Hello, my name is Mehmet Sezgin. I manage Garanti's payment systems for over thirteen years and recently I moved to the post of co-chairman, leaving the CEO post to join BBVA as the head of global payment systems.
And, of course, the major reason for such a move is two things basically, two folds:
One, Garanti's place in payment systems arena as a powerhouse and two, as Turkey's example of being a very competitive country when it comes to card based payment systems for over now 10 years.
In my view, there are three countries which move out of the crowd when it comes to payment systems. One is South Korea, one is Brazil and the other is Turkey.
So, a lot of people think of the Western World, U.S., you know, U.K. and sometimes Australia as the sources of good solutions for consumers and merchants for payment systems.
But actually, in the past decade, if you look at very closely what happened in this area, you will see these three countries making great inroads into pushing card solutions to the hands of consumers and merchants, with technology, with marketing and basically that is the key; how you combine technology with marketing is always the success factor.
A lot of people talk about Apple, for instance, and Steve Jobs is a person who combined technology and marketing but actually, it is almost in every area, when you have technology, it doesn't have to be a pure technology, it is, how you apply it to the daily life that makes a difference.
So, as (Garanti) Payment Systems in Turkey, we define our main competitor as cash and if you look at the world's share of cards, it is only 15%.
85% of all transactions in the world are done by cash, promissory notes, cheques, coupons, so, non-electronic, non-bank based systems.
So, if you define the payment systems as such, then you have a large chunk of a pie, market size, that you need to conquer.
And for that, exactly, you need technology and marketing because even if you have the best technology, if you can't market it in a way that is attractive to the consumers, then it is not going to be accepted and if you want to replace cash, you actually need to come up with new products and services.
So, of course, that 85% and 15% breakdown is between the whole world's population.
So, you need to break it down into different countries and there, you see the United States as one of the leading countries in terms of using cards as a payment vehicle more than others but still there, it is only 46%.
The rest of the 54% is done by cash and the reason why U.S. is successful in the 46% is not only for credit cards but also, you know, they had these famous cheques that they still use actually, for paying utilities, for rent and so forth.
So, they are now trying to use that as a base to replace with debit cards. So, if you include credit and debit cards together, you go up in that figure.
Turkey is about 34%. So 34% of all transactions in Turkey are made with cards. That is much higher than, for instance, a country like Spain and you would think Spain or France or Germany is better than Turkey but actually no European country, apart from U.K., is better than Turkey.
And the reason is exactly what I told before, that we were able to combine marketing and technology in a way that is helping us to offer attractive products and services and needless to say, Garanti has been forefront of offering such products and services for over a decade now.
We started with our famous Bonus program which has become a landmark for loyalty programs around the world. It has been by far the most successful loyalty program because it doesn't have any gimmicks.
It is just a pure loyalty program directed towards cardholders and merchants and we were able to license it now to 8 different banks.
So, just like the famous Visa, MasterCard licensing idea, we were able to come up with a program and create a brand called "Bonus" and made it a very successful consumer brand and then turned it into an interbank brand so that other banks could issue those cards.
We even went to Romania, in a totally different culture, when it was just applying to the European Union, so, it was a very difficult experience for us, and launched Bonus there as well. It has now over 5% market share with the same brand, with the same business model.
So, the payment systems in Turkey have definitely become a role model for many other countries but there are difficulties for those countries to take what has been successful in this country based on several reasons.
Why? One is, of course, the business model. The business model that we are able to implement in Turkey was to put payment systems in one hand.
So, for instance, at Garanti Bank, we have this company Garanti Payment Systems, which combines issuing and acquiring, risk, operations, technology, marketing and sales, which is very difficult for a lot of banks to replicate.
Because most banks have, first of all, legacy systems, which means that they have silos of different technologies but legacy systems are also valid, unfortunately, not for technology but for the divisions.
So, many banks have issuing and acquiring at different hands. So, one person is in charge of card marketing and sales and totally other division and person is in position of acquiring.
But actually if you think yourself as a consumer, what happens is, when you make a transaction, you are at the point of sale.
