Embedded Financial Services & Path to Growth in Turkey
This article is on embedded financial services and the path to growth. Dr. Burak Uluocak is the CTO at Mikrogroup from Turkey. He has more than 20 years of experience in the financial services, information technology, and banking sectors. Mikrogroup is a commercial software group in Turkey with six companies and more than 400 business partners. It serves micro, small and mid-sized entities, and financial advisors. The group supplies ERP accounting, bookkeeping, e-trade, regulation, and electronic financial document integration solutions to its customers. From automotive to logistics, retail to e-commerce, the group is working to increase the efficiency of the business of nearly 150 thousand companies from more than 30 different sectors.
Technology is growing very fast. The first banks were established in Italy in the 1400s. Nothing changed for nearly 500 years. Customers could get service only in branches, through related clerks with lots of paperwork. But beginning in the 1980s, customers could do some of the banking transactions by themselves, with the help of ATMs, internet banking, and call centers. At the beginning of the 2000s, with the increase of mobile services and mobile phones, we had mobile banking in our hands. Customers don’t have to go to branches or use mobile applications to perform banking transactions. Banks go where customers are to give them services. With the help of artificial intelligence, we can offer different campaigns and approaches to our customers when they need them before they even think of it. As a bank, you can’t only depend on your banking functions; you have to be integrated with many different layers and platforms like electronic commerce and distribution partners. You must be good at technology to be integrated into different technology platforms.
When we look at Turkey, it’s one of the leading countries in the world in terms of digitalization of efficient, legal, and financial transactions. We have had internet banking since 1997. We have had a mobile banking platform since 2007. An Electronic Government portal was established in 2008, where you can complete most of your official and legal personal transactions without going through government offices and agencies. Also, in 2010, it became possible to create financial documents electronically. In 2013, the first FinTech was established. Following the pandemic, regulations also boomed in Turkey to offer more financial services and APIs to the ecosystem.
We started with the electronic invoice in 2010, and then the number of financial documents integrated into the system increased. Now we have about 11 different financial document types integrated with the system. The Treasury gives APIs for all these document types.
In 2013, the establishment of Fintechs started. Payment institutions have the right to deposit and withdraw funds to the payment account. They also make invoice payments, mobile payments, money transfers, credit card payments, and virtual postal services. We have 27 payment institutions right now in Turkey giving these services. We also have 29 electronic money institutions. These institutions give all the services a payment institution can give. They can issue electronic money related to a fund. They can transfer electronic money. They also have the right to load e-money to cards for usage. We have about 60 electronic money and electronic payment institutions in Turkey, but many companies are also on the waiting list of the Central Bank.
In 2020, the banking regulation agency of Turkey published the standards of open banking. It said that the communication between the customer or the party acting on behalf of the customer and the bank should be secure. They define the API gateways. In addition, compositive controls should be applied by the bank because they give the service of these APIs. The platforms that give their customers the service should verify the customers’ identity. For example, suppose I want to make a direct banking transaction through an electronic trade application. In that case, that electronic trade application should verify that I’m the right person who wants to do the necessary bank transaction. In 2020, the number of banks that opened public APIs increased. Both the number of banking banks increased, and the number of APIs also increased.
In 2021, the digital banking regulation was published. For the first time in Turkey, we could see branchless banks, with banks only giving service through their electronic channels. The open banking regulations were detailed. Companies approved by the banking regulation agency enabled their customers to perform banking transactions by accessing the bank services offered by the service bank through open banking services via a mobile application or web interface. To give a case, for example, ZUBIZU is a digital loyalty platform. Its job is loyalty, but they have a partnership with two key finance participation banks and witness participation. They offer the customers a buy now pay later product embedded in their mobile application. You can apply for an increase in credit limit or become a customer of the bank without visiting the bank.
At the end of 2021, the Payment Services Data Sharing Regulation was in place. It will start at the beginning of 2023. According to this regulation, if you want to share account information and initiate a bank transaction or account transaction, you must be integrated into the PSD2 standard.
The API platform will be managed by the Central Bank, not the banking regulation agency. For these two services, banks should be integrated into the API platform of the central bank. And through that platform, they will share their services with the related electronic money and payment institutions. API sharing is not enough. Those electronic payments and electronic money institutions should also do identity verification through these platforms to these interfaces to ensure that they give service to the right person.
Now, the API portal of the central bank is ready. Banks and other institutions are doing their tests to be integrated into this portal until the end of 2022. There are standards on how the integrations will take place. If we look at some cases about these integrations from our group, for example, Parasut is a bookkeeping company of our group. When you take the portal of your electronic invoice, you take that invoice data to the system. Your system can see, monitor, and manage all your company cash flows. You have integration with the electronic invoice platform for all your electronic invoices.
Shopside is another company in our group. It gives services to electronic trade companies. If you want to form a company through Shopside, then it is automatically integrated into electronic trade platforms. More than about five or six electronic trade platforms are integrated automatically.
In the future, we will be more integrated with wearables, smart homes, automobiles, and healthcare through financial services.