Following years of economic turmoil, Turkey is now reaping the benefits of a more stable economy and the domestic credit card market has been experiencing a period of rapid growth. The country is seen as a good testing ground for many card products and schemes, particularly due to its large, youthful population. Foreign issuers have been attracted by a quickly growing market and high interest rates, and have moved to establish links with local players.
Turkey has been the setting for a number of innovations in the cards market in recent years. For example, in July 2006 MasterCard announced the launch of the first European MasterCard PayPass contactless credit programme, in partnership with Garanti Bank. Garanti reissued 25,000 cards incorporating PayPass contactless functionality to its Bonus cardholders. Starbucks, Burger King and Turkish cinema chain Cinebonus have already signed up to accept PayPass in the country.
More recently, in May 2007, MasterCard announced that it was launching Europe’s first watch equipped with MasterCard’s contactless PayPass technology, again in partnership with Garanti Bank. For its part, Visa announced in May 2007 that its payWave technology will be implemented in Turkey for the first time by Visa and Denizbank on Sea&Miles cards.
Prepaid cards are also starting to make inroads into Turkey, with, for example, the introduction of Efes Pilsen, Coca-Cola and Gillette prepaid cards in 2006.
There are many more POS terminals in Turkey (1.3 million as of the end of the first quarter of 2007) than merchants (just under 875,000). Due to intense competition to sign up merchants, some merchants have as many as seven POS terminals.
In October 2005, Turkey entered into full European Union (EU) membership negotiations. Although Turkey is not currently a member of the EU, Visa Europe has decided to launch V Pay, its debit solution for the Single Euro Payments Area and wider European space, in Turkey. It took this decision primarily because Turkey receives a large tourist influx from the eurozone region. The V Pay Steering Committee held its first meeting in Frankfurt on 26 April and at the same time Visa Europe announced that it had signed up a number of acquirers across Europe. Confirmed V Pay merchant acquirers in Turkey are AK Bank, Isbank, Garanti Bank and Yapi Kredi Bank (YKB).
With 32.9 million credit cards in issuance as of the first quarter of 2007, Turkey is the third-largest credit card market in Europe, after the UK and Spain. However, card ownership is concentrated among a relatively small proportion of the population and multiple card ownership is widespread. Professional people and other high earners often have cards with different due dates in order to juggle their personal finances between pay cheques.
The Interbank Card Centre (known as BKM), an association of Turkish banks whose remit is to address card payment issues, estimates that the average Turkish cardholder has 1.8 credit cards. This implies that there are approximately 18 million credit cardholders in a population of just over 71 million.
The Turkish credit market was late to develop compared to most Western European countries. The economic crises and high inflation episodes of the Turkish economy in the past have been cited as factors that delayed the adoption and widespread usage of credit cards until recent years.
As Turkey’s economy has stabilised and incomes have risen, card usage has increased. The number of credit cards in circulation grew at a compound annual growth rate (CAGR) of 20.2 percent between 2002 and 2006 (see Figure 1). The number of transactions rose by 21.0 percent CAGR between 2000 and 2006, while, at 52.9 percent, the value of credit card transactions in new lira terms increased at an even greater pace (see Figure 2). The average value of a credit card transaction at the POS was YTL77.90 ($60.30), representing a CAGR of 26.4 percent between 2000 and 2006.
By June 2006, the total amount of credit that had been extended to people via credit cards had reached YTL61.8 billion. Turkish bank customers used on average 31.4 percent of their credit card limits, up from 29.1 percent in 2005. Credit card debts increased 27.3 percent year-on-year to reach YTL19.4 billion.
In March 2006, the Turkish government introduced a new law that governs bankcards and credit cards and effectively restricts banks’ ability to take on new credit card customers.
For example, soliciting credit card applications in public places has been banned and new applicants may be granted a line of credit equivalent to only twice their monthly salary. There appears to be limited price-based competition between Turkish credit card issuers in terms of interest rates. After the financial crisis of 2001, other consumer lending products in Turkey such as auto loans came down in cost, so that interest rates were more closely aligned with central bank rates.
