Turkey: Electronic Money

Last Updated: 12 August 2015
Article by Deniz Yetimalar

Using alternative payment methods and electronic money systems has become a necessity as a result of the quick development of electronic trading today. As is known, money is an exchange instrument issued by the state, used for buying goods and services, and accepted by everyone. The electronic money concept has gained a very big importance to the electronic trading users to start using alternative payment methods for their online payments. In general, electronic money can be described as the monetary value corresponding to the cash money in computer environment and developed for being used online. It is defined as "electronic money is the monetary value issued against a fund accepted by the issuing institution, stored electronically, used for carrying out the payment transactions defined by this Law, and accepted as a payment instrument by the real and legal entities other than the institutions issuing electronic money" in the Law No. 6493 on Payment and Security Settlement Systems, Payment Services and Electronic Money Institutions. In short, electronic money means any kind of payment system making it possible to transfer money online.

A need has arisen for developing a legal infrastructure with the usage of electronic money as a payment instrument and accordingly the Law No. 6493 on Payment and Security Settlement Systems, Payment Services and Electronic Money Institutions ("Law") was published on 27.06.2013. With the regulations and communiqués issued after the Law is published, electronic money has become an instrument accepted and applied in the Turkish legislation. With these regulations also aligned with the European Union legislation particularly including Directive on Payment Services, Directive on Settlement Finality in Payment and Security Settlement Systems, and Directive on the Taking Up, Pursuit and Prudential Supervision of the Business of Electronic Money Institutions, the way was cleared for the institutions other than the banks to render payment and electronic money services, thus it's been possible for the payment systems widely used in Europe, such as Paypal and Webmoney, to legally exist in Turkey. The Law, however, did not recognize Bitcoin – considered as the money of the future – as an electronic money and does not allow its use in Turkey for today. The reason for this is that Bitcoin is a virtual payment instrument which is not issued by any institution and not affiliated with the state or any public authority, and of which no assurance is provided in return for, and the users are anonymous. The Law obliges the money to be traceable, the issuing companies to obtain license from the relevant authorities, the system to be subjected to strict audit, and the senders and receivers to be recorded (non‑anonymous). In addition to these, as the Law clearly sets out that the electronic money should be issued in return for fund, in other words the provision for the produced or issued electronic monies should be secured, Bitcoin does not fall within the scope of the electronic money definition of the Law, and thus cannot have any legal existence in the Turkish market for now.

Electronic money should be purchased first in order to use electronic money. It is required to deposit money through credit card, money transfer or EFT or in cash to the existing banks or an institution offering electronic money service. Electronic money corresponding to the amount deposited by the person with this transaction is deposited to the electronic money account to be opened for the person, thus the person will be able to use electronic money in their account for an order they will place online, provided that the electronic trading website allow the use of electronic money.

The use of electronic money is quite advantageous for both the user and the people/companies operating in the field of electronic trading. Today, several internet users have worries that their credit card information can be copied and used by other people as the credit card information they share for any electronic payment is visible to the website officers, thus they do not make any online payment. In addition to this, some other users, who trust to the websites, have hesitations to make payment to the electronic trading websites, worrying that these websites might be hacked (the personal information available in the system to be captured by people other than the website officers). This constitutes an obstacle for the electronic trading websites to address more users. The use of electronic money, however, does not bear such risks as it is strictly audited within the scope of the Law and the relevant legislation. For example; the electronic money system providers are obliged to perform the "penetration test" through independent auditors at least once a year in order to determine and fix the possible security gaps in electronic money systems before third parties find them. In addition to this, the electronic money application allows the users to confirm any payment with their electronic money in the account with SMS or e-mail sent to them and to not confirm the transaction unless they confirm, thus give them an opportunity to instantly control the instructions related to their electronic money. Thus, the users are able to use the internet very securely for the payments as the Central Bank of the Republic of Turkey is commissioned for auditing whether the system runs securely. This feature of the electronic money appears to bring advantage for both parties as it offers secure shopping for the users and the electronic trading websites increase the number of their users.

The companies offering electronic payment transactions before the Law was enacted were able to carry out invoice payment, money transfer, fund transfer, confirmation and collection of online shopping and orders in electronic environment only in cooperation with the banks. And this was not regulated by a legislation. With the enactment of the Law, now the joint stock companies will be able to offer payment systems and electronic money services and carry out their activities independently from the banks by getting a license from the Banking Regulation and Supervision Agency ("BDDK"), provided that they have a certain amount of capital and meet the conditions listed. The Law has also paved the way for granting an authorization to the electronic money institutions, which have met the conditions listed, other than the banks for issuing electronic money.

Finally, it should be noted that the banks and the legal entities, who meet the conditions set out in the Law for offering payment service and obtained the required permissions, to offer payment services without cooperating with the banks in the electronic environment does not mean expressions implying that these companies may use the name of a bank or operate like a bank or act on behalf of the bank can be used. Such acts are prohibited by the Law and the relevant legislation. In addition to this, these companies will not be able to grant loans or provide income to their users on interest or similar over the electronic money.

In conclusion, the Law allowed the legal entities meeting the conditions, other than the banks, to carry out payment services and electronic money activities. Thus, it will not be so wrong to say that the competition will be improved and the action in the market will be increased as the companies meeting the conditions listed will be able to carry out these transactions, which would only be possible in cooperation with the banks previously, directly by obtaining a license. In today's world where the technological developments continuously increase and any kind of activity is now possible with virtual instructions issued online, it should be agreed that it is a very positive progress both for the effectiveness of the system and for the activities of the consumers and electronic trading companies that a legal infrastructure is brought into this system in line with the European Union legislation.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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