INNOVATIVE SERVICES IN RETAIL PAYMENTS AND REGULATORY EXPERIENCE

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1 INNOVATIVE SERVICES IN RETAIL PAYMENTS AND REGULATORY EXPERIENCE Betül Üzer Workshop and Seminar on Innovation in Retail Payment System: Issues, Challenges and Policies Yogyakarta, 14 November 2017

2 Outline Retail Payments Landscape in Turkey Best Practices o o o o o BKM Express TROY İyzico Paycell Akbank Ripple Integration The Legal Background The Regulatory Experience 2

3 Retail Payments Landscape in Turkey 3

4 Retail Payments Landscape in Turkey Actors in the Retail Payments Area Central Bank of the Republic of Turkey CBRT Participant C System Operator Participant D Payment System 1) Common Rules 2) At least 3 participants 3) Clearing&settlement infrastructure for fund transfers Banking Regulation and Supervision Authority BRSA Customer A (Payer) Participant A Participant B Customer B (Payee) Payment service provider Banks Electronic Money Institutions Payment Institutions Postal and Telegraph Corporation 4

5 Retail Payments Landscape in Turkey Payment systems Customer Payment System Interbank Check Clearing Houses(ICH) Interbank Card Center (ICC) Garanti Payment Systems (GÖSAŞ) Payment service providers Banks Payment Institutions E-Money Institutions Postal and Telegraph Corporation Mobile payment service providers 5

6 Retail Payments Landscape in Turkey Critically important systems The Central Bank of therepublicof Turkey EFT (BankingPaymentSystemand RetailPaymentSystem) RTGS Participants: Banks Trans. vol.(2016): EFT 56 tntl(bps 45 tntl + RPS 11 tntl) Important systems Interbank Check Clearing Houses(ICH) Check payment system Multilateral netting(t+2) Participants: Banks Trans. vol.(2016): 454 bntl Interbank Card Center (ICC) Card payment system Multilateral netting(t+2) Participants: Banks, MPTS Trans. vol.(2016): 263 bntl Important systems on a limitedscale Garanti Payment Systems(GÖSAŞ) Card payment system Multilateral netting(t+2) Participants: Banks issuing Bonus branded cards Trans. vol.(2016) : 21 bntl MastercardPaym. Trans. Serv. Turkey(MPTS) Card payment system Multilateral netting(t+2) Participants: Cyprus banks,,ptt, prepaid card issuers Trans. vol.(2016) : 6 m TL 6

7 Retail Payments Landscape in Turkey Population Banking& Payments GSM Sector Card POS ATM 78M population 32M unbanked 176 M Payment Cards 1.7M POSs 48K ATMs 73M subscribers %95 mobile coverage %56 smartphones Source: BKM and Turkcell 42% of population is still unbanked Higly terminalised payment market but %60 of theconsumer expenditure with cash Fast increasing smartphone penetration 7

8 Online Shopping Transaction Value Retail Payments Landscape in Turkey Global Turkey 2x Global Average Mobile Device UsageRate on Online Shopping %12 %21 %23 %43 Web Mobile ,675 B $ 2,982 B $ 19 B 63 B Source: Turkcell 8

9 Retail Payments Landscape in Turkey Debit and Credit Card Numbers(Million) Total Active Credit Card # Total Active Debit Card # Total Credit Card # Total Debit Card # 117,0 112,4 105,5 100,2 81,9 69,9 64,7 51,4 44,4 47,0 25,0 26,1 28,6 30,1 31,0 32,4 34,9 31,8 26,9 21,6 91,3 54,3 56,8 57,0 58,2 58,8 48,0 45,0 41,5 34,4 34,7 34, Source: BKM 9

10 Retail Payments Landscape in Turkey POS and ATM # (Million) 2,5 2,0 1,7 1,8 2,0 POS # 32,5 2,1 ATM #(right axis) 2,3 42,0 36,3 45,6 2,2 2,2 (Thousand) 48,3 48,4 1, ,5 23,8 27,6 30 1,0 20 0,5 10 0, Source: BKM 10

11 Innovative Examples in Retail Payments Payment System Innovation Payment Institution National Card Scheme Mobile Payment Service Provider Blockchain Use Case 11

12 Best Practices 12

13 Interbank Card Center (BKM) Established in shareholders, 30 members Payment service provider to all Turkish card issuers & acquirers Important payment system licensed by Central Bank in 2015 Regulatory authorities: CBRT and BRSA 13

