Turkish delights in innovation

I’ve been working closely with BKM, the Turkish retail payments clearing company, for a few years now.  They manage the Fintech Istanbul program, and are the powerhouse behind many of the innovations we’ve seen in Turkey from mobile wallets to contactless payments.

Their CEO, Soner Canko, will be presenting to the Financial Services Club on April 11 (sign up now) and so, in preparation, I interviewed Soner to find out more about the sector for Finanser readers.

Could you please tell us a bit about the banking sector in Turkey?

We may describe Turkish banking sector as strong, innovative, modern and well-regulated.  Banks in Turkey have been highly enthusiastic about using new technologies to reach and engage with their customers. They are also very successful in adopting and launching innovative technologies for the first time in the world.

Over the last 15 years, Turkey has become one of the top three card markets in Europe in terms of total credit cards, debit cards, and point-of-sale (POS) terminals. As of January 2017, there are 58.8 million credit cards, 118.3 debit cards and 1.7 million POS terminals in the market.

As BKM, you run the payment rails for over half of the Turkish banks; what are the key trends you see in banking in Turkey?

BKM was established with the collaboration of public and private banks in 1990. The core functions of BKM were to manage clearing and settlement of card payment systems and to develop the rules and standards of card transactions in Turkey.  All card issuer and acquirer banks are members of BKM since BKM is the one and only switching center in Turkey. We process half of the card transactions while the other half is processed by banks.

As technology brings changes to every aspect of our customers' lives, it also changes expectations for customer service in payment systems. Customers expect simple, secure, fast and convenient shopping and payment experiences.

As a result of it, digitalization, mobile, open APIs and Fintech (new collaborations with new business models) are the key trends in banking systems of Turkey which provide better experiences for customers.

There are a lot of banks in Turkey, are there any clear winners and why?

There are 52 banking institutions which operate in Turkey.  While some of them focus on retail banking, the others consider the corporate banking as a core of their operations. 29 of them are the card issuer and acquirer banks. But there is one thing certain that, all of them are working on new products and services that will meet the needs of end users. They always aim to offer better options within a great competition environment.

Banks become fast movers, since users embrace the latest technology and trends quickly.   Otherwise, it is really hard to survive. When a bank launches an innovative product or service, other banks work harder to get better. So I can clearly say that there is no certain winner among Turkish banking industry. However, the absolute competition forces banks to become more and more innovative.

Why are Turkish banks considered to be some of the most innovative in the world?

Turkey was the first country to offer totally free installment options for credit cards, the first European country to offer a contactless card, and to accept contactless cards for highway tolls. Turkey was one of the first to finalize EMV migration, and, finally, we have the only national digital wallet, BKM Express, that covers the whole banking industry. We also have very sophisticated loyalty practices.

Turkish banks and the technology suppliers to the sector are constantly trying out new ways of improving existing solutions and testing new technologies.

BKM is also helping to provide an environment for Turkish banks to discuss sector needs, to improve the industry with its committees, and with its products and services such as BKM Express, which is world’s first national digital wallet and TROY which is Turkey’s national payment scheme. Both BKM Express and TROY are important achievements thanks to the collaboration of Turkish banks.

To sum up I can say that  major reasons are;

• Appetite for new technologies
• Young population
• Post-in inflation term
• Strong banking infrastructure & vision for change

I remember Turkey was one of the first countries to  advertise using contactless payments ten years ago. What is the contactless payments story in Turkey?

Turkey met with contactless cards in 2006. Turkish cardholders have always been the first to meet with many new contactless products until today.

Today, as of the January 2017, 32 percent of all credit cards and 26 percent of all terminals have contactless features.  Still, we can argue that these figures are very low for a country that has met with contactless cards very early. Therefore, we pay significant efforts to popularize contactless terminals and ensure that users experience it.

Is FinTech important for Turkey?

Like other countries, 2016 was a year FinTech continued shining in Turkey too.

All ingredients of a successful FinTech ecosystem climate locate in Istanbul: a young population with a high digital penetration, a vibrant startup scene, investors, talent, financial institutions, regulators, and a large network of service providers. Many of the FinTech startups are attracted from these potentials and the demands from the customers and came to market with innovative solutions. Most of them are located in Istanbul together with other ingredients of the ecosystem such as investors.

As BKM, we took on important responsibilities in 2016 for the development of FinTech in Turkey. We aim to transform Istanbul into a global FinTech hub. In line with this purpose, we founded FinTech Istanbul in February 2016 as the umbrella organization to lead the ecosystem.

‘FinTech Istanbul’ is the first platform of its kind in the region and aims to help Turkish entrepreneurs to make the most of the opportunities offered by FinTechs and facilitate the healthy growth of the newly developing Turkish FinTech entrepreneurial ecosystem

Currently, in Turkey, there are more than 200 FinTech startups which have attracted investments amounting more than to $75 million since 2012. In 2016, FinTech startups accounted for almost half of the value of the investment that has meant for startups in Turkey. We see that there are a good number of startups lined up for generating various services through innovative solutions.

What are the main FinTech areas being discussed here?

Most FinTech initiatives and investments are in payment systems in Turkey.

The partnerships among banks and FinTech companies helped them to build innovative and value-added business models. In that sense, FinTech solutions could reach wide masses. While the payments continued being one of the most important elements of FinTech; the subheadings such as lending, personal finance management, money transfer, InsurTech, and Blockchain started attracting more attention.

Parallelly with its aim to establish a cashless society and with its 27 years of experience in the business, BKM can be described as the first and natural FinTech institution in Turkey. As a nonprofit structure, which is capable of uniting all the banks and financial institutions with the principle of “co-opetition”, BKM is the driving force behind the development of FinTech ecosystem in Turkey. It serves to support the ecosystem with a view of accelerating innovation, paving the way for new enterprises and rendering the competitive edge of finance industry sustainable in line with the newly developed digital transformation.

And what about blockchain - is anything happening in that space?

The blockchain is a hot topic in Turkey. Last year we organized several blockchain training events and meet-ups which attracted high attention.

On the other hand, we as BKM are running a Proof of Concept Project for blockchain. We have simulated an environment with different financial institutions and testing predefined concepts like digital identification, smart contracts on the blockchain.

We believe that blockchain is a promising technology which will show the impacts of it in several areas of our daily lives. We could say that more specifically digital identification and authentication will be reshaped by this technology.

What are the most likely things you see happening in Turkey over the next few years?

BKM has a very effective payment system. Our mission is to power the future of cashless payments. BKM's major advantages are the sophisticated payment system infrastructure and visionary/ collaborative executives in Turkey.

We project that we will see new co-operations new business models over the next few years. Internet of Things, the blockchain, and API banking will shape the customer journey for financial systems, especially in payments.

Finally, how are my books doing in Turkey?

Last year we have translated your two books, Digital Banking and ValueWeb into Turkish. These books track the innovations in banking, outlines the changes banks face. They are like a how-to guide for the age of digital banking.

In addition to describing the latest technologies, trends, and changes both books also emphasize the solutions for these changes with clear examples and use cases.

I can easily say that books have definitely had a great impact in the banking sector and guiding for the next generation banking system.