Digital Wallet Regulation in Turkey

1. Banking, Digital Banking, Financial Regulations, Payment Systems
2. Digital Wallet Regulation

We’ve been getting a lot of questions about the status of the digital wallet (especially the mobile wallet) under Turkish regulations recently. I have decided to draft this article when I couldn’t see any significant information in the literature and open source research.

Even though the digital wallet is broadly referred to an electronic device that enables an individual to make electronic transactions, we can describe it as being a software that allows the consumers to carry out purchase – sale – barter. Yes, when we talk about the digital wallet, we understand “payment”.

What does Digital wallet Regulation in Turkey entail?

Digital wallet refers to a payment instrument that is provided as an electronic device, online service or application, where information regarding the payment account or payment instrument defined by the customer are stored, and which enables the customer to carry out payment transactions by using the information in relation to the payment account or payment instrument defined by the customer. This definition will become official soon. Even though there has been a perception as “mobile wallet = digital wallet” recently, web service application is still often offered.

Since the mobile wallet is used especially to facilitate payment transactions, we can describe it as a fintech product and more specifically, a payment world product. In addition, especially within the scope of loyalty programs of retail companies, mobile wallets that are not used for payment transactions are also common. In this case, they only allow the customers to earn points and discounts.

Mobile wallets became the most common instruments for mobile payment. However, processing the payment through mobile wallets is considered as a payment service. In this case, regulation is applicable. The Central Bank of the Republic of Turkey (“CBRT”) regulations also provide that this service will only be provided by licensed institutions. However, years ago, a distinction was made, which is expressed as “closed circuit” in order to likely narrow the scope on a certain level. This distinction has been regulated both under the Law numbered 6493 and regulatory jurisprudence. Therefore, there is no need to obtain a license for below mentioned mobile wallet service:

“Services based on instruments that can be used to acquire goods or services only on the premises used by the issuer or under a commercial agreement with the issuer either within a limited network of service providers or for a limited range of goods or services”

In this context, in case the services such as closed-circuit shopping, where customers cannot transfer money or point to each other!, meal cards, mile programs, where customers can only load money for spending purposes, are provided through mobile, they are not considered as a payment service by law in which case a license is not required. However, there are many exceptions to this general rule. The first exception is that the TCMB will be able to impose a license requirement on closed-circuit institutions that exceed a certain threshold (turnover).

Another exception will be provided under the regulation. It has been stated that the digital wallet service described above can only be offered by payment service providers. In this context, first of all, the company that will provide digital wallet service should be authorized to “issue or accept the payment instrument” set forth in the paragraph -c- of Article 12 of the Law. This alone is not sufficient.

In the event that the digital wallet service provider will offer other services specified in the law, they should also be authorized for such services. For example, a company that will collect invoices through digital wallet should also have invoice payment permit, or if it will allow money transfer, it should have money transfer license.

In addition, while the digital wallet serves as a payment method, in case the company that issues the wallet will act as an intermediary, electronic money license is required. In other words, if you complete the shopping via a digital wallet while you are shopping and your payment is transferred to the company from which you buy goods/services through the company that operates the wallet, it would mean that there is actually an electronic money service. However, in case the company operating the wallet is not a party to the transactions and stores sensitive customer data only within certain limits, it will not be considered as a digital wallet within the scope of the CBRT legislation.

I summarized the situation of the digital wallet under the payment legislation quickly. You can contact us for detailed questions.