14 BKM Express Launched in 2012 Easy payment without card information Fastpaymentevenwhenyourcardisnotpresent Secure payment with user password and SMS 14

15 BKM Express Internet payments Online mobile payments P2P money transfer In-store payments 15

16 BKM Express Face-to-face payments Gas Stations Total Oil allows users to pay without leaving their car. Taxi BiTaksiis the leading application for taxi riding. With BKM Express cashless payment is possible. Fashion At Zorlu Center Vakkostore, it is possible to shop with your mobile device. Micro Payments Ödeal is an application allowing micro payments via mobile phone with card information. Restaurants Pay with BKM Express while ejoying a New York Style Pizza. 16

17 BKM Express 1 click payments Add to basket Approve payment Transaction complete Pick up Taxi Approve payment Addtip ifyoulike 17

18 BKM Express Donation 18

19 BKM Express BKM Express Transactions 0,47 0,55 29,54 29,84 19 Milion TL May-16 Jun-16 Jul-16 Aug-16 Sep-16 Oct-16 Nov-16 Dec-16 Jan-17 Feb-17 Mar-17 Apr-17 May-17 Payment Money Transfer

20 Best Practices 20

21 TROY TROY is the abbreviation of Turkey s way of payment in Turkish National card scheme 21

22 TROY Market with only international card schemes Limitations for tailor made solutions Absence of local touch Unfulfilled opportunities for the market! Lagging to meet stakeholders needs 22

23 TROY This initiative has various advantages: Economic Benefit for Stakeholders: Reducing fees via a cost sensitive model Local Needs First Priority: Development of products and service aligned with the needs of Turkish market Time to Market: Faster solution development 23

24 TROY 24

25 TROY 25

26 TROY 26

27 TROY Number of Cards for Card Schemes Mastercard 90,18 millions (%49,71) Visa 88,37 millions (%48,71) Other 1,22 million (%0,67) Special cards 1,47 million (%0,81) Troy 0,19 million (%0,10) 27

28 Best Practices 28

29 Iyzico İyzico was established with the aim of providing a secure payment platform for online companies of different sizes operating in different industries. 24 Million $ investment from companies such as: 29

30 Iyzico Credit Card Storage and 1 Click Payment Maximize Sales with Payment Forms Safe Shopping with 3D Secure BIN Control 30

31 Iyzico 31

32 Iyzico 32

33 Iyzico Merchants canreceivepaymentsfromallover theworld. can accept payments with different currencies. are not restricted only to POS payment by credit card to receive payments from abroad. take advantage of alternative payment methods. 33

34 Best Practices 34

35 Paycell Accesible to every consumer No bank dependency Supporting every major card type Smart phone capabilities Omnichannel integration possibilities Offering alternative payment methods 1 Turkcell Mobile Payment(DCB) 2 PaycellWallet 3 Consumer Finance (1 Click Payment) 4 Paycell Card 5 PaycellDigital Money More than 4M customers 1.5M Credit Cards in the system Payment by Installments for more than 3.5M customers. Targets unbanked users Paymenttool for non-card users or insufficient card limit owners. 35

36 TurkcellMobile Payment Since 2009 available as a Mobile Payment solution of Turkcell Digital Contents Physical Goods and Services 30 Million+ Users Online Gaming Mobile Apps Fastfood Parking Lots Merchants 100 Most Reputable Brands Youth & Professional & Platinum Segments Online gaming is the leader category Social Networks Membership Transportation Airport Fast Tracks Restaurants Mobile Services Retailers 36

37 Paycell Card Promoted to the customers both in traditional and digital channels Sold and refilled in Turkcell Stores and purchased by 5 M Turkcell Digital App customers Not only for shopping but also enriched with a mobile wallet Providing money transfer, utility payments, transportation etc. The World s first prepaid card offering free mobile internet for shopping Shop 1 TL & Earn 1 MB free, automatically loaded mobile number Mobile Number for activation 37

38 Paycell Card Paycell Card Target Segments Youngsters Tourists Digital Content Users Housewives Online Shoppers Unbanked 38

39 Paycell Digital Money 7/24 Access Large Merchant Network Secure User Experience For those who don t want to get physical prepaid card Easy Purchase Sendas a Gift Fast Activation Customized BrandDesign 39

40 Paycell Wallet One APP forallproducts Direct Carrier Billing Financell E-Money Bill Payment Paycell Card Money Transfer 40

