PAYMENT AND ELECTRONIC MONEY INSTITUTIONS

I. INTRODUCTION

This information note is about the scope and limits of the activities and services of payment and electronic money institutions, as well as changes in the legislation on this subject.

II. LEGISLATION

The general legislative framework on Payment and Electronic Money Inistitutions is determined by Law No. 6493 on Payment and Securities Settlement Systems, Payment Services and Electronic Money Institutions ("Law"); rules and regulations regarding activities of institutions are set by Regulation on Payment Services and Electronic Money Issuance and Payment Service Providers ("Regulation") and Communiqué on the Information Systems of Payment and Electronic Money Institutions and Data Sharing Services of Payment Service Providers in the Field of Payment Services ("Communiqué").

III. WHAT IS ELECTRONIC MONEY ?

Electronic money is defined in Article 3 of the Law as "a monetary value issued by an electronic money issuing institution in exchange for funds accepted, stored electronically, used to carry out payment transactions defined in this Law, and also accepted as a means of payment by real and legal persons other than the electronic money issuing institution."

According to this definition, a monetary value must have the following characteristics in order to be considered electronic money:

a.    Issued by an institution authorized to issue electronic money

b.    Can be stored electronically

c.     Can be used as a means of payment

d.    Accepted as a means of payment by persons other than the issuing institution

IV. ELECTRONIC MONEY INSTITUTIONS

As can be understood from its definition, electronic money must be issued by an authorized institution within the framework of certain rules and principles. The institutions that can issue electronic money are listed in the first paragraph of Article 18 of the Law; it is prohibited for persons other than (i) Banks operating in accordance with the Banking Law No. 5411 ("Law No. 5411"), (ii) Posta Telgraf Teşkilatı Anonim Şirketi and (iii) electronic money institutions that have been granted an electronic money issuance license to engage in electronic money issuance activities.

The aforementioned legal provision determines the conditions that electronic money institutions must meet. Accordingly, institutions that will engage in electronic money issuance activities must meet the following conditions:

1. To be established as a joint stock company

2. Those who own ten percent or more of the shares and who control them must have the qualifications required for bank founders in Law No. 5411

3. Share certificates must be issued for cash and all must be registered

4. The paid-up capital must be at least five million Turkish Liras in cash and free of any collusion,

5. To have the management, sufficient personnel and technical equipment that can carry out the transactions within the scope of the Law, to establish units for complaints and objections

6. To take the necessary measures for the continuity of electronic money issuance activities and for the security and confidentiality of funds and information related to electronic money users

7. To have a transparent and open partnership structure and organizational chart that will not hinder the supervision of the Central Bank of the Republic of Turkey ("Bank")

The fourth paragraph of Article 18 of the Law stipulates that electronic money institutions will carry out their activities through banks defined in Law No. 5411; and the scope and limits of the activities are determined by Article 20 of the Law.

Accordingly, electronic money institutions will be able to issue electronic money as much as the funds they receive; and they are obliged to convert the funds deposited by the electronic money user into electronic money without delay and make it ready for use. They are also obliged to transfer the funds they collect in exchange for electronic money issuance to a separate account to be opened with banks defined in Law No. 5411.

The activities that electronic money institutions cannot do are also listed in Article 20 of the Law; it is stipulated that they cannot engage in lending activities, cannot pay interest to the bearer of electronic money depending on the holding period, and cannot provide any benefit. Banks have been authorized to further determine other activities that cannot be carried out by the electronic money institution by the Law.

VI. PAYMENT SERVICES AND PAYMENT INSTITUTIONS

The scope of payment services is defined in Article 12 of the Law. Accordingly, payment services refer to all transactions necessary for the operation of a payment account, money transfers, all transactions necessary for the use of a payment instrument, money orders, mobile payment services, and services for the mediation of bill payments.

The aforementioned legal provision also lists the services that are excluded from the scope of payment services; in other words, services that are not considered payment services. Accordingly, a payment service cannot be said to exist in the following cases:

• Payment is made directly to the recipient in cash without using an intermediary.
  

• Payment transactions are made through an authorized commercial representative on behalf of the sender or recipient.
  