You are a consumer carrying a card and you actually are at the point of sale of a merchant. So, there is only one transaction but banks actually take it as two transactions. They say, OK, while the merchant sends the transactions, that one transaction to the merchant acquiring bank and then the cardholder actually had made one transaction.
In reality, there is only one single experience and our job in Turkey has been to capitalize on that experience, to track that experience and to make it richer, for both the merchant and the consumer and that has been the key for our success.
Now, that is the approach, that is the business model. So, when you have that business model, you need to have the organizational model as well. So, issuing and acquiring going hand in hand into the same division but then, of course, you need to have the technology to support it.
At Garanti Bank, we moved into chip technology way back in 2000.
We were the first bank in Turkey to move to chip and we were one of the very first banks, actually after French banks, we were the first bank in Europe, to offer chip technology.
And the reason that we opted for chip technology at that time was not for fraud.
Everybody thinks of chip as a source to prevent fraud but we actually have identified chip as a smart device that we can put on the card and develop a lot of marketing solutions for the merchants and the cardholders. Again, to capitalize and enrich the experience of shopping.
So, ever since 2000, we developed a lot of expertise using that smart technology. When you have chip, of course, that chip interacts with the POS machine.
So, you need to make the software on the POS machine a better one, rather than just taking it as a commodity of accepting transactions and that is, again, one of the biggest shortcomings of payment systems in many countries including the U.S. and even continental European countries.
Actually, the banks have come together over the years to create acquiring companies on behalf of them and their main job was just to accept cards. Now, acceptance is very important, of course, but rather than making into commodity business, a standard acceptance business, again, if you look at it as a relationship between the bank and the retailer, then you have the chance of enriching that particular experience as well because apart from enriching the customer experience, retailer experience at the very transaction.
The first and easiest way to capitalize on a retailer-bank relationship is to bring the cash flow into the branch and that is where the SMEs come into the picture.
Most banks usually concentrate on commercial banking and retail banking and SMEs are always lost in between.
Now, Garanti has identified SMEs as one the key business lines ever since probably 2002 or so. We have actually a business line, a segment, only for SMEs directly reporting to the CEO of the bank.
So, we work with that business line very closely to bring in new SMEs and once we have a POS there that brings the cash flow then the branches are able to cross sell.
So, they cross-sell utility payments, tax payments, payroll services, of course, lines of credit and SMEs are not very good in creating P&Ls or balance sheets.
So the only way to understand their real capacity is when you look at their cash flow which is generated by the real customers. So, by learning about the capacity, the strength of the SME, the branches and the credit divisions of the bank are able to offer better suited prices and lines of credit to the SMEs.
So, by concentrating on acquiring business, you actually target two things at the same time. One, as I mentioned before, you enrich the customer experience at the point of sale and two; you actually bring in SMEs to the banks.
Today, Garanti has half a million POS machines. In Europe, Garanti is the only bank after CartaSi, which is actually a combination of Italian banks, to have this much POS machines and more than 75% are active. We generate about 30-35 billion Euros of volume and this is an emerging market with only $10,000 per capita income and even with this, we are # 12 or 13 in terms of acquiring volume, in purchase volume according to recent reports.
So, I mentioned chip technology, I mentioned enriching the customer experience, I mentioned the strength of SMEs and their contribution to the bank.
Now, when I talked about chip and the POS interface and the banks' ability to learn how to deal with them, you of course develop other services with that smart technology.
The other technology that we developed back in 2006, which was first in Europe, was contactless.
Garanti was the first bank to offer contactless solutions to its cardholders and merchants back in 2006. Now, we sometimes show the TV commercial that goes with that and everybody still loves and it is still valid for a lot banks around the world because many banks still don't have contactless technology.
So, six years ago Garanti was able to do that. Today, more than 1.5 million of our card base carry contactless technology and since we have the Chip & PIN in Turkey, the antenna within the card actually interfaces with the chip, so the acceptance is only milliseconds.
We developed a co-branded program, for instance, with the largest supermarket chain in Turkey which is called Migros.
