Turkey’s credit card market is one of the most
dynamic in the world, and growth potential is huge (see
). However, a recent decision by the country’s 13th
Chamber of the Supreme Court of Appeals has left Turkish credit
card issuers reeling, and consumers cheering.
The move comes after a complaint made by a bank
customer over the level of fees charged, who won his case following
an appeal to the Supreme Court. On 14 July, the court ruled to
abolish usage fees charged by banks for credit card services,
stating that the bank had not been able to prove the fee was
mutually agreed between the bank and the customer after
negotiation, and that the fee was “unjust”.
The court’s ruling threatens to significantly
impact the earnings that Turkey’s banks make from credit card usage
fees, estimated to be around YTL1.5 billion ($1.26 billion)
annually. Typically, banks charge fees of between YTL20 and YTL50
per card as an annual usage fee, depending on the type of card and
features offered.

Dynamic market

Turkey’s dynamic credit card market has experienced stellar growth
since the advent of credit cards in the market in the early 1980s –
as of April 2008, there were just under 40 million credit cards in
circulation among the population of 75 million. The total value of
payments made with credit cards has risen from YTL1.3 billion in
2002 to YTL140 billion in May 2008.

Many Turkish consumers hold several credit
cards to take advantage of different loyalty programmes and
features on offer, meaning they have to pay various fees for each
card. Consumer groups have stepped up efforts in recent months to
get issuers to reduce the level of fees they charge, and to urge
consumers to cancel their cards in protest.
Nazým Kaya, chairman of the Consumers Union,
said the court’s decision constituted a precedent for all local
courts for similar cases, adding that anyone who opens a case
against a bank will be exempt from paying these fees.
“We will open cases against all 44 banks in
Turkey running credit card services and, if we win all these cases,
there will be no fee asked for credit card usage,” Kaya said.
However, although the Court’s ruling has been
welcomed by consumer groups, victory could prove troublesome in the
months to come if Turkish issuers seek to recoup lost revenues by
introducing new fees or increasing the cost of services already on
This course of action could be made more likely
following the publication of Central Bank of Turkey data, which
shows that the number of defaults and late payments on credit cards
and personal loans increased by 8.8 percent in May compared to the
previous month.
Like the rest of Europe, Turkish consumers are
struggling with surging energy prices and a slowing economy, which
is hitting consumer spending levels, and the rise in default levels
will only add to worries about issuer profitability.
According to the Central Bank of Turkey, 64,790
people failed in April 2008 to make any payments on loans or credit
card debts, while this number grew to 70,477 in May. The number of
credit cardholders who failed to make repayments increased by 4.5
percent, from 53,966 to 56,376.
Taking every person into account only once,
826,907 individuals have defaulted on payments since 2003. While
131,437 of these people failed to make payments on loans, the
remaining 694,470 did not pay credit card debts.

Regulatory intervention

The Supreme Court’s ruling comes on the back of concerted
regulatory intervention in the level of interest rates that Turkish
credit card issuers can charge, and these factors are now combining
to place what could be transformational pressures on the country’s
credit card industry, which has been used to a period of sustained
growth and profitability.

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According to Garanti Bank, credit card income
at Turkish banks dropped by 50 percent after limits were placed on
interest rates.
Perrine Fiorina, an analyst with US payment
consultancy Celent, says: “The card strategies of Turkish banks’
over the past few years have focused almost exclusively on issuing
an ever-increasing number of cards.
“This approach will have to yield to a more
nuanced approach, where identifying and nurturing customer segments
and relationships becomes a paramount concern. Simultaneously, a
greater emphasis on cost management will be necessary in order for
Turkish banks to continue to generate profits from this line of