• Payment transactions made by collecting and delivering money in cash for non-profit or charitable activities.
  

• Services where cash is given to the sender from the recipient as part of the transaction, at the explicit request of the payment service user, immediately before the payment transaction for the purchase of goods or services is carried out.
  

• Foreign exchange purchase and sale transactions carried out in cash, regardless of the payment account.
  

• Payment transactions made with any of securities, foreign bank checks, traveler's checks and paper postal orders.
  

• Payment transactions made between banks, clearing institutions, central counterparties, clearing houses, payment service providers and other participants in the system on their own behalf and accounts.
  

• Payment transactions related to capital market activities of capital market institutions within the scope of the Capital Markets Law.
  

• Services provided by technical service providers that do not own the funds transferred at any moment of the transaction.
  

• Transactions related to instruments that can be used for the purchase of goods or services offered only at the workplace of the issuer of the payment instrument, in a limited network of service providers or within the framework of a commercial agreement made with the issuer of the payment instrument for a limited variety of goods or services.
  

• In payment transactions where the purchased goods or services are transferred to the information or electronic communication device and used through that device, in cases where the information or electronic communication operator does not only act as an intermediary between the payment service user and the service provider, through an information or electronic communication device.
  

• Payment transactions made between payment service providers and their representatives or branches on their own behalf and account.
  

• Payment services provided between a parent company and its subsidiaries or between subsidiaries, where no payment service provider other than a company belonging to the same group acts as an intermediary.
  

• Cash withdrawal services provided through ATMs operated by a service provider that does not offer any of the payment services and is not a party to the framework agreement made with the customer who withdraws money from the payment account and does not work on behalf of one or more card issuing institutions.
  

• Payment services can be provided by payment institutions in addition to institutions authorized to issue electronic money. Payment institutions refer to legal entities authorized to provide and carry out payment services; Article 14 of the Law stipulates that payment institutions wishing to operate in the field of payment services must obtain a license from the Bank. The conditions they must meet, apart from the amount of capital, are the same as the conditions that institutions that will engage in electronic money issuance activities must meet.
  

• The scope of activities is specified in the 4th and 5th paragraphs of Article 14 of the Law; and it is stipulated that, without being limited to these, payment institutions (i) can only hold payment accounts on condition that they are used only for payment transactions, (ii) cannot issue electronic money, and (iii) cannot engage in lending activities. The Bank are also authorized to determine other activities that cannot be carried out by payment institutions.
  

• Within this scope, the Regulation on the Non-Use of Crypto Assets in Payments issued by the Bank has determined the rules and principles regarding the non-use of crypto assets in payments, the non-use of crypto assets directly or indirectly in the provision of payment services and the issuance of electronic money; payment and electronic money institutions ban on acting as intermediaries for platforms that offer buying, selling, storing, transferring or issuing crypto assets, or ban on transfers to be made from these platforms.
  

VII. CHANGES BROUGHT BY AMENDMENTS TO THE REGULATION AND COMMUNIQUE

The amendments to the Regulation and Communique, which determine the scope of activities, obligations and business models of payment and electronic money institutions, have brought innovations in terms of both restrictions on the activities of institutions that issue electronic money and/or provide payment services and compliance with sector practices.

1. CHANGES IN THE REGULATION

The Regulation on Amendments to the Regulation on Payment Services and Electronic Money Issuance and Payment Service Providers, published in the Official Gazette dated 07.10.2023 and numbered 32332 ("Amendment"), expands the scope of payment services and determines the rules and principles for cooperation between payment service providers, thereby establishing a regulated framework for activities in the sector.

a. The Amendment defines "Digital Wallet", "Card System Establishment" and "Qualified Services" and brings the legislation into line with sector practices. Digital Wallet is defined as a payment instrument offered as an electronic device, online service or application that stores information related to the customer's designated payment account or payment instrument and allows the customer to make payment transactions using the information related to the designated payment account or payment instrument. The definition of Qualified Services was added to the legislation to include services that do not fall within the scope of payment services but facilitate, secure or enhance the effectiveness of payment services offered by supporting the financial status and financial awareness of individuals, such as personal budget management, bill management, account verification and payment reminders. The Card System Institution, currently defined in the Bank Cards and Credit Cards Law No. 5464, has also been included in the legislation.