41 Paycell Wallet The most comprehensive one-click payment method No bank or operator dependency The most seamless experience with mobile capabilities Mobile number is your new account Supported by Turkcell scustomer base 1.5 Milion Cards registered 4 8 & MSISDN Forwarding Powered by 41

42 Best Practices 42

43 Akbank OneofthebiggestcommercialbanksinTurkey 15 million customers, 840 branches 2,25 million internet and 1,4 million direct mobile transactions(monthly) First bank in Turkey using Ripple s blockchain technology Joined the Ripple customer network recently to offer real-time and low-cost cross border payments 43

44 Akbank Settlement is instant(few seconds) 24/7 Full transparency Inexpensive Direct bank to bank settlement No central counterparty or record keeper 44

45 Akbank Ripple interledger protocol is an open suite of protocols connecting ledgers of all types: Digital wallets National payment systems Blockchains and beyond 45

46 Akbank 46

47 Akbank 47

48 The Legal Background 48

49 The Legal Background Roles of the CBRT in the Payments Area System Operator Licensing Settlement Institution Lender of Last Resort Overseer Catalyst Regulator Participant 49

50 The Legal Background Legal Basis of the Payments Area Banking ActNo 5411 TurkishCommercial CodeNo 6762 The Public Finance& Debt ManagementLaw No 5018 Prevention of Laundering Proceeds of Crime Law 5549 Payment Systems Law No 6493 Central Bank Law No 1211 Capital Market Law No 6362 Check Law 5941 (Abolished Law No 3167, Article 6) Bank Cards and Credit Cards Law No 5464 Settlement Finality Directive (1998/26/EC) Payment Services Directive (2007/64/EC) Directive on E-Money Institutions (2009/110/EC) BIS-CPMI& IOSCO Principles 50

51 The Legal Background Central Bank Law Fundamental Duties and Powers of CBRT establishing payment, securities transfer and settlement systems, making regulations to ensure uninterrupted operation& oversight of the existing and future systems, determining the methods& instruments to be used for payments(including electronic environment), acting as the lender of last resort, providing intraday or end-of-day credit facilities to the payment systems. 51

52 The Legal Background Law on Payment and Securities Settlement Systems, Payment Services and E-Money Institutions (The Payment Systems Law) ThePaymentSystemsLawcameintoforceinJune2013. The aim of the Payment Systems Law is to regulate the procedures and principles regarding the payment and securities settlement systems, payment services, payment institutions and e-money institutions. Reasoning of the Payment Systems Law was the need for a single and comprehensive legal arrangement for payment and securities settlement systems, new practices on payment services and e-money. 52

53 The Legal Background The Payment Systems Law Defines payment institutions and e-money institutions for the first time. Includes provisions on o o o payment and securities settlement systems, payment services, payment service providers; particularly payment institutions and e-money institutions. Empowers BRSA to: o o o o license and supervise these institutions and develop secondary regulations, determine relations between service providers and beneficiaries, specify rights and obligations of both parties, take appropriate measures against potential problems in payment services. 53

54 The Legal Background The Payment Systems Law supports financial stability, provides sound legal basis for the payment systems, aligns with international regulations (EU Directives) and standards (CPMI), contributes to financial inclusion, defines basic concepts on payments area. 54

55 The Legal Background The Payment Systems Law Licensing and Oversight of Payment Systems The Payment Systems Law empowers the CBRT for granting license to payment and securities settlement systems which had no single competent authority previously for licensing of these systems. The CBRT is authorized for the oversight of the systems established or to be established in order to ensure their uninterrupted operation. Regulation on Oversight of the Payment and Securities Settlement Systems sets forth detailed issues regarding the oversight of the systems. 55

56 The Legal Background The Payment Systems Law Payment Institutions and E-Money Institutions The Payment Systems Law provides legal definition of Payment Institution, E-Money and E-Money Institution for the first time: Payment institution: Legal person granted authorization to provide and execute payment services. Electronic Money: Monetary value which is issued in return of the fund accepted by electronic money issuer and stored electronically to be used for payment transactions and accepted as ameansofpaymentbypersonsotherthantheissuer. Electronic Money institution: Legal person granted authorization to issue e-money. 56

57 The Legal Background The Payment Systems Law Payment Institutions and E-Money Institutions Onlybanks,ande-moneyinstitutionswhicharedefinedandlicensedbytheLawcan issue e-money. Payment institutions are required o o tobeestablishedasajointstockcompanyinturkey, to have effective management, sufficient and skilled employee, technical infrastructure in order to fulfill its functions. E-money institutions are required o o o o tobeestablishedasajointstockcompanyinturkey, to carry out their operations through banks, to issue e-money at equal amounts to the funds collected, to immediately convert deposited money to e-money and make it avaliable to the e-money user. 57

