Towards A Digital Platform Ecosystem

On 19 August 2021, Banking Regulation and Supervision Agency (BRSA) published a draft resolution that will change the course of financial services in Turkey. The definitions of digital banking and service model banking have now officially entered the Turkish financial literature through the regulatory agency. The draft provides a promising roadmap for conventional banks as well as digital banking. As for participation banks, the draft is exceptional and deserves to be scrutinised in detail.

Preeminently, to make a general macro assessment, we are faced with a business plan with a similar scope to the recently published digital banking law in the European Union (EU). We can say that it will undoubtedly serve the purposes of promoting financial innovation and increasing financial inclusion, which is stated in the first article. For a more comprehensive analysis, the draft, which we evaluated together with the nine critical regulations mentioned in the text, also shows that this progress, which is of great relevance in terms of financial systems, was presented promptly for the Turkish market and when the conditions were most suitable.

Turkish economic history has been under intense informal activity pressure for a long time. There is a dense population with many sub-groups outside of the financial system that do not have a bank account and cannot easily access value-added products such as savings and insurance products, and therefore cannot be included in the accumulation of funds. There are many reasons for this negative increase that has devastating economic consequences.

The draft resolution aimed at removing the scale and volume barriers that prevent access to the in-depth and operational effectiveness of financial markets in Turkey and targeting configurable inclusiveness with more users will change many existing dynamics in the country's economic structure. This approach, which foresees that the financial base can only adhere to the fast and agile transaction potential brought by digitalisation through financial institutions with similar speed and agility, also guarantees that the commercial structure established within the framework of the criteria to be mentioned below will continue by renewing itself.

We face a business plan of similar scope to the recently published digital banking law in the European Union (EU)

We should underline that the draft brings a clear distinction between digital banking and interface development. The BRSA also plans to manage capital and system-based risks primarily through this grouping. For the scope of SME, which is mentioned in many parts of the draft, the definition in the Regulation on the Definition, Qualifications and Classification of Small and Medium- Sized Enterprises, which has already been published, is used and the customer segment in digital banking is also structured within the framework of this definition. We should underline that the definition of SME in this regulation published in 2005 should be updated soon and have diffraction that reflects the characteristics of the age. Another indicator foreseen in the draft is that the unsecured cash loan that can be used is four times the monthly average net income of the person, or if this variable cannot be determined, which is attempted to be minimised in the draft, a total of ten thousand Turkish Liras. Aiming to increase the volume of products for the low-income group sustainably in this way, the BRSA seeks to balance the negative effect of the restrictions and the decreasing transaction pool with the sustainable positive impact of the operational costs reduced by digitalisation. The fact that the restrictions in the draft can be lifted with the BRSA decision if digital banks increase their capital amount to 2.5 million TL is another limit of the vision put into digital banking.

The definitions of very low prices or extremely highinterest rates in deposit products, which are specified in the 8th article of the draft, in the section "Maintaining Market Confidence and Stability", are one of the sections that can be expected to be rearranged due to their open structure and the possibility of being evaluated relatively differently. Another approach that aims to capture the spirit of digital banking and supports competition through service quality is that the continuity of service is stated on the websites of digital banks based on distribution channels and highlighted as an essential performance indicator.

The draft is a significant step for enriching an important component of the financial system, such as banking activities with innovative digital banking applications and for straightforwardly introducing inclusive and customisable banking products, independent of geographical location, with current and potential users. I  fully believe that the draft will find numerous application spheres in the Turkish financial markets and constitute the first steps of an engaging digital platform ecosystem that investors with different risk appetites from Western and Eastern markets will want to participate in. Moreover, in terms of participation banking, the draft is revolutionary in that it shows that the inclination should be digital. I believe that real innovation and product diversity in financial markets will come from institutions that are obliged to achieve this due to their scale. We will see that the draft, which opens an encouraging and sustainable field of activity for realising the desired/targeted penetration and market volume for participation banks, creating real interest-free alternatives to financial product users, will be developed with additional regulations to be communicated soon, perhaps combined with laws on other digital financial assets.

Although there is a long way to go, the fact that all financial institutions, no matter how old, are at the starting line at almost the same level is another feature that makes the picture even more bright in terms of participation banking.

The draft is revolutionary in terms of showing that the direction to go in participation banking should be digital

Director / Risk Management, Compliance, Sustainability at insha Zeynep Stefan