The push to eliminate cash in Turkey faces a series of barriers, which complicates meeting the country’s professed 2023 deadline to transition away from physical currency.
Though digital payments and mobile phone penetration have been strong across Turkey, there are still many instances where consumers prefer cash, according to Dr. Soner Canko, CEO of Turkish bank consortium Bankalararasi Kart Merkezi (BKM), or the Interbank Card Center. PYMNTS recently spoke with Canko to get his insight into the state of cash in Turkey. While Turkey has made progress in its efforts to phase out cash, Canko acknowledged that cash still plays a strong role in the nation’s economy.
“People use cash mostly for micropayments. … If they buy a newspaper [or a] magazine, [or] for taxi payments, open bazaars or fresh markets,” Canko said.
Micropayments are the primary area where Turkish consumers still prefer cash. The average amount spent on these purchases may be small, but consumers might make several of these transactions every day. According to a 2016 report by the World Bank, more than 50 percent of all person-to-business payments in Turkey are made in cash. Additionally, those who fall outside of Turkey’s digital banking infrastructure exhibit a strong preference for cash.
“Cash usage is also very popular for the unbanked population; for example, people in rural areas [who] work as farmers. They always prefer [to use] cash because they’re living in a shadow economy, in a gray economy,” he said.
Where Does Turkey Stand With Cash?
The unbanked population accounts for 31 percent of the country’s adults – and, according to BKM, its shadow economy accounts for approximately 30 percent of the country’s overall GDP. In other words, nearly one-third of Turkey’s population is more likely to use cash. But Turkey is also home to a younger, tech-savvy population that is more open to adopting modern payment solutions.
“In terms of inhabitants, our population in the region is considerably [large] — more than 80 million … and the population is young, and very much open to technology adaptation,” Canko said. Approximately half of Turkey’s population is under 30 years old, which means cash could see more competition as this group becomes more active in the economy.
Turkey’s economic situation is also different from nearby countries. Taking into account the average age, population size and technological availability, Turkey’s economic position might be more similar to its European neighbors than that of the Middle East. Though it’s still waiting to join the European Union, Turkey has adopted many of its financial regulations. These regulations, which allow digital solutions to thrive, could further challenge the use of cash.
What’s Challenging Cash?
Consumers tend to prefer the convenience of cash for daily transactions, and digital payment providers will need to combat that if they want to change the way consumers pay. While there’s been a proliferation of digital payment methods, the ultimate decision belongs to the customers, and there is no guarantee these methods will be used. In 2016, BKM launched Troy, a domestic card scheme, with card provider Discover as its international partner. The Troy card is designed to encourage the rural and unbanked populations to more actively participate in Turkey’s digital banking system.
“Cash usage in Turkey in the last 30 years has dramatically changed. We were purely a cash country 30 years ago, before we [introduced] debit and credit cards. That’s changed daily consumer life dramatically,” Canko said. Plastic payments have increased since 2002, as has average household consumption, which was at about 10 percent in 2002 and has increased to 40 percent in recent years.
Along with the availability of debit and credit cards, Turkish consumers have increased access to financial tools. There are 12,000 bank branches in Turkey, along with 52,000 ATMs – and this number is increasing.
“Bank branches are serving our cashless Turkey vision,” Canko said. However, an increase in ATM availability does give customers more access to cash, as well as additional financial services.
Lessons Learned from India
When it comes to Turkey’s approach to digital money, it’s looking to others as examples.
“There are bigger countries than us in terms of digital payments, such as South Korea, Sweden and China. We follow those countries [for digital payments], but we’re also looking to countries like India,” Canko said. “India [has] made a lot of radical progress in terms of cash demonetization, digital identity and [digital] wallet penetration.”
Since 2016, when India issued a ban on its highest denomination notes, its demonetization has hit a few roadblocks, including resistance from consumers. In fact, India’s cash usage is on track to reach $2.5 trillion by 2021, according to the PYMNTS Global Cash Index: India. Its demonetization could provide other countries with more insight into the complex role that cash plays in a national economy. For Turkey, Canko said, those insights mean BKM might approach things a little differently than India.
“What India did from a decision point of view is very good, but they made all of their actions in a very short period of time, putting the country into shock,” he said. “So the lesson … is, whatever you do, make sure you have a sufficient timeline [for it].” Turkey uses India as a “benchmark” – and similar to India, Turkey is targeting its unbanked population in hopes of getting increased support from regulatory bodies.
“What we see from benchmark countries is that government support is very important for [a] cashless vision,” Canko said, adding that the government’s position on cash is “changing day by day.”
Will Turkey Become Cashless by 2023?
Turkey started its demonetization efforts in 2010, and over the following eight years it’s made several strides forward in digital and online banking. However, despite the nation’s efforts, going completely cashless will be challenging, and Canko acknowledged that the 2023 deadline is really more of a guideline.
“Having said that, we don’t think it’s going to be … 100 percent digital,” Canko said. “What we believe is that it’s going to be the moment [that] Turkey is using less cash than ever.”
To that end, there are still instances where cash use may be the right choice for future consumers.
“Zero cash is such a vision for society, but personally, I don’t believe zero cash is necessary for any society,” he said. “Zero cash is an aggressive target, but it doesn’t mean that [it is] necessary.”
Going 100 percent cashless would require greater digital infrastructure than the country currently possesses — each citizen would need 24/7 internet access, which is a difficult feat in any country. In other words, it looks like 2023 is unlikely to be the year that BKM will inspire Turkey to quit cash.
Editor’s note: The data cited in this article, unless otherwise attributed, was sourced from PYMNTS.com research. It is independent of the BKM’s findings regarding the state of cash.