58 The Legal Background As a legal mandate, the CBRT issued Secondary Regulations within a year after the enactment of the Payment Systems Law Regulation on Operations of the Payment and Securities Settlement Systems (June 2014) Regulation on Oversight of the Payment and Securities Settlement Systems (June 2014) Communique on Information Systems Used in Payment and Securities Settlement Systems(January 2016) 58

59 The Legal Background Conducting Oversight Based on the Payment Systems Law and Regulation on Oversight of Payment Systems Oversight Framework on Payment and Securities Settlement Systems was issuedbythecbrtinnovember2016. Oversight Framework includes; o o scope of the procedures and principles regarding CBRT s oversigt activities. classification criteria for systems in order to specify which system is responsible to comply with which PFMI standard. Within the Oversight Framework, the systems are classified into three main categories; o o o critically important, important, important on a limited scale. 59

60 The Legal Background Oversight Framework According to the Oversight Framework, the payment and securities settlement systems in Turkey are classified as follows: NAME OF THE SYSTEM TYPE OF THE SYSTEM SYSTEM OPERATOR CATEGORY OF THE SYSTEM Electronic Securities Transfer System Securities settlement system CBRT Critically Important System Equity Market Clearing System Securities settlement system TAKASBANK Critically Important System Debt Securities Market Clearing System Securities settlement system TAKASBANK Critically Important System Central Registry System Securities settlement system MKK Critically Important System Turkish Lira Payments System of Interbank Payments Payment system CBRT Critically Important System Turkish Lira Payments System of Consumer Payments Payment system CBRT Critically Important System Cheque Clearing System Payment system ICH Important System Domestic Clearing and Settlement System Payment system ICC Important System Takasnet System Payment system GÖSAŞ Important System on a Limited Scale CBRT: The Central Bank of the Republic of Turkey TAKASBANK: Istanbul Settlement and Custody Bank Inc. MKK: Central Registry Agency Inc. ICH: Interbank Clearing House ICC: Interbank Card Center GÖSAŞ: Garanti Payment Systems Inc. 60

61 The Regulatory Experience 61

62 The Regulatory Experience What has happened upto now? Formation of the legal background o o o o Law on Payment and Securities Settlement Systems, Payment Services and E-Money Institutions(June 2013). Regulation on Operations of the Payment and Securities Settlement Systems (June 2014) Regulation on Oversight of the Payment and Securities Settlement Systems (June 2014) Communique on Information Systems Used in Payment and Securities Settlement Systems (January 2016) o Oversight Framework on Payment and Securities Settlement Systems(November 2016) 62

63 The Regulatory Experience What has happened upto now? The CBRT granted operation licence to o Central Registry Agency Inc.(MKK) as a securities settlement system in June 2015; o Istanbul Settlement and Custody Bank Inc. as a securities settlement system in June 2015; o Interbank Card Center Inc.(BKM) as a payment system in June 2015; o Garanti Payment Systems Inc. as a payment system in June 2015; o Interbank Clearing House(BTOM) as a payment system in June 2015; o Mastercard Payment Transaction Services Turkey as a payment system in March

64 The Regulatory Experience What has happened upto now? Onsite visits: The CBRT paid visits to MKK in December 2016 and BKM in June The CBRT plans to visit Takasbank and Gösaş in November Oversight Reports: The CBRT published an oversight report on MKK in December 2016 and on BKM in June The oversight reports on Takasbank and Gösaş will be published until the end of Unification of system data Licensing of e-money institutions and payment institutions Other operations of the systems 64

65 The Regulatory Experience What has happened upto now? Financial Sector Assessment Program report published in November 2016 o PFMI Responsibilities Observed for the CBRT. PFMI- Implementation Monitoring o PFMI Responsibilities Rating 4 in August 2013 o PFMIPrinciples Rating4inMay2014 Objectives and Policies Regarding Payment and Securities Settlement Systems published in October 2014 Payment Systems Law Workshop in February 2017 Distributed Ledger Technology 65

66 THANK YOU FOR YOUR ATTENTION! For your future questions: 66

67 INNOVATIVE SERVICES IN RETAIL PAYMENTS AND REGULATORY EXPERIENCE Betül Üzer Workshop and Seminar on Innovation in Retail Payment System: Issues, Challenges and Policies Yogyakarta,14 November 2017