Turkey, as an emerging economy, has learnt its lessons from the 2001 crisis which cost Turkish taxpayers US$27.1bn, the equivalent of 9.6% of the country’s average gross domestic product (GDP) during that period,1 which led to the introduction of higher capital liquidity ratios for banks. However, the recent economic crisis has not left the Turkish economy unscathed, with unemployment figures increasing over the past 18 months, and Turkish banks having to find ways to build more reserves as a provision for potential financial losses.
With the crisis now beginning to subside, the next few months are set to be more optimistic, as exports and private consumption and spending is expected to go back to pre-credit crunch levels.
Turkish Payment Trends
Over the past few years, the number of credit cards in Turkey has gone up drastically, which has created issues such as the high levels of interest charged on the cards. To control this trend, Turkey’s Central Bank implemented new guidelines on the limit of how much interest can be charged. Despite its objective of protecting consumer interests, it has been challenging for banks to produce financial forecasts and therefore budget accordingly.
What’s more, due to the high unemployment rate in Turkey, which peaked at 16% in February 20092 and gradually fell to 13% by October 2009, banks have had to develop systems to control and collect debt with specific payment plans for their customers. While banks have made substantial efforts to support their customers, the Turkish government passed a law to standardise the banks’ repayment plans.
A distinct difference between the Turkish card market and other European markets is its holistic view of issuing and acquiring. Successful banks in Turkey combine issuing and acquiring businesses to avoid losing transactions. A transaction only takes place if the merchant and cardholder agree. By placing issuing and acquiring together, banks can provide customer relationship management (CRM) services to smaller merchants that cannot afford to invest in their own CRM systems. In addition, this means that banks have only one customer file, which gives the sales team a more comprehensive view of the clients’ activity. Such a holistic approach provides superior results for banks and merchants in terms of straight-through processing (STP).
Turkey’s Card Innovations in the Banking Sector
Turkey, like many countries, is far from being a cashless society and, while the general number of bank cards in circulation has increased, the demand for contactless payment options in the country has also risen in recent years. While the number of people without a bank account is still higher than in many western European countries, contactless cards are an attractive alternative to cash for many consumers in Turkey.
In order to enable as many consumers as possible to use contactless cards, agreements were signed with many fast food outlets and coffee shops around the country to enable consumers to pay this way. Garanti Payment Systems (GPS) was the first issuer of contactless PayPass cards from MasterCard, which were then extended to the bank’s existing BONUS Trink cardholders, a loyalty scheme that soon established itself as the basis loyalty card schemes not just for banks but also retailers in Turkey following its introduction in 2006. Since then, MasterCard and GPS have announced the launch of Europe’s first watch equipped with MasterCard PayPass contactless technology, introducing the next level of contactless payments in the region to make paying for low-value items quicker and more convenient. Consumers are able to tap their new watches, stickers and key fobs on the PayPass reader to make the equivalent of a credit card purchase at almost 15,000 point of sale (POS) terminals in Turkey at vendors such as Burger King and Starbucks.
Constant innovation is a key factor for success in the card sector and, looking ahead to the coming months, the Turkish banking market will see the emergence of bank cards that combine debit, prepaid and contactless functionalities. This will allow consumers to pay for low-value items as well as their travel passes in regions that have signed up for the scheme.
In particular, Turkey’s younger generation is shaping the contactless card market with its requirements and needs. With credit cards having already deeply penetrated daily life, younger people have happily adopted contactless cards to pay for low-value items. As this demographic is far more technology-savvy, it is far more willing to use contactless cards. What’s more, in a world where personalisation and customer loyalty is becoming crucial, Turkey spearheaded CRM for credit cards with the launch of GPS’ Flexi card. What is new about this card is that it allows cardholders to create a personalised card with its own interest rate, reward system, card fee and design. In addition, loyalty points are awarded based on the frequency of use of the card, rather than income, and there is no expiration date for the extra points. Flexi is the first credit card globally that involves the customer in the process of the creation of the card, thereby establishing greater customer loyalty by giving them more control over their credit cards. With the introduction of the loyalty schemes in Turkey, local banks have realised that these are crucial for the existence of the market and play an important role in the penetration of card usage.
As in other countries around the globe, the Turkish economy is struggling to get back on its feet and is continually trying to bring customer spending back on track. At a time when competition between Turkish banks is rife, the concept of introducing loyalty schemes that allow customers to gain rewards and combining essential functionalities such as debit, contactless and prepaid in one card is one way for banks to maintain and increase their market share. Previous crises have shown that innovative loyalty schemes that set the standard in an industry, the retail sector, and for other countries, at the same time can contribute significantly to consumer spending. With that in mind, the Turkish economy should be on the right path to recovery.
The implementation date of Europe's revised Markets in Financial Instruments Directive, aka MiFID II, is fast approaching. Yet evidence suggests that awareness about the impact of Brexit on MiFID II is, at best, only patchy and there are some alarming misconceptions.
Despite all the automation and improvements that digital banking has the potential to achieve, customers and their needs still form the very core of the banking sector.
Banks might feel justified in victim blaming when fraud occurs, but it does little for customer confidence.
Politicians have united in urging the Reserve Bank of Australia to lend its backing to the digital currency by officially recognising it.