Calling Turkish banks
innovative is stating the obvious, like acknowledging the
difference between day and night. A more interesting observation is
the heated race for payments innovation. So this month, Mehmet
Sezgin, CEO of Garanti Payment Systems, shares his views on
Turkey’s payments evolution with Duygu Tavan.
Go deeper with GlobalData
Cash, your end
is nigh. That is the message communicated in the latest campaign by
the Turkish Interbank Card Centre BKM, whose members include
Garanti, Akbank, Ziraat, DenizBank and TEB and many other lenders.
The organisation launched an anti-cash campaign on 24 May,
proclaiming that cash will be eliminated as a payment in favour of
cards by 2023.
While the organisation has
returned to the war field with cash after previous campaigns to
raise debit and credit card use, Garanti Bank, the country’s second
largest privately-owned bank by assets, teamed up once more with
Turkcell and MasterCard to introduce an open-to-all platform for
P2P payments.
Cep-T ParaCard – para meaning
“money” in Turkish and Cep-T being a wordplay on the Turkish term
for “in the pocket” – marries the technology of a payments-enabled
SIM card and a prepaid debit card.
The card can be purchased at
Turkcell stores and topped up with credit at either Garanti Bank’s
POS devices installed in those stores or at Garanti
ATMs.
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By GlobalDataCep-T para is a SIM
card-based and thus built to work on any mobile handset. This
freedom will also enable subscribers to remit money to mobile phone
users of any other operator, who then in turn can withdraw money
from a Garanti ATM by keying in a code sent to their
mobiles.
Garanti Bank estimates that
two-thirds of the Turkish population are not in the banking system
because of insufficient income or their age. The bank is aiming to
distribute the prepaid Cep-T ParaCard to threem people, as well as
reach 1.5m with the Cep-T ParaCard in three years. And Garanti is
not alone.
The launch of Cep-T ParaCard
came exactly a week after Akbank introduced a payments-enabled
mobile phone app with which the bank’s customers can remit money to
accounts, credit cards and Akbank ATMs within just 20 seconds for
funds of up to TRY1,000 ($625.50) per day and a monthly cap of
TRY4,000 for transactions.
And in early May, the
country’s fourth largest private bank by assets, Yapi Kredi, joined
Turkcell in kicking off Cep-T Cüzdan, an e-wallet service, in
cooperation with Turkcell and Gemalto. Cep-T Cüzdan users will have
to replace their normal SIM with an NFC-enabled one from Gemalto or
attach an antenna to their handset to turn it into “credit card, a
toll pass card, or even a concert ticket.”
Turkey’s payments space is a
reflection of the country’s financial hub Istanbul: An exciting
mixture of old and new, tradition and innovation. But just as the
government is trying to steer the economy towards a
globally-competitive model, the country’s banks and
telecommunications providers are set for change as well.
So, as the race for
innovation within Turkey’s payments market reaches boiling point,
what are the views of the man who heads up one of Turkey’s most
widely-used payment systems? In this month’s issue, Mehmet Sezgin,
CEO of Garanti Payment Systems, a subsidiary of Garanti Bank and
the company which developed one of Turkey’s most successful loyalty
schemes, the Bonus card platform, shares his views on Turkey’s fast
rotating and changing payments universe. Sezgin is adamant not to
“dream about the next ten years”, but rather consider the next six
months to two years. After all, the payments market is changing
fast.
RBI: How does
Turkey’s payments market compare with those
abroad?
Mehmet Sezgin
(MS): We like to push consumers to change their habits, we
give them bonuses, instalments – like our loyalty system and how we
package those loyalty schemes. We use those because, in an emerging
market like Turkey, you need to educate card owners and you can do
that by offering incentives. If we took the simple overdraft
approach like in Germany for instance, we would have a very small
number of credit card users.
The monthly minimum repayment
ratio have risen from 20 to 25%. For the more affluent customers,
the rate will be increased to 40%. We are transforming the bank.
The reason is not that we don’t like credit cards anymore, but that
the profitability of the credit card system is becoming more than
challenging. We are the seventh or eighth biggest credit card
issuer in Europe, so we do generate a lot of fee and interest
income. But of course, all those regulations, plus the competition
eat into our margins.
So there are three main
aspects to our transformation: 1) we will continue to be aggressive
on the credit cards side, but we will create other sources of
income; 2) We live in a society with an average age of 28. There is
also a large female segment. Many of both these two segments are
unemployed and so ineligible for credit. These segments provide us
withms of potential customers who do not bank on a credit basis; 3)
Consumer behaviour is much different to even two years ago. Turkey
has the fourth largest Facebook users and this proves that Turkish
consumers are ready to use digital platforms.
RBI: Who do you
consider to be your biggest rival?
