Establishing A Payment Service Provider In Turkey

Covid-19 pandemic changed our needs and preferences. Online learning, online meetings and online shopping became a daily routine for most of us. These changes boosted e-commerce and digital payments. Thus, the global payment services industry has emerged rapidly, and Turkey is no exception to this trend.

Today there are 27 payment institutions and 29 electronic money institutions in Turkey.

Here is a brief roadmap on establishment of a payment service provider (“PSP”) in Turkey.

1. Who Can Conduct Payment Services?

Only the Central Bank of Turkey (“CBT”) and PSPs can provide payment services in Turkey.

Banks, electronic money institutions, payment institutions and Post Office Company of Turkey (Posta ve Telgraf Teşkilatı Anonim Şirketi) are the “Payment Service Providers” as per the relevant regulations.

2. Applicable Regulations And Regulatory Bodies

PSPs are subject to (i) Law on Payment and the Securities Settlement Systems, Payment Services, and Electronic Money (“Law”) and (ii) Regulation on Payment Services and Electronic Money Issuance, Payment Institutions and Electronic Money Institutions dated 01.12.2021 (“Regulation”).  The CBT is the regulatory body. 

In addition, financials of PSPs are subject to independent audit as per Law on Organization and Duties of the Public Oversight, Accounting and Auditing Standards Authority.

3. Services Considered As The “Payment Services”

Following services are considered as “payment services” subject to licensing by the CBT:

• all necessary transactions for operation of a payment account
• transfer of the funds from customer’s payment account through direct debiting or by payment cards or similar devices
• issuance and acceptance of a payment instrument
• money remittance
• execution of payment transaction where the consent of the payer to such transaction is given by means of IT or electronic communication device and the payment is made to the IT or electronic communication operator acting only as an intermediary between the payment service user and the supplier of the goods and services
• services enabling payment of bills
• at the request of the payment service user, payment initiation service relating to the payment account at another PSP
• provision of online consolidated data regarding one or more payment accounts of a payment service user held at the PSP, upon approval of the user
• Other transactions and services that have reached the level to be determined by CBT in terms of total size or impact in payments.

4. Founders/Shareholders Of PSPs

Real or legal persons can be founders/shareholders of a PSP. The Law or the Regulation does not set forth a minimum number of founders or shareholders, therefore a single shareholder can establish one. 

Those who hold ten percent or more shares in a PSP’s capital and have control over the PSP must meet the criteria set forth under the Law, such as, not being among responsible persons at institutions whose license have been canceled by the CBT and also meet the bank founders’ eligibility criteria as set forth in the Banking Law No. 5411, such as:

• not have been declared bankrupt or not have been issued a decision for composition (konkordato) or postponement of bankruptcy;
• not have been sentenced for certain crimes like bribery, money laundering, tax evasion and crimes under the Banking Law or Capital Markets Law which are punished with imprisonment, etc.;
• having the financial strength, qualifications, honesty, and reputation necessary for the payment services business.

5. Conditions For Obtaining A PSP License From CBT

The company that will file the application for a PSP license shall:

• be established as a joint-stock company with paid-in capital of at least TRY 1,000,000 or TRY 2,000,000 depending on the types of payment services to be provided, and TRY 5,000,000 if an electronic money institution (If the PSP does not provide services other than giving online consolidated data on payment accounts of its users, no minimum capital amount is required under the Regulation- general rules for joint stock companies would be applicable, i.e. TL 50.000);
• have all its shares in registered form and for cash;
• include statements in its business name, indicating that it is a payment institution or an electronic money institution;
• have management, personnel, information systems and technical infrastructure sufficient to carry out payment services in line with the regulations;
• establish departments in charge of customer complaints and objections;
• have risk management and internal control systems in place;
• ensure information security and confidentiality of payment service users and their funds;
• have a transparent and open shareholding structure and organizational scheme that will not impede the supervision of the CBT; and,
• meet other requirements and complete paperwork listed in the Regulation.

6. Equity Requirements For PSPs

The PSPs shall have a minimum equity of 5,500,000 or TRY 9,000,000 depending on the types of payment services to be provided, and TRY 25,000,000 if such PSP is an electronic money institution. The equity of the PSPs is calculated semi-annually on June and December in accordance with the Regulation. The CBT may revise these numbers every year in January based on the price indexes announced by Turkish Statistical Institution.

If the PSP does not provide services other than giving online consolidated data on payment accounts of its users, no minimum equity requirement is applicable under the Regulation.

7. The Statutory Bodies Of PSPs

The statutory corporate bodies of a PSP are: (i) general assembly of shareholders and (ii) board of directors composed of at least three directors.

An internal audit committee must also be established by the board.

8. The Activities That Can Not Be Carried Out By PSPs

Following activities are explicitly prohibited by the Regulation:

• payment service activities outside the scope of such PSP’s license, without prior approval of CBT
• any commercial activity other than the payment services and ancillary-services related thereto
• foreign currency trade in relation to payment transactions, where both sides of the transaction are based in Turkey
• issuing a payment instrument linked to the payment account to be used as a payment method for the purchase of goods or services
• charging interest on the payment account it keeps or afford advantage to the payment account holder depending on the duration or amount
• accepting deposits or participation funds
• giving loans
• offering installment plans.

9. PSPs’ Cooperation With Legal Entities Based Abroad

PSPs are allowed to offer services in collaboration with foreign legal entities which have obtained approval from CBT in respect of anonymous means of pre-payment. Such collaborations are allowed merely in respect of the transactions where at least one of parties (either the sender or the receiver) is based abroad. Such entities must also be licensed as a payment institution or electronic money institution in their country of foundation.