Turkey’s payment card market stands out as one of the most dynamic and forward-thinking in Europe, thanks to its unique issuing and acquiring structure. Mehmet Sezgin, CEO of Garanti Payment Systems, looks at some of the most recent payment trends in the country.
The economic crisis has placed a strain on many industry sectors, not least of all the banking and finance industry. Despite these challenging times, the global cards market has been witnessing continuous growth, especially in the area of smart card innovation.
The world as a whole is seeing an increase in the number of smart card projects across all geographical locations, which is testament to the flexibility and robustness of the technology. Driving its uptake is a need for a more flexible, fast and secure payment method.
According to the Smart Card Market Forecast to 2012 report from global research consultancy RNCOS, the global market of contactless smart cards is expected to grow 33 percent by 2012(1).
In addition, debit cards are the primary payment method of choice across Europe. Only the UK, Ireland and Turkey have a substantial credit card market.
While the current recession has not left the Turkish economy unscathed with unemployment figures increasing over the past 18 months, it has suffered less than others due to lessons learned from the 2001 crisis.
This crisis cost Turkish taxpayers $27.1 billion – which is equivalent to 9.6 percent of Turkey’s average gross domestic product (GDP) during that period(2) – and as a result, the country saw the introduction of higher capital liquidity ratios for banks.
Due to this, Turkey is now in a strong position as a continually emerging economy to offer one the of the most dynamic card markets across the globe. The outlook for the next few months is set to be even more optimistic, as exports and private consumption and spending are expected to go back to pre-credit crunch levels.
The changing world of payments in Turkey
A distinct difference of the Turkish card market compared to other European markets is its holistic view of issuing and acquiring. Banks that combine both the issuing and acquiring business avoid losing transactions.
A transaction only takes place if the merchant and cardholder come together. By gelling issuing and acquiring together, banks can provide customer relationship management (CRM) services to smaller merchants that cannot afford to invest in their own CRM systems.
This synergy means that banks have only one customer file, which gives the sales team a more comprehensive view of the clients’ activity. As a result, this holistic approach provides much better results for banks and merchants in terms of straight-through processing.
More recently the number of credit cards in Turkey has increased drastically. While the increase in volume is good, it has also created new problems – such as the high levels of interest charged on the cards.
To control this trend and in line with the growing numbers of cards circulating, new regulation has recently been introduced. Turkey’s Central Bank implemented new guidelines on the limit on how much interest can be charged, such as maximum APR caps.
Despite its objective of protecting consumer interests, it has been challenging for banks to produce financial forecasts and budget accordingly.
As a result of the high unemployment rates in Turkey, which peaked at 16 percent in February 2009(3) and steadily fell down to 13 percent as of October 2009, banks have had to develop systems to control and collect debt with specific payment plans for their customers.
While banks have made substantial efforts to support their customers, the Turkish government also passed a law to standardise the banks’ repayments plans.
Turkey at the forefront of card innovation
Turkey, as with many countries, is not a cashless society and in recent years it has seen the number of bank cards in general increase. Along with this trend, the country has also witnessed the demand for contactless rise steadily.
As an emerging economy, the number of people without a bank account is still higher than in many Western European countries and as a result contactless cards are an attractive alternative to cash for many consumers in Turkey. To enable consumers to use contactless cards in the mainstream, agreements were signed with many fast food outlets and coffee shops around the country.
Garanti Payment Systems (GPS) was the first issuer of contactless PayPass cards from MasterCard. The contactless programme was then extended to include the bank’s existing BONUS Trink cardholders, a loyalty scheme that soon established itself as the basis of many loyalty card schemes – not just for banks, but also retailers in Turkey, following its introduction in 2006.
Since then, MasterCard and GPS announced the launch of Europe’s first watch equipped with MasterCard PayPass contactless technology, introducing the next level of contactless payments in the region to make paying for small-value items quicker and more convenient.
Using this technology, consumers simply tap their new watch, sticker or keyfob on a PayPass reader to make the equivalent of a credit card purchase at nearly 15,000 point of sale terminals in Turkey, including major names such as Burger King and Starbucks.
Driving and shaping the adoption of contactless in Turkey is the country’s young demographic, who make up a large proportion of the country’s population. This demographic is far more technology-savvy and the take up of contactless technology has been higher in this group.
With credit cards having deeply penetrated daily life, younger generations have happily adopted contactless cards to pay for low-value items. In addition, in a world where personalisation and customer loyalty has become crucial, Turkey spearheaded the customer relationship manager era for credit cards with the launch of GPS’ Flexi card, a credit card with highly flexible features.
The card allows cardholders to create a personalised card including its own interest rate, reward system, fee and personalised design. In addition, loyalty points are awarded based on the frequency of use of the card, rather than spending, and there is no expiration date for the extra points.
Flexi is globally the first credit card that involves the customer in the process of the full creation of the card, establishing greater customer loyalty by giving customers more control over their credit cards.
With the introduction of the loyalty schemes in Turkey, local banks have realised that loyalty programmes are crucial for the existence of the market and play an important role in the penetration of card usage.
Looking ahead, the Turkish banking market will see the emergence of bank cards that combine debit, prepaid and contactless functionalities in one card. These cards will allow consumers to pay for low value items as well as their travel passes in regions that have signed up for the scheme.
While Turkey is a major player in the cards market, it is still suffering from the current economic crisis. This, coupled with fierce competition between Turkish banks, emphasises the constant need for innovation.
The uptake of contactless and introduction of new flexible offerings such as combined debit, contactless and prepaid and loyalty schemes will be critical in allowing banks to maintain and increase their market share.
Those banks that place the customer at the centre of all their decisions and offer loyalty programmes along with ease of purchase will stand a greater chance of succeeding and enhancing consumer spending, especially important when times are hard.
With this in mind, the Turkish economy looks set to be on the best course for recovery and poised to take advantage of new opportunities as it begins to look beyond the recession.
Mehmet Sezgin, CEO of Garanti Payment Systems
Mehmet Sezgin graduated from the Business Administration Department of the Middle East Technical University and obtained his MBA degree from the University of Massachusetts. He worked at various private banks and at MasterCard Europe. Sezgin has been serving as CEO of Garanti Payment Systems since 1999.
He is a board member of Garanti Emeklilik ve Hayat Afi, president of MasterCard Southern Europe Forum, a board member of MasterCard Europe Coordination Committee’s, president of MasterCard in Turkey and supreme board member of Visa Turkey.
About Garanti Bank
Garanti Bank is Turkey’s second-largest private bank by asset size with the highest capacity to generate recurrent banking revenues.
As a universal bank with a leading presence in all business lines, Garanti serves around 9 million customers in corporate, commercial, SME, and consumer segments, offering fully-integrated financial services through its nine financial subsidiaries – including payment systems, pensions, leasing, factoring, brokerage and asset management.
Garanti operates an expanding distribution network comprising nearly 800 branches, including five foreign branches and four international representative offices, close to 3,000 ATMs, an award-winning call centre and an internet and mobile bank utilising state-of-the-art technology.
Garanti supports its extensive branch network with centralised operations, exceptional data warehousing and management reporting systems, and the efficient use of alternative delivery channels.
Garanti Payment Systems was established by Garanti Bank in 1999 to provide services in the credit card market as the fastest product developer of chip-based multi- and joint-branded card programmes, commercial cards, virtual cards, business-based marketing and e-commerce services.