However, this did not happen in the credit card market and most issuers tend to offer the same rates. Issuers tend to prefer non-price competition through their loyalty programmes or by offering interest-free payment periods of up to 18 months.
For example, by 2005 the inflation rate in Turkey had been reduced to single digits, yet the average annual percentage rate for the credit cards was still over 100 percent per annum. Banks’ profitability has been boosted by such high rates: at Garanti Bank, credit cards contributed 52 percent to its commission income in 2006.
In January 2005, in an attempt to improve transparency, the Banking Regulation and Supervision Agency started to announce credit cards rates, helping credit card customers to compare interest rates of all the credit issuers in Turkey.
There were over 56 million debit cards in issue at the first quarter of 2007. The number of debit cards in issue grew at a CAGR of 11.1 percent between 2002 and 2006 (see Figure 3). The number of transactions rose by 55 percent CAGR between 2000 and 2006; transaction value outpaced this at 91.2 percent CAGR over the same period (see Figure 4).
Debit cards are still used overwhelmingly for cash withdrawals rather than purchases. Even as recently as 2003, a research study conducted by Visa Europe found that most Turkish consumers aged 16 to 50 used their Visa Electron cards almost solely to withdraw cash from ATMs and many did not know that they could use their debit cards at a POS.
There were only 50.1 million POS debit card purchases in 2006, compared with 1.27 billion POS credit card transactions. Numerous attempts have been made to increase the use of debit cards in the generally cash-based Turkish economy. In October 2004, for example, the BKM launched a campaign using the slogan ‘Debit card means cash!’ to raise the profile of debit card usage.
Most major banks, as well as Visa and MasterCard, supported the three-month campaign. A later, second stage of the campaign then readdressed the issue, with an additional emphasis on the transition from ‘old TL’ to the new ‘YTL’ currency (in which six zeroes were removed from the country’s currency).
EMV and loyalty
Turkish banks have been issuing chip-embedded credit cards and PINs to their customers to accompany the move to EMV. Since 31 March 2006, customers with credit cards that have embedded chips have been required to enter their four-digit PIN to receive approval for their payments.
The changeover appears to have gone smoothly – a survey carried out in mid-2006 suggested that chip and PIN awareness had already reached 68 percent. Of those who were aware of the new technology, 90 percent felt it was superior to previous methods. Terminals are generally owned and operated by the acquiring banks and BKM’s acquirer members are responsible for their own terminal upgrades.
Turkish banks have had great success with sophisticated chip-based loyalty schemes, and are now turning their attention to instant issuance of chip cards. Adoption of EMV technology to differentiate cards is seen as a way for issuers to make cards more attractive to both merchants and consumers.
Turkey has a small number of large banks and a large number of much smaller banks. The three largest private-sector banks, YKB, Akbank and Garanti, account for about 60 percent of the credit card market in terms of card transaction volume. (See Figure 5.) All now have foreign strategic shareholders (YKB/UniCredit, Akbank/Citibank, Garanti/GE).
The combination of size (both current and potential) of the Turkish cards market and the high interest rates charged to cardholders has attracted foreign players to the industry.
HSBC entered the market by buying the Advantage Card credit card network. GE Money established a presence in Turkey in December 2005 through an equal partnership with Dogus Group, one of the leading local conglomerates, and investing in Garanti Bank, the third-largest private bank in Turkey and second-largest issuer of credit cards.
Citigroup, too, views the country as a key market and has made inroads into the Turkish banking sector; it operates in nine major cities and had recently opening its 45th branch. In January 2007, Citigroup and Akbank announced that Citigroup’s acquisition of a 20 percent stake in Akbank had been completed.
Within debit cards, Visa has a 49.6 percent market share in terms of issued cards, MasterCard has 49.3 percent and the remaining 1.1 percent of debit cards come from other brands/marques. In terms of credit cards, 54.9 percent of issued credit cards are Visa-branded and 45.1 percent are MasterCard, with a negligible amount from other brands/marques.
By the end of 2006, Akbank had 219,621 merchants and 233,520 POS terminals. This represented a year-on-year increase of 19 percent in merchants and a 16.2 percent merchant market share. Akbank has a 23.3 percent market share in foreign credit card merchant acquiring.
