I wrote an article for E-Finance & Payments Law & Policy, a monthly journal published in the UK, about Turkey’s payment industry and the mobile payment trends. It was published on the October 2012 issue.
I tried to give an outline of the payments space in Turkey and headed over to mobile payments. Here it is:
Turkey’s payments industry and the inhibitions to m-payments
Turkey is one of the forerunners of innovative payments technology and openly intends to be a ‘cashless society’ by 2023. One of the most advanced countries in Europe in terms of countactless mobile payments, Burak Ilgicioglu, a Card & Payment Systems, Business Analysis Manager at Yapi Kredi Bank, Turkey, discusses Turkey’s successes so far in regards to mobile payments and the factors hindering widespread adoption.
Turkish banks have a very good history of developing successful card based payment products. All banks have installment products which work mostly as a personal finance product. When people are shopping for a high definition TV, they usually check the campaigns from banks to choose the electronics retailer from installment numbers. There is no finance charges or fees for installment transactions when the customer pays on the due date. All the banks have loyalty programs where customers earn bonus points, just like the frequent flyers programs in the US/UK. This even helps the government fight the shadow economy. Card payments are encouraged by the regulating bodies of the economy. The motto of BKM (the interbank card centre founded by Turkish banks) for 2023 is to reach a ‘cashless society’ on the 100th anniversary of the republic. Today, 30% of Turkey’s total GDP is processed by banking cards. Turkish banks started the card payment business back in the 80s.
BKM was founded in 1990 as the national switch, clearing and settlement processor. Turkey started issuing EMV cards in 1999 and by the end of 2011, the migration was complete. All the ATM and POS terminals now support EMV. All credit cards are EMV with the exception of debit cards; almost all the debit cards are still magnetic stripe. Thanks to Chip&PIN migration, which started in 2007, all credit cards are used with offline PIN.
Turkey is one of the most advanced countries in Europe in terms of contactless and mobile payments. By the end of Q2 2012, 14 out of 27 banks in the card issuing business have reported that they are issuing contactless cards. More than 6 million contactless cards have already been issued. Turkey is a credit card country, most of these contactless cards are credit cards. There are, a limited number of debit and prepaid contactless cards, the majority are credit cards.
Contactless projects started to emerge in Turkey in 2006, when the Chip&PIN migration was still underway. Unlike the US market, Visa and MasterCard forced banks to use EMV for contactless in Europe. This practically means both offline and online transactions are possible due to the contactless interface. This also led to the fast development of NFC products as the natural extension of contactless cards. Contactless has been gaining momentum in Turkey for the last few years. But just like other countries issuing contactless cards, there are some drawbacks blocking the boom. The main reason is the acceptance infrastructure. There are more than 2 million POS terminals in Turkey and only 60,000 of them have contactless readers installed. It is much lower, when we compare the percentage of contactless cards with the total number of cards, which is 6 million and 51 million respectively. Another obstacle for contactless penetration is that there is not much benefit for both customers and retailers when it comes to contactless. Although some merchants – like Starbucks – are already forwarding customers to the contactless interface to speed up the transaction – there is still a long way to go.
Despite contactless cards facing issues, which have stalled penetration, NFC products have been rolled out in the last two years. We have seen NFC products in different form factors, from Micro SD cards to antenna SIMs or dongles for iPhone. As for banks, unlike contactless, there is another player on the table, which claims an even bigger share of the customer base: the MNO (mobile network operator). By nature, NFC products work on mobile handsets, especially on SIM cards. As a result, banks and MNOs share the customer. Currently more than five banks already have commercial NFC products available on different phone and SIM cards. There are three MNOs in Turkey and all of them are actively involved in NFC projects. Current regulations in Turkey require all payment transactions to be processed exclusively through banks, so MNOs are working with many banks at the same time. Almost all the pilot or commercial NFC programs throughout the world feature a single bank and MNO, but in Turkey, all the MNOs have wallets involved with more than one bank at the same time. The physical wallet experience has almost become a reality in the Turkish mobile payment products. Each MNO has already invested in their own TSM (trusted service manager) infrastructure and mobile wallet products. Yet there is still no ISIS-like cooperative organization between the MNOs and it seems unlikely it will happen in the future. There are indeed many NFC products commercially available on the market, but the most important player in the game is still missing: the customer. The number of NFC products sold is very low, when compared with traditional card products; there are many reasons for this. We can count the current contactless issues as one. In addition, NFC products require users who have a clear understanding of the personalization process, which is mostly, performed by the customer themselves. Customers are supposed to apply for a card account, install an application to their mobile phone, then authenticate themselves to the payment application on the phone. If everything goes well, then they will surely struggle to find places where contactless cards are accepted. Customer experience has still not been worked out entirely.
Although the current picture doesn’t seem to be very promising, there are a great deal of good signs that mobile payments will be the next big thing in Turkey. All MNOs have dedicated teams for mobile payment services. MNOs are considering mobile payments as part of the mobile wallet product in which people will be utilizing location based campaigns, transport ticketing, access control, loyalty card aggregators, couponing and smart posters. For MNOs, it is still more like a loyalty tool, rather than a revenue generator. Banks are experimenting with mobile payment products. Banks’ perception of mobile payment products is not just buying a cup of coffee with the mobile phone. Banks consider the mobile payment experience as a step into the mobile world where the future lays. P2P payments are increasing and banks are positioning themselves in the game. Location based campaigns are another big step for the Turkish banks which already run very successful campaigns for card payments. High value payments over mobile devices will enable banks to penetrate new business models. Money transfers between bank accounts and mobile phone numbers are already a reality in Turkey, yet it will gain another perspective when NFC meets the masses with more prepaid products. Turkey is definitely a big country for card payments. It will be bigger when the mobile payment experience is part of the daily life and NFC will be the enabler of this evolution.