Recently the Turkish Competition Authority ("TCA") has taken a series of decisions that may potentially affect the market structure and the nature of competition in payment systems. Essentially those decisions are based on the re-evaluation of earlier granted exemptions for certain services of the Interbank Card Center ("BKM"). BKM is a partnership of 13 public and private Turkish banks1 that aims to develop rules and standards within the card payment system. Additionally, it provides services such as a national payment platform, which may be considered as an alternative to Visa or Mastercard, and a digital wallet application, which makes online shopping fast and easy.
The structure of the BKM − as an association of undertakings − and its services based on these structural relations have attracted the attention of the TCA. In its recent decision, the TCA evaluates the exemption application of the BKM concerning its digital wallet, BKM Express2. In fact, the TCA had granted an indefinite exemption for BKM Express in 20163. However, considering the development in the industry, BKM was requested to file a new exemption application in order to evaluate whether the conditions of exemption are still valid. Thus, the latest decision of the TCA is a re-evaluation of BKM's digital wallet, BKM Express (henceforth "the decision").
In the decision the first remarkable thing that grabs our attention is about the relevant product market definition. The TCA avoids defining a precise product market for digital wallet services. As in its 2016 decision, it retains its position not to define a sharply circumscribed relevant market. The primary reason for that is the integrated structure of the notified service with other diverse services and the role of market players in these services. In a rapidly evolving industry such an approach – for exemption decisions – seems farsighted and more neutral.
While evaluating the effects of BKM Express, the TCA followed the process of the individual exemption assessment. As in European Union ("EU") competition law, restrictive agreements qualify for exemption if their benefits to general welfare outweigh their restrictive effects on competition. The main considerations are based on product improvement, technical or economic progress and benefits to the consumer.
The TCA states its main concern as the possible restriction of competition through the unique integration between BKM and its member banks4. In particular, BKM uses the banking infrastructure of its members in order to provide favorable features for its digital wallet service. These features provide an advantage to BKM Express relative to its competitors. In the decision those services are mentioned as follows:
- No need to require a full credit card number: Instead of typing 16 digits, BKM Express users type the first 6 and last 4 digits of their card number. Other necessary information is taken from the relevant bank.
- Automatic update of expiration date: The expiration date of the registered cards