MS: We
always said that cash was our competitor. We don’t design products
with the intention to beat a bank – and this approach gives us a
broader vision, and companies like Google, mobile phone providers,
MasterCard and Visa need to think like this, too.
RBI: What is
GPS currently working on?
MS: After
working with Avea, we are now working with Vodafone and Turkcell to
establish m-payment solutions. What we are trying to achieve is to
have the SIM embedded with a prepaid card number.
So even if someone is not
going to use it, or doesn’t want a credit card, then by just buying
a SIM from Avea, Turkcell or Vodafone, they will be able to use the
m-banking function straight away. We developed over the air (OTA)
technology to download card apps onto the SIM card with Avea. Now
we are in talks with Turkcell and Vodafone to kind of copy and
paste those applications. Of course, each company has their own
security and IT system, so it will take some time to achieve
results.
RBI: How do you
envisage the Turkish payments market’s future?
MS: NFC has
so far not picked up the way it should, [despite] announcements
everywhere. If consumers are forced to choose a certain handset,
the NFC proposition will not be successful – you cannot tell
customers that to use NFC, they have to have a particular
handset.
We did pilots – we now want
to get into mass production. But unfortunately, the iPhone 5 won’t
be NFC enabled, neither will be the Blackberry. For banks to
embrace NFC, they need handsets.
So I see the future as
prepaid, debit, contactless, NFC and mobile combined. The plastic
card is a form factor. We pioneered stickers and the antennae for
mobile banking, but credit cards will, probably for the next ten
years, not be sidelined. You can’t demand an American Express
(AmEx) card owner to stop using their card and use their mobile
phone instead. That is not going to happen, at least not in the
affluent segment.
For someone using their
credit card regularly and in an effective way, it won’t be easy to
convince them to migrate to mobile payments.
If you go a restaurant, you
will not pay with a contactless card. So for the next ten years or
so, credit cards will continue to be the more preferred form of
payments.
RBI: So how
does NFC both in cards and mobile payments fit into this
vision?
MS: For NFC
and contactless to lift off, you need a particular consumer group
to embrace it – and that is the youth segment, which is
credit-hungry but unable to get it, which paves the way for
prepaid.
So by combining prepaid, NFC,
contactless, a bank will have a profitable proposition and a
complete solution for the consumer, otherwise, its proposition will
be patchy.
RBI: What other
issues do you face in the payments sector?
MS: We
introduced chip & PIN only five years ago, having spent a lot
money on consumer education campaigns. And now we [the banks] say
“tap and go”, so we need to make sure that we don’t give out a
contradicting message in terms of security. Turkish banks invested
heavily in credit card fraud protection. Garanti has so far not
recorded one fraudulent transaction among our over onem contactless
card holders.
Another major issue is the
acceptance network. There are about 20m locations with credit card
acceptance, versus just thousands for contactless. In the US, there
are only particular merchants who accept contactless payments – so
Visa, MasterCard and AmEx definitely need to do a better job. I am
pressing them as much as I can to come up with incentive schemes,
motivations for [Turkish] banks and acquirers to invest in
acquiring systems more. For contactless POS you need to invest in a
different device that costs around €100 on top of the €200 for a
traditional POS.
A third issue is the chip
versus magnetic stripe technology in Europe and America. One of the
reasons MasterCard and Visa still struggle with the sophistication
of [contactless POS] coverage is that, unfortunately, their systems
are US-dominated, although most of their income and customers are
abroad. Most contactless transactions need to be offline and the US
is not used to that. And a fourth issue is the transaction limit.
Contactless payments work up to a small amount, above which you
need to enter a PIN. If it is not a chip & PIN environment
[such as in the US], different rules apply – and even between
MasterCard and Visa the rules differ. We prefer the MasterCard
[contactless] rules because they enable card holders to just enter
the PIN and continue the transaction. But Visa doesn’t have the
flexibility yet and we are pressing them. We don’t want to deal
with two sets of rules for contactless payments.
A Bonus Card is a Bonus Card
and I am not going to differentiate between Bonus Visa and Bonus
MasterCard – a contactless card holder has to have the same
experience either way.
RBI: How do you
envisage the relationship between other channels and
e-payments?
MS: In
crowded countries like Turkey, we won’t open 5,000 branches to
service all potential customers. So ATMs are a fine service for
effective customer service. Compared with abroad, Turkish ATMs are
newer because we began investing in technology later on.
There are two possible
futures: 1) ATMs become obsolete with the rise of online banking;
or 2) if banks provide the consumer with a total solution, then for
the foreseeable future, ATMs will continue to be important channels
to address consumers. Garanti has 3,200 ATMs and 900 branches – so
we are close to the consumer.
The status of the ATMs as a close-to-the-customer channel
will eventually be challenged with the rise of smartphones – but
that will not happen within the next five years. ATMs will offer
additional services. Already, we offer cash back coins, utility
payments and the like in Turkey.
