Payment Services And Electronic Money Institutions

In today's rapidly evolving landscape of software and financial technologies, payment systems and electronic money transactions are gaining increasing significance. Legal regulations in Turkey pertaining to this domain are meticulously crafted to ensure the security of transactions and safeguard the rights of participants in the sector. This article will delve into the details of the legal framework governing payment systems and electronic money transactions according to Turkish law, and will address the requirements and procedures faced by organizations aspiring to operate within this sector.

1) What are the regulations governing payment systems and electronic money systems in Turkey according to Turkish law?

According to Turkish law, the procedures and principles regarding payment services, payment institutions, and electronic money institutions are regulated in Law No. 6493 on Payment and Securities Settlement Systems Payment Services and Electronic Money Institutions ("Payment Services Law"), and the Regulation on the Activities of Payment and Securities Settlement Systems ("Regulation").

2) What constitutes the grounds, purpose, and scope of this law and regulation?

The increasing preference for non-cash payments in our country and globally in recent years has led to diversification in payment services and an increase in the volume of the electronic money sector, necessitating the establishment of a legal framework in these areas. Therefore, relevant laws and regulations have been prepared by the legislator with the aim of subjecting the relationships between service providers and beneficiaries to authority oversight and approval.

The purpose of the Payment Services Law is to regulate the procedures and principles regarding payment and securities settlement systems, payment services, payment institutions, and electronic money institutions. The purpose of the Regulation, on the other hand, is to regulate the procedures and principles regarding the authorization and activities of the operators of payment and securities settlement systems.

The scope of the Payment Services Law encompasses the procedures and principles related to applications to the national competent authority for authorization by payment and electronic money institutions, as well as determining their areas of operation and activities.

3) What are the payment services defined in Turkish law?

In Article 12(1) of the Payment Services Law, payment services include the following:

(i) all the transactions required for operating a payment account including the services, enabling cash to be placed on and withdrawn from a payment account, (ii) execution of payment transactions, including transfer of funds on a payment account with the user's payment service provider, direct debits, including one-off direct debits, payment transactions through a payment card or a similar device, credit transfers including standing orders, (iii) issuing or acquiring payment instruments, (iv) money remittance, (v) execution of payment transaction, where the consent of the payer to execute a payment transaction is given by means of any telecommunication, digital or IT device and the payment is made to the telecommunication, IT system or network operator, acting only as an intermediary between the payment service user and the supplier of the goods and services, (vi) corresponding services enabling bill payments, (vii) payment order initiation service offered regarding the payment account held by another payment service provider upon the request of the payment service user, (viii) the service of presenting consolidated information on online platforms regarding one or more payment accounts of the payment service user with the payment service providers, provided that the approval of the payment service user is obtained, and (ix) other transactions and services in the field of payments that reach the level determined by the Central Bank in terms of total size or area of influence.

The Central Bank of Türkiye ("Central Bank") publishes the list of authorized payment institutions on its website. Each payment institution is granted authorization in one or more of the payment services.

4) What are the system operators and payment service providers involved in the provision of payment services?

According to Article 4 of the Payment Services Law, the payment system and securities settlement system are operated solely by the system operator. Only the Central Bank and entities that have obtained an operating license from the Central Bank are permitted to operate as system operators.

Article 13 of the Payment Services Law defines the payment service providers, which include (i) banks, (ii) electronic money institutions, (iii) payment institutions, and (iv) the Postal and Telegraph Corporation. Accordingly, only banks and payment service providers can offer payment services.

5) What are the conditions that a system operator must meet to operate as a payment system?

The system operator must:

1. be established as a joint stock company,
2. have a paid-in capital of at least five million Turkish Liras in cash and free from any kind of encumbrances,
3. employ a sufficient number of qualified personnel to operate the system,
4. have adequate risk management and take the necessary measures regarding the security and reliability of information and business continuity,
5. have a transparent and open shareholding structure and organizational chart that will not hinder the effective supervision of the Central Bank.

6) What conditions must be met and what application procedure should be followed to obtain these activities and permissions?

