A milestone in the Turkish banking system: draft regulation on the operating principles of digital banks and the bank as a service model – Finance and Banking


The Banking Regulation and Supervision Agency (“BRSA“) announced on August 19, 2021 the draft regulation which includes the operating principles and procedures that are planned to be put in place for (i) digital banks and (ii) banking as a service model (“Draft regulationThis project represents an important step in the digitization of the Turkish banking system.

II. Digital bank

In accordance with Article 3 of the draft regulation, digital banks are defined as “credit institutions that provide banking services primarily through electronic banking distribution channels instead of physical branches. “The entire regulatory framework relating to credit institutions will also be applicable for digital banks.

In accordance with Article 5 of the draft regulation, digital banks are only allowed to provide their services to (i) financial consumers and (ii) small and medium-sized enterprises. Digital banks are also permitted to (a) operate in interbank and capital markets, (b) accept bank deposits or grant loans to other banks, (c) offer deposit services to institutions payment or electronic money and (d) offer banking as a service to interface developers who cross the threshold of small and medium enterprises.

Digital banks are not allowed to open physical branches. On the other hand, in accordance with Article 6 of the draft regulation, they must establish at least one physical office which will only deal with customer complaints. In addition, digital banks can provide services to their customers through existing ATMs (ATMs) of other banks or those they will establish themselves. In addition, they can provide cash withdrawal or deposit services through their contracted merchants.

The maximum amount of unsecured cash loans that digital banks can lend to a financial consumer cannot exceed 4 (four) times the average monthly net income of the person concerned. In the event that the customer’s average monthly net income is not verifiable, the total unsecured cash that can be loaned to the consumer cannot exceed 10,000 TRY (ten thousand Turkish liras).

If a digital bank increases the total amount of its minimum establishment capital to 2,500,000,000 TRY (two billion five hundred million Turkish liras), it can apply to the BRSA and request an exemption from the activity limitations listed in the Article 5 of the draft regulation.

In accordance with the draft regulation, the general rules relating to authorization procedures for banks, as set out in the Regulation on banking operations subject to authorization and indirect ownership of shares (“Regulation“), will also apply to digital banks. According to Article 11 of the draft regulation, the minimum capital requirement for digital banks is TRY 1,000,000,000 (one billion Turkish liras).

Banks that already have a BRSA license will not be required to apply separately to offer digital banking services. Banks that wish to close their existing physical branches to move their services fully or partially to digital will be allowed to do so, provided they act in accordance with a plan that will be approved by the BRSA.

Payment service providers, leasing, factoring and finance companies may also apply for a digital banking license provided that they (i) provide the application documents specified in the Banking License Regulation and the draft regulation, (ii) comply with the licensing requirements determined under Banking Law No. 5411 and the draft regulation, and (iii) comply with the activity limitations listed in the draft regulation.

III. Bank as a Service (“BaaS”)

In accordance with Article 3 of the draft regulation, BaaS is defined as “a banking service model that allows interface developers to link their customers’ transactions through service banks, connecting to service bank systems directly through APIs or open banking services in exchange for fees to be paid to service banks, as a result of which the interface developers are able to deliver new products and services using the advantages of the banking infrastructure available to service banks. “Conventional banks can also carry out BaaS activities.

Interface developers are financial technology companies or other businesses / businesses that allow their customers to perform their banking transactions through the mobile app or web browser-based interface they develop, by accessing the banking services offered by the service bank on its API or open banking services. Service banks are authorized to offer BaaS only to interface developers established in Turkey.

The proposed regulations prohibit financial technology companies from using the words “payment service provider, bank, payment institution or electronic money institution” in their trade titles or from using any expression that could give the impression that they operate as a bank / payment service provider. In their customer contracts, they must expressly state that they (i) are not a bank or a payment service provider and (ii) that the banking services are provided by the service bank. They must also share on their websites copies or models of the standard agreement to be executed between the interface developer and the customer, and the agreement between the service bank and the customer; as well as the name and logo of the service bank on their home page. If the service bank issues a payment card on behalf of the interface developer, the name and logo of the service bank must be shown on the cards.

In accordance with the draft regulation, certain mandatory provisions must be included in the service agreement between the service bank and the interface developer, such as provisions obliging the interface developer (i) to comply with transparency requirements and (ii) not to store the customer of the bank information which is not necessary to offer its services or to comply with its legal obligations.

IV. Conclusion

The draft regulation, which is expected to enter into force on January 1, 2022, is an important step in the digitization of the banking system, with the aim of changing banking models in Turkey, in order to keep pace with the digital age.

This article was first published in Legal Insights Quarterly by ELIG Gürkaynak Attorneys-at-Law in December 2021. A link to the Legal Insight Quarterly can be found here.

The content of this article is intended to provide a general guide on the subject. Specialist advice should be sought regarding your particular situation.

About Ruben V. Albin

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