It is like, let's say, the Tesco of the U.K. or the Wal-Mart of the U.S. and we have about half a million of those cardholder base.
80% of those cardholders make the transactions contactless at the point of sale at Migros and the reason is because we changed the whole process of acceptance and the point of sale technology at Migros outlets.
So whenever they go to buy groceries or anything related to everyday spending, they actually start the transaction contactless and the average basket is below 35 TL. So, most of them, 80% of them, just go through without entering their PIN, without signature, without anything.
They are just showing their cards, tapping their cards to the POS machine and with that of course we won Visa's Best Customer Experience in Europe as Garanti Bank.
Now, again, when you have chip, when you have smart POS, when you have contactless, what is next? The next is moving to e-commerce, the virtual world.
We started investments in e-commerce because, we also believed, as Garanti Bank, in alternative delivery channels. We started internet banking back in 1996.
Today, Garanti, as you know, has the largest internet customer base in Turkey.
We have over a million Facebook fans and we are a bank. We are not a newspaper or we are not a celebrity. As a bank we have over one million fans.
Apart from the number of customer transactions, Garanti, actually, when it comes to the virtual world, is one of the best companies that the consumers like in Turkey, in terms of experience.
Once you have that of course, the next is, as I have told you before, is e-commerce. We help small companies to establish their internet operations as we opened a virtual shopping mall. So, we were the first bank to offer that in the world to be able to help small merchants which do not have the experience, which do not have the IT platform, to move into e-commerce.
So, today, about 12% of our acquiring volume comes from e-commerce. That is a very large figure, if you think of a typical bank. 12% of all our acquiring volume comes from e-commerce and we have, of course, number one market share in Turkey with over about 35%. Next, of course, when you have those, how do you make mobile payments as an integral part of the typical plastic credit card world?
About three years ago, we worked with the third GSM operator in Turkey, which is owned by Turkish Telecom, called Avea and we worked with Gemalto of France to develop a SIM card with a tail which acts as an antenna so that you do not have to change your telephone number, you only need to change your SIM card and with that we actually created a wallet.
Garanti was the first bank in Turkey and probably in Europe and probably the first in the world, to create its own digital wallet. So, by having that special SIM card, without changing your telephone, without changing your telephone number, we were able to open a virtual wallet into the telephone by integrating all your credit cards, all your banking services even P2P payments.
That was three years ago, then we moved onto working with Turkcell, which is the leading operator in Turkey with over 35-40 million subscriber base. So, we did the same thing with them.
In the course of doing that we wrote our TSM, Trustee Services Manager, which acts as the encryption and switching device between the bank and the operators.
And not many banks around the world, if you research about TSMs, have developed that.
So we then sold the TSM to Avea which uses that for its own services and now we are working with Visa and Vodafone.
Visa has signed a European-wide deal to have such services with Vodafone in Europe and we are providing our TSM for that particular agreement.
Now, the TSM and the wallets, they are all developed by Garanti Bank and the next question is not the new technology, as you might expect from me, which of course is going to come, but how do we leverage that with BBVA.
In the beginning of my conversation, I told you that I moved to BBVA as head of their global payments. Now, BBVA has about 30 countries that they invested in around the world.
About 13-14 of them have actually invested in payment systems and none of them has the size of Turkey in terms of card acceptance and payment vehicle and none of them has the size of Garanti's acquiring and issuing network.
But they have such large operations for instance in Spain and Mexico. In Mexico, they own a bank called Bancomer which has about 35% market share in almost every area of banking and is one of the two leading banks.
So, they are also very active in providing solutions. In the U.S., they have a bank called Compass Bank based in Houston. That bank is, in American standards a small bank, but has 700 branches and 11,000 employees and it's trying to become very active and in Spain of course, BBVA has traditionally very good relations with Telefonica.
So, as we speak right now, today, Telefonica is in Istanbul, talking with Garanti Technology and my people to take the TSM, to take the digital wallet, to take the e-commerce virtual POS solutions that we have here, into Telefonica Spain so that we can offer a global gateway between BBVA and Telefonica cardholders.
