking Roadmap, fintech companies can be enabled to participate directly or indirectly in digital payment systems. This would help reduce transaction costs and increase the efficiency of payment operations.

At the same time, ADB recommends expanding the platform of the Azerbaijan Fintech Association to deepen cooperation and exchange of experience between market participants and international financial institutions. The goal is to apply best international practices and accelerate innovative processes. In terms of infrastructure, the Bank does not rule out the feasibility of privatizing state-owned enterprises in the telecommunications sector, which could increase transparency in the industry and stimulate investment and innovation flows.