OPEN BANKING IN TURKEY: THE FATE OF TRADITIONAL BANKS AND SECTOR AUTHORITIES

With Open Banking in Turkey, the data relating to accounts and transactions no longer belong to the bank or financial intermediary but to the account holder and what is even more important will be the choices made by consumers to shape the offer of financial services and the methods of data sharing.

WHAT THE ADVANTAGES FOR THE FINANCIAL INDUSTRY AND FOR CONSUMERS IN TURKEY

The expected results are usually summarized in the following:

• Impulse to technological innovation and new business models so that new specialized Fintech subjects can compete with banks on an equal footing;
• reduction of transaction costs , bypassing global payment card operators or favoring, thanks to wider access and sharing of data, the reduction of other services such as the cost of credit;
• push for financial inclusion , especially in weaker social parts and under-serviced with lower-cost basic products;
• guaranteeing users greater security in the processing of data, to ensure sharing and use on an informed and reasoned basis;
• growth of the experience of final consumers , through the possibility of comparing products and services on the market, for choices based on quality, prices, speed and transparency of conditions, as well as the formulation of new needs.

In summary, since Open Banking is a way to facilitate the sharing of data and information and it is not an application or a product in itself, it will take time for adequate knowledge and skills to be formed in families and businesses.

At the same time, it will act on banks, prompting them to react with new services, developing greater knowledge of consumers’ preferences and financial behavior. The bank will increasingly propose itself as a service platform and not as a product store, expanding the offer to inclusive financial activities, such as micro credit, and deepening the knowledge of the financial flows between companies.

There may also be negative elements from these developments which will affect not only banks but also Fintech companies and consumers in Turkey.

For banks, there will be a greater speed of customer movement, loss of revenues, disintermediation of customer relations, high change management costs to adapt to the more lively context of changing consumer demand and supply from competitors .

For Fintech companies , the regulation costs related to the rules on the processing and sharing of data may be curbed , if there is no careful use of the proportionality criteria of the rules.

For customers, concerns will be related to the protection of their personal data , to be compared with the benefits in terms of innovation, access to more information-rich data, necessary for their choices.

THE DESTINY OF TRADITIONAL BANKS

With Open Banking , banks can lose control over interactions with their customers as non-banks embrace the API economy .

They are faced with a period of complex strategic choices . These will also concern relations with Fintech companies and other third-party service providers, to be developed also through partnership relationships , to systemise new services both in the aggregation of accounts and to develop services in competition with the global card networks. payment and with e-commerce platforms.

The process of “Uberization of Banking” that is, of transforming banking activity into service platforms will produce new functions in the form of API .

The development of new interactions between supply and demand is destined to produce strong changes, especially in systems such as the Italian one, in which two prevailing business models have so far been compared : that of the universal or system bank.

Both are now facing changes in the scenario that can in their final phase produce new network ecosystems, with dynamic and variable geometry as regards services and range of customers. The substantial static nature of customer relationships to which banks have been accustomed so far, with little changes in the degree of competition of the system, will be replaced by attitudes to change stimulated by the possibilities offered by API technology .

In the medium term, the investment policies of Turkish banks will undergo infrastructural changes, reformulation of relations with competitors and with the new Fintech subjects and obviously with customers. Their market power will be remodeled based on their ability to act as a facilitator of services  between new producers, new distributors and new customers.

THE BARRIERS TO BE OVERCOME

In any case, the adoption of Open Banking will require overcoming many barriers, such as:

• Customer awareness (individuals and businesses) to be supported with financial education initiatives so that they can familiarize themselves with this new scheme, learning to measure its benefits;
• Strategic vision of the transformation costs , to evaluate the returns on the necessary investments;
• Overrun of the constraints represented by systems legacy , as have become increasingly complex and disjointed in the course of time, which can make the interoperability with the API of the ‘ Open Banking difficult to handle;
• Risks related to data sharing and respect for privacy can constitute a restraint, just as those of fraud can be a deterrent to the rapid transition to Open Banking ;
• Competition on customer data with the search for balance between what to share without losing control of the data or give rise to cannibalization phenomena;
• Risk of loss of market share and reduction of profit margins .

SUCCESS FACTORS OF OPEN BANKING IN TURKEY

• Technology: API management is key but exploring other technology is vital
• Consumer Centricity: Fintechs should focus customer-centric products and real time services
• Business Deals & Partnership: Ecosystems partnerships for offering products relevant to customers
• Fraud Detection & Prevention
• Cybersecurity: A functioning cybersecurity approach for data protection from hackers
• Regulatory Framework: Conducive regulatory environment to boost open banking.
• Standards & Governance: For open banking to scale standards will be needed to ensure interoperability.

NEW ROLES FOR THE REGULATORY BODY (CENTRAL BANKS OF TURKEY)

We are still at an early stage of Open Banking, which prevents us from evaluating their potential effects, although it is easy to guess their disruptive impact on traditional schemes. A vital element is capturing consumer confidence .

The Regulation can be a catalyzing factor in creating the environment for innovation and the right tools to its protection. Where correctly attracted to these new forms of use of financial services, he will determine their success, boosting the economy of large ecosystems and digitalization.

This opportunity also presents itself to Turkey. We need to understand as soon as possible whether the degree of backwardness of our condition could be a paradoxically advantageous element, to make us overcome the delays in one leap, given that at the speed we experience in the growth of digital payments we would not be able to close the gap with the other countries except in a few decades.

The limits that we have experienced in our bancocentrism (banking crisis, limited product offerings, governance arrangements often in conflict of interest, technological backwardness, restrictions on the supply of credit to businesses, high bank commission prices) require greater determination in adherence to the regulatory framework that is being formed in Turkey.

Resisting the move to the new frontier would not only lead to reaffirming banks’ monopolistic power over financial services, but also to consolidate further delays with respect to our needs for modernization and development.

We are convinced that an overview has so far been lacking that the latest governmental approaches to the issue of digital payments are intended to recover, also by accepting the policy actions that the Central Bank of The Republic of Turkey is taking towards individual countries.

An overall strategy based on a series of intervention tools in close interaction with each other can create a more proactive context to increase the attitude towards digital payments and more generally towards satisfying financial needs with wider possibilities of choice for the consumer.

We hope that our sector authorities will also be more incisive in spurring the Turkish financial system towards these new goals, also by applying criteria of effective proportionality of the rules addressed to new subjects, so that they can compete on equal terms with the banks.

The banking monopoly remains in the transaction settlement phase , which prevents other operators (non-bank payment and electronic money institutions) from entering with equal conditions in the end-to-end management of the entire process.

We have to make innovations briefly described here a financial culture capable of spreading quickly among citizens. They represent the cornerstone for overcoming our delays and for making the participation of all of us in modern, usable and transparent financial services more integrated and aware, on the essential condition that the final consumer can benefit from increasingly reduced transaction prices.