Last May, with a history of nearly ten years around the world, digital banks about which I include global developments.Only Digital BankI published an article titled “” and stated that legal regulations on digital banks are expected in our country at the end of 2021.
Finally, the first draft of the regulation we have been waiting for was published by the Banking Regulation and Supervision Agency (BDDK) last week. I would like to convey to you the highlights of the Draft Regulation on the Operating Principles of Digital Banks and Service Model Banking, which sets the standards in both digital banking and service model banking.
The regulation has 3 main purposes for our banking sector.
- Promoting financial innovation
- Increasing financial inclusion
- Facilitate access to services
The importance of managers responsible for information systems
In order to ensure the necessary knowledge and care regarding information systems, which are the most important components of Digital Banks, it is emphasized in the draft regulation that “the highest level manager responsible for information systems should be at least the deputy general manager and the same manager should be a natural member of the board of directors.” In other words, top managers must have the education and experience to be information systems managers; It has been clarified that they will be both authorized and responsible for the duties they undertake.
The credit limit that can be given to financial consumers is four times the monthly net income
In the regulation, which defines digital banks as credit institutions that offer banking services through electronic banking services distribution channels instead of physical branches, the total of unsecured cash loans that digital banks can provide to a particular customer who is a financial consumer cannot exceed 4 times the average monthly net income of the relevant customer and cannot exceed the customer’s average monthly net income. It also states that if not identified, the total amount of unsecured cash loans that can be extended to such customers cannot exceed 10 thousand Turkish liras.
Digital banks will not be able to open physical branches
Customers of digital banks will only be financial consumers and SMEs. Digital banks will not be able to organize or open physical branches outside the headquarters and affiliated service units of the headquarters. Digital banks will be required to set up at least one physical office to handle customer complaints. Units that will be established as call centers will not be used as a branch other than this purpose. In addition, the regulation stated that the promised continuity percentage for digital banks’ internet banking and mobile banking distribution channels cannot be lower than 99.8 percent.
Paving the way for the Banking-as-a-Service (BaaS) model
The service, which is called BaaS abroad and service model banking in the regulation, found its place in the draft regulation. It is stated in the regulation that service banking service can only be offered to interface developers resident in the country. With the regulations in this section, an important step has been taken to enable non-banking sectors (e-commerce, telecom, retail, etc.) to offer banking services to financial consumers in the near future.
In addition, ensuring that identity verification (KYC) and transaction security obligations are fulfilled was among the operating principles determined for service banks, under which the service bank is responsible.
It should be noted that the Regulation stipulates that not only digital banks but also all banks included in the Banking Law can be a service bank and offer BaaS services.
The compliance of existing financial institutions is being clarified
Although the draft regulation does not require an additional application from existing banks for those who want to become a digital bank, the need to prepare a plan and obtain compliance to reduce and close their branches has been added. Considering the existing bank types in our country (deposit, investment and participation), it is not difficult to foresee a demand for transformation in this regard.
In addition, if payment service providers, electronic money institutions, and other financial institutions (financial leasing, factoring, financing and savings financing) want to operate as digital banks, it is included in the draft regulation that they can apply for an operating permit by adapting their status.
Only Digital Banks are coming in 2022…
I think that providing a strong legal basis in our country for two separate issues such as “Digital Bank” and “BaaS”, which have been talked about extensively around the world for the last decade, is a very important development for banking activities in our country.
All parties have important duties to make this important development a valuable gain for all stakeholders. Thanks to the regulatory authority – BRSA – which shares the draft regulation with the public in a timely manner, there will be an opportunity to express opinions and comments on the draft.
It is clear that the regulation, which is aimed to come into force on January 1, 2022, is an important stage in terms of digital change and transformation in our country. Thanks to digital banks, the transformation of banking itself will inevitably accelerate. On the other hand, banking with the BaaS business model; The scope of its relationship with e-commerce, telecom, retail and other similar sectors will present us with an outward transformation. Convergence between different sectors and developments in FinTech will bring about innovative business models that offer many new opportunities.
Source: Digital Banks Are Coming! – FinTech Istanbul– August 22, 2021