b. In cases where the payment service user has a framework agreement for any payment service with the institution from which they receive the payment service, the requirement to obtain approval and request from the payment service user for the presentation of additional payment services has been removed.

c. A condition has been introduced that the party initiating the payment transaction must use more than one payment service provider in order for the payment transaction to be considered as a payment initiation service.

d. Ödeme hizmeti sağlayıcısına, gerek kontrolünü elinde bulundurduğu ödeme hizmet sağlayıcısına gerekse kendisini kullanan diğer ödeme hizmet sağlayıcılarına ilgili hizmetleri aynı şartlar ve imkanlar dahilinde ve aynı ücret politikası ile sunma zorunluluğu getirilmiş olup; yine bu şekilde hizmet veren ödeme hizmeti sağlayıcılarının, kontrolünü elinde bulundurduğu ödeme hizmeti sağlayıcısını diğerlerinden avantajlı konuma getirecek işlemler yapması yasaklanmıştır.  

e. The amendment to Article 11 of the Regulation titled "Authorization to Operate" adds new documents to be submitted with the authorization to operate application.

Accordingly, (i) real person partners and managers must submit, in addition to the undertaking that they have not declared bankruptcy or receivership, a certificate of bankruptcy and receivership from the relevant trade registry office for companies in which they own at least 33%, as well as a document on their Findeks credit rating and an undertaking that their capital in the company is covered by their own resources and has been provided and deposited in cash, free of any collusion; (ii) legal person partners and managers must submit, in addition to the undertaking that their restructuring applications through conciliation have not been approved and that no decision for postphoning bankruptcy has been made y, a certificate of bankruptcy and receivership from the relevant trade registry office for companies in which they own at least 33%, as well as a document on their Findeks credit rating and an undertaking that their capital in the company is covered by their own resources and has been provided and deposited in cash, free of any collusion.

f. The requirement for permission for share acquisitions and transfers between companies belonging to the same group has been removed, provided that they do not cause any change in the share ratio of the ultimate shareholders of the institution, directly or indirectly. Instead, a notification obligation has been introduced.

g. The "Digital Wallet Service" has been included within the scope of payment services, and the compliance process for the activity permits and compliance processes of the institutions that will provide this service has been regulated.

h. The services to be provided within the scope of intermediation of activities related to the purchase and sale of processed precious metals and precious stones listed in Article 2 of the Decision No. 32 on Protection of the Value of Turkish Currency, subject to the transaction amount limit condition, have been included within the scope of payment services.

i. Payment and electronic money institutions have been granted the right to provide services as interface providers to offer ancillary services that may increase the use of the institution's payment services, such as marketing and directing the customer to the systems of the relevant financial institution within the scope of the Regulation on the Basic Principles of Activities of Digital Banks and Service Model Banking, except for transactions related to the purchase and sale of foreign exchange listed in Article 2 of Decision No. 32 on Protection of the Value of Turkish Currency, directly or indirectly.

2. CHANGES IN COMMUNIQUE

On October 7, 2023, the Communiqué on Amending the Communiqué on the Information Systems of Payment and Electronic Money Institutions and Data Sharing Services of Payment Service Providers in the Payment Services Field ("Amendment Communiqué") was published in the Official Gazette No. 32332 and entered into force. The following changes have been introduced:

a. The Amendment Communiqué defines "Near Field Communication" and facilitates identification and verification processes.

b. The scope of restrictions on outsourcing has been narrowed.

c. It has been regulated that the production of products and services to be obtained within the scope of information and data security in Turkey or the presence of R&D centers of their manufacturers in Turkey will be considered as an important criterion in outsourcing; such providers and manufacturers are required to have intervention teams in Turkey.

d. Data transfer abroad has been relaxed on condition that it is limited to the extent necessary for the smooth processing of the payment transaction and the principle of proportionality is observed.

In addition to the scope and limitations of the activities and services described above, both payment and electronic money institutions are subject to the Regulation on Measures on the Prevention of Laundering of Proceeds of Crime and Financing of Terrorism and are also supervised by the Financial Crimes Investigation Board (MASAK).