And that global gateway is not going to only serve in Spain but also, as Telefonica is very active in the whole Latin America, as like BBVA, that will also serve between the cardholders and Telefonica services in all Latin American countries.
So, what we are doing is; we are leveraging the technology that Garanti has developed into BBVA's and Telefonica's hands so that we can develop further relations between those two companies.
But also we can start offering prepaid cards, we can start offering contactless solutions, we can start offering BBVA banking relationships for Telefonica cardholders. We can use Telefonica operated telephones to start paying for goods and services, not only in Spain but in many other countries.
And similar thing with the Compass in the U.S.. In the U.S., there is a consortium of banks and operators called ISIS and we had talks with them.
And we explained them the level of sophistication we have at Garanti Bank and our willingness and our roadmap to use some of these technologies for BBVA and ISIS was very interested in with the global footprint of BBVA and we are now negotiating with them to take part in the ISIS consortium.
The other thing that we want to do of course is moving to the physical world of POSs because if you look at BBVA as a whole, BBVA has about 63 million cards including Garanti's card base around the world.
It has about 50 billion, well, multiplied by 3, so 150 billion Euros of charge volume on their cards, credit and debit cards, but only has about 817,000 POSs and half a million of them are coming from Garanti Bank.
So, in whole Spain and in whole USA and in whole Latin America, there's a big potential to have acceptance, expanding in numbers and in volumes.
And one of the things that we want to do is take this Bonus loyalty platform, to take the applications we developed on the POSs for installments, for loyalty, redemptions, for debit, credit, prepaid solutions, contactless solutions and integrate that with BBVA's back office.
So, one of the things we are working on, is how do we actually leverage the whole acceptance technology here, that we have developed, and give it in to the hands of different entities of BBVA, and so that they can actually move much faster, in terms of placing POSs, and that's the only way to increase spending with cards, because without that POS infrastructure, even if you distribute zillions of credit cards and debit cards, people will not spend because they won't have spending places.
So, acquiring and issuing need to go hand in hand and many banks including BBVA has neglected that.
And coming into the more global picture, one of the reasons, if not the biggest reason, why you see solutions like Google Wallet -- a non-bank, Square -- a non-bank, FDIS (First Data Independent Sales) -- a non-bank, going into payment solutions around the world, because banks have neglected to invest in payment points, they only took acceptance as commodity business, not a value creation, not a customer experience business.
So, therefore and especially going back to my SME discussion, banks have neglected smaller merchants. They still charge a high premium for accepting merchants from small sizes and therefore, the whole area of acceptance is actually empty for non-banks.
Non-banks can be faster and they are not regulated by banking authorities, they are usually based in California, so they are just processing innovative companies, you know, very sexy names and they go in talking to these small merchants and offering solutions.
So, if banks were to understand this, and start investing, start having relations with small merchants with good technology, so that there are more volume and sales they can bring in with their cardholders to those merchants, that is the winning combination.
And that's exactly what we want to do with BBVA, by leveraging the Garanti's technology that has been proven successful, that's been proven robust, in this part of the world.
So, that is basically the roadmap that we want to do and I think we are in the beginning of very exciting times.
Yes, there are a lot of difficulties around the world. Spain is going through, you know, an economic crisis; the whole Europe is going through an economic crisis. That's usually where the opportunities come from.
Bonus has made its biggest jump in 2001 crisis in Turkey, because merchants needed volume, because people were not going to shopping. And so we were able to actually establish Bonus as a brand, right in the middle of the crisis, because we started offering the loyalty platform, which was real money and we started offering installments, so that the merchants could offer sales in monthly payments to the cardholders, so that they could generate volume.
So, crisis, yes, there are difficult times but we better concentrate on something that we do best, which is "technology driven, consumer and merchant friendly payment systems" and with that I am sure, we will be able to reach much higher percentages in terms of covering the world's expenditure and bringing them into electronic based, bank-controlled business model.
Thank you very much.