The highly wireless nation embraces mobile technology for finance.

Author: Justin Keay

One of the most striking things about Turkey’s banking system—other than its overall stability, with average nonperforming loans still only around 3.3%—has been the absence of bank start-ups, and in particular, start-ups of digital banks. Unlike in most other economies, there have been almost no new banks offering state-of-the-art digital platforms for mobile banking. Why? Because existing Turkish banks are so well ahead of the game that challenger banks haven’t had much of a way to enter the market.

“Mobile banking is a sector not followed but led by Turkish banks,” says Mehmet Oral, executive vice president of retail banking at Kuveyt Türk, a bank focused on Islamic finance. “Our country has excelled at adapting itself to new, emerging information and communication technologies.” He notes that in the past three years, bank investment in these areas has increased by 12%.

 Oral is echoed by others who say that the bank reforms that followed the Turkish economic crisis of 2001 positioned the sector to become a leader in Internet and then digital banking because the reforms streamlined the way banks operate, making them more efficient but also more responsive to changing customer needs. At the same time, these reforms facilitated the entry of global financial players into Turkey and forced Turkish banks to integrate with the world. The result? A highly competitive sector open to new ideas and technologies.

“Digital banking channels became the main channels of Turkish banks while they were alternative distribution channels,” says a senior spokesman for İşbank, Turkey’s largest bank, adding that business success today requires a customer-focused digital transformation. By going digital, banks have numerous opportunities to offer services that make customers’ lives easier.

Baser, Garanti: Digitalization must be at the core of banking.

Didem Dinçer Başer, executive vice president in charge of digital banking at Turkey’s number-two private bank, Garanti, echoes this, adding that mobile banking is now trending, the bank having more than 3.2 million mobile customers and another two million mobile-only customers.

“We believe digitalization must be at the core of banking with its every aspect, from customer experience and products to internal operations,” she says. “Offering channel-independent banking products and services and thus creating a seamless customer experience underlies our approach to innovation.”

Turkish banks have done very well in making Turkey one of the world’s digital banking leaders. However, they have been operating in a highly receptive market, with the country frequently described as one of the most dynamic and fastest-growing e-commerce marketplaces in the world.

Indeed, only China and the UAE are ahead of Turkey in terms of online purchases made from a mobile device, while a major survey last year by Dutch financial group ING found that Turkey led the European continent in demand for mobile and digital technology. It found that some 56% of Turks owning mobile devices have made mobile payments—against an average of 33% in other European countries—while 78% intended to make at least one mobile payment over the coming year, against 51% in Europe generally.

Various factors drive demand for digital banking in Turkey: It has one of Europe’s youngest populations, with some 60% of Turks under 35, and 40% under 25. Not only are these people Internet- and digital-savvy, but they are ambitious strivers, leading the strong domestic demand that has been powering Turkish GDP growth over the past few years. 

Moreover, because this is a developing economy with large numbers of people moving from rural to urban regions, particularly in southern and eastern Anatolia, it remains largely unbanked. According to the World Bank, some 42% of Turkey’s population—more than 25 million individuals—do not have a conventional financial account. This represents a huge digital opportunity for existing financial players, not least because in a country of Turkey’s size and geographic complexity (it famously straddles two continents and in the east is mountainous with poor infrastructure). It is also easier and cheaper to invest in digital banking platforms than it is to build new bank branches.

Kuveyt Türk, which specializes in interest-free products, has made big strides in the past few years through its digital platform, Senin Bankan (Your Bank), enabling customers to access car finance, pensions, mortgages and even life insurance digitally. Oral says the bank now has the largest product range in Turkey.

“Customers who want interest-free banking are now able to enjoy location-proof banking services no matter where they are. At the end of June 2016, almost three-quarters of banking transactions were performed through alternative channels,” he says.

This trend has been facilitated by the imaginative approaches taken by Turkey’s banks—both state-owned and private—to facilitate and encourage digital banking. Garanti has subsidized the cost of Internet in some underdeveloped regions; it has also launched a Facebook-integrated mobile-banking app, as well as a mobile-phone app enabling cash withdrawals from an ATM without a card. Deniz Bank has been accepting loan applications via Twitter. Ziraat Bank, meanwhile, has  launched unstaffed video kiosks to handle a wide range of banking services and encourage those unfamiliar with, and perhaps wary of, conventional banking.

For most banks, however, the focus has been on putting state-of-the-art technology into their digital platforms. İşbank has been at the forefront, using quick response codes—those funny little scannable black and white checkerboxes—on a mobile phone to enable customers to withdraw cash without a card. Garanti has been actively pursuing Turkey’s unbanked via CepBank, which allows customers to send money to people without a bank account via their cellphone number. Its mobile innovations in all areas of banking have been praised by Forrester Research’s Global Mobile Banking Functionality Benchmark, where its mobile-banking app was recognized as the second-best in Europe.

“We received the highest overall score by offering a wide range of transfers, bill payments, P2P payments and point-of-sale payments,” says Başer, “as well as a variety of next-generation features, including voice navigation, contextual marketing, a mobile digital wallet and product research.”

Kucuk, Odeabank: New features run the risk of attracting hackers, but development must go on.

Odeabank, a relative newcomer to Turkey’s banking scene, has generated success by focusing on customer engagement. “Our mobile app provides its users an integrated gamification platform with game mechanics, such as points, badges and rewards,” says Tayfun Kucuk, chief technology officer. “Users can compete to become the highest 100 users in a month to earn gifts.”

Although most of the digital innovation in Turkey has come from long-established banks, there have been some start-ups, notably Certeteb, an online-only bank launched last year by Turkish Economy Bank. It has ambitions of attracting half a million new customers over the next five years by offering a wide range of digital products, including card-free cash withdrawals. Other banks can be expected to follow, as demand for mobile banking grows and newcomers step in to fill gaps in the market or provide specialized services.

So how does the future look? Mehmet Oral of Kuveyt Turk admits there are constraints. “Digital banking faces challenges such as verification of data and documents, service infrastructure, digital security and fighting against fraud,” he says, adding that legal differences create barriers at the international level. Security will remain an overriding concern. Odeabank’s Kucuk admits that some innovations aimed at improving user experience carry the risk of heightening “fraudulent attacks.” But generally the mood within the industry is that digital and mobile banking in Turkey is on a roll that is likely to continue.

“One of the most important driving forces is the customers’ digital lifestyle. Their preferences ... determine the business strategies (of banks),” says Garanti’s Başer. “The future must lie in creating ‘living’ services that detect and then fulfill customer needs.”


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