The institution that meets these conditions must apply to the Central Bank in order to obtain an "operating permit". The application for an operating license made to the Central Bank shall be finalized within 6 months following the completion of the information and documents required for the application. If the Central Bank detects any deficiency in the information and documents required for the permit application, it shall notify the applicant without delay and request that the deficiency be corrected within a reasonable period of time to be determined by the Central Bank. If this deficiency is not completed within the specified period, the process for obtaining the operating license will restart. The organization that has been granted an operating license is obliged to notify the Central Bank within 10 days from the date of commencement of its operations.

7) What constitutes the equivalent and scope of electronic money according to Turkish law?

According to Article 3 of the Payment Services Law, electronic money is a monetary value issued against funds accepted by the electronic money issuer, electronically deposited, used to carry out payment transactions defined in Payment Services Law, and accepted as a means of payment by natural and legal persons other than the electronic money issuer. However, it should be emphasized that the concept of electronic money does not encompass cryptocurrency markets, and the applicability of the Payment Services Law to cryptocurrencies is not recognized.

8) What institutions can operate as electronic money systems? What types of permits need to be obtained from which competent authority for the electronic money activities of these institutions?

The Payment Services Law also regulates the electronic money activities. According to the Article 18 of the Payment Services Law, it is prohibited to issue electronic money for entities other than (i) banks, (ii) electronic money institutions and (iii) the Postal and Telegraph Corporation. Organizations intending to issue electronic money are required to keep the funds collected from issuing electronic money in a bank located in Turkey. Funds collected for these services cannot be invested as term deposits in the bank. The company may only deduct commissions for the payment services provided.

In accordance with Article 18(2) of the Payment Services Law, the electronic money institution that intends to issue electronic money may do so if it obtains operating license from the Banking Regulation and Supervision Agency. Upon meeting these conditions, the institution providing payment services must apply to the Central Bank to issue electronic money. With the additional approval of the Central Bank, a payment service provider can collect funds through the method of electronic money issuance.

9) What are the penalties for individuals, both natural and legal persons, operating without the permits specified in the Payment Services Law?

Individuals, whether natural or legal persons, who operate as system operators, payment institutions, or electronic money institutions without obtaining the activity permits specified in the Payment Services Law may be punished with imprisonment ranging from one to three years and a judicial fine of up to five thousand days. Furthermore, individuals, whether natural or legal persons, including their authorized representatives, who use terms and expressions in their trade names, any kind of documents, advertisements, or public statements that create the impression of operating as system operators, payment institutions, or electronic money institutions without obtaining the necessary permits, may be punished with imprisonment ranging from one to three years and a judicial fine of up to five thousand days.

10) Is it possible for foreign investors to:

1. operate as payment system operators,
2. operate electronic money systems in Turkey?

If it is possible, what conditions need to be met?

1. It is important to note that Article 19(1) of the Regulation allows payment institutions to cooperate with legal entities residing abroad that have obtained permission from the Central Bank in line with its purposes or activities. Cooperation within this scope is in the form of the organization providing payment services to its customers residing in the country together with the legal entity residing abroad. This cooperation can be limited only to payment services where at least one of the sender or receiver is abroad. However, for payment services involving both domestic senders and receivers, services cannot be provided within this scope. Furthermore, Article 19(2) also states that the cooperating non-resident legal entity may not be the sole face of the service to the customer; it cannot use its own brands and logos in all kinds of documents, announcements and advertisements or public statements in a manner that creates the impression that it has obtained an operating license in the country and cannot establish a website targeting customers residing in the country.
2. The Payment Services Law also regulates the electronic money activities. According to the Article 18 of the Payment Services Law, it is prohibited to issue electronic money for entities other than (i) banks, (ii) electronic money institutions and (iii) the Postal and Telegraph Corporation. Therefore, payment institutions may issue electronic money if they meet the criteria listed below. Organizations intending to issue electronic money are required to keep the funds collected by issuing electronic money in a bank located in Türkiye. Funds collected for these services cannot be invested as term deposits in the bank. The company may only deduct commissions for the payment services provided.
3. In accordance with Article 18(2) of the Payment Services Law, the electronic money institution intending to issue electronic money may do so if it obtains operating license from the Banking Regulation and Supervision Agency. Upon meeting these conditions, the institution providing payment services must apply to the Central Bank to issue electronic money. With the additional approval of the Central Bank, a payment service provider can collect funds through the method of electronic money issuance.

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.