Deep Dive: What Does Open Banking Mean For Turkish Banks?

The European Union’s revised Payment Services Directive (PSD2) is tightening its grip on international finance as open banking initiatives continue to crop up in countries where the legislation
has already been ratified. The most intriguing PSD2 news comes from those that are just now implementing its changes, such as Turkey, which has followed other late bloomers in adopting PSD2 standards with just over a month left in 2019.

Turkey announced it would be fully complying with PSD2 in mid-November, and many of the changes to its financial and technology industries will be routine — at least for the financial institutions (FIs) and businesses in markets that have already experienced these shifts. Turkish institutions
will be expected to open their platforms and application programming interfaces (APIs) to smaller FinTechs and third-party players in ways that comply with PSD2, potentially including SCA. The nation has watched many European countries go through this process over the past year, so impacts on its financial ecosystem are at least expected if firms have not yet experienced them.

Turkish banks and businesses may be familiar with the broad strokes of PSD2, but its impact may be somewhat different. PSD2 connects the country to online banking platforms in other compliant regions, making it important for FIs across all markets to review how the legislation could change normal banking behaviors within Turkey.

Preparedness helps with confident compliance 

European countries that have not implemented PSD2 or some form of open banking have been an object of curiosity for the banking world since the regulation took effect in 2018. The Netherlands had its moment in the spotlight earlier this year when all the issues keeping it from implementing the rule were put on display. This included careful examination of the country’s existing regulations and legislative perceptions among its banks, businesses and end consumers, with the latter two mostly unfamiliar with the legislation. PSD2’s impact on the Netherlands’ banking infrastructure, retailers and economy was deeply investigated, and now it is Turkey’s turn.

The two countries appear to be approaching PSD2 from separate viewpoints and with different concerns, however. Dutch officials grappled with the specific changes the regulation would bring to business and financial operations, including data security and protection, before agreeing to support the rule. Turkish regulators and government officials spent less time deliberating whether they wanted to implement PSD2 and more considering how to integrate it.

Turkish and other regulatory officials had generally accepted that the country would implement PSD2 as previous treatises on the subject pointed to existing parallels between Turkish and European banks. Many FIs within the country, such as Gavanti Bank — an institution partially owned by Spain’s BBVA — already worked with European shareholders and are thus subject to PSD2 and adjacent rules. Easing relationships between banks and their European partners was likely a top reason for the country to comply.

Turkey’s close relationship with the EU also meant the country’s regulators were familiar with the regulation’s stumbling blocks and could better plan to avoid them. SCA required many firms to undergo severe shifts in authentication measures — a phenomenon Turkey was able to observe in full. Turkish regulators and banks have spoken of PSD2 and open banking as opportunities to usher more innovation and economic renewal into the country, though the country has not yet determined whether SCA will be included as part of its changes — a sidestep it can take as it is not a member of the EU.

Growing Turkish Unicorns 

Many Turkish banks and businesses view open banking as a boon for industry growth. The country is one of the first outside of the EU to adopt PSD2 rather than creating an open banking regulation of its own. Turkey’s Payment and Electronic Money Association (ÖDED), which represents payment and electronic money transfer services in the country, has lauded the move as an essential step for a more open, robust payment ecosystem and views PSD2 as a way for local businesses to achieve massive growth.

Some of these businesses may reach unicorn status, as PSD2 will grant startups access to greater amounts of data and more comfortable working relationships with foreign banks and partners, enabling easier growth. The world may thus soon see the rise of Turkish unicorns in finance and other industries.

PSD2 was slated to take full effect in Turkey on Jan. 1, 2020, and banks and regulators had been ensuring that they will be fully prepared, and most local FIs are already waiting with PSD2-compliant APIs.