As a part of member merchant activities in 2006, a new product called PosNet was offered to customers. PosNet enables member merchants to use the internet to make single payments with credit cards and to collect instalment payments with Axess credit cards without the need for a POS terminal. In 2006, Akbank’s net fee and commission income jumped 28.6 percent over 2005.
Akbank has turned its attention to Turkey’s large population of young people. Youth banking, which is carried out under the brand name of exi26, is one of the basic building blocks of Akbank’s long-term customer relations. It is aimed at customers between the ages of 16 and 26. Among the services offered are smart cards co-branded with universities. Other innovations include Mobile Phone Credit, a system that enables customers to get loans, including loans on credit cards, approved instantly by mobile phone.
Garanti Bank claims to have the fastest-growing card business in Turkey and to provide the country’s most creative financial products.
In October 2006 Garanti became the only Turkish bank to be a member of the MasterCard management board. Garanti is known for its approach to co-branding and loyalty. Its BonusCard was the first multi-branded credit card based on an EMV-compliant system in Turkey, and has a loyalty programme with over 1,000 partner merchants and 100,000 POS terminals linked to it. Garanti claims that its BonusCard is Europe’s largest multi-branded loyalty and credit card programme.
In June 2007, Garanti Bank signed an agreement with China’s largest payment system, China UnionPay (CUP), to issue credit cards in China, becoming the first European bank to do so. Tourists and business executives visiting China will be able to use their Bonus Business, Bonus Personal and Garanti Paracard credit cards under the new agreement between Garanti and CUP, while Chinese tourists and business executives visiting Turkey will be able to use their credit cards at all Garanti ATMs. Within the framework of this agreement, the first of its kind in Turkey, cardholders’ slips can be printed in Chinese at the POS terminals and a menu in Chinese has been added to all ATMs.
The bank has a licence agreement with Denizbank, which is allowed under the terms to use the brand and merchant network.
Garanti recently acquired the rights to exclusively distribute American Express’s super-premium Centurion cards. In January 2007, Garanti introduced the American Express card and the premium American Express Gold and Platinum cards. Within its private banking operations, Garanti has the Masters credit card and the Phi card for customers with assets of $1 million or more.
Garanti Bank’s share of the debit card market was 6.2 percent as of end-2006, based on number of cards in issue. The bank has 8.8 percent of total ATM numbers.
Over 2006, Isbank increased the number of its credit card customers to 3.74 million (up from 3.30 million in 2005). The bank’s total credit card transaction volume approached YTL14.5 billion in 2006, up from YTL11.6 billion in 2005.
Isbank’s main credit card brand is Maximum, which has become what the bank calls the “keystone” of its retail banking business line. When making the move to the chip and PIN system, Isbank introduced special service modules such as POS devices with special software and interactive telephone steps so that its customers could learn and change their PINs. Isbank has a range of 14 credit card products for different customer segments. Its rewards programme, MaxiPuan, offers rewards points at merchants and is largely aimed at encouraging the use of debit cards to make payments.
In 2006, Yapi Kredi Bank and Koçbank completed the biggest merger in the history of the Turkish banking sector. The resulting bank is majority-owned by UniCredit.
YKB’s credit card system is called World and both Visa- and MasterCard-branded cards are issued. Credit cards under the brand include Worldcard, Worldgold, Worldplatinum, World Signia, Virtual Worldcard, World-university, Visa Business Card, Worldcard-Turkcell, Worldgold-Turkçell and Cagdaskart, each addressing the various needs of different types of consumers.
The bank has introduced a twist in private pensions, whereby customers can pay their premiums with Worldcard. Worldpoints earned through purchases made with Worldcard can then be transferred to the private pension system as a contribution. YKB also provides POS merchant services for company clients.
YKB has the largest number of credit cardholders in Turkey. Credit cards receivables amounted to YTL5.25 billion in 2006. Fee and commission income on credit/debit cards was YTL531.2 million in the same year, up from YTL105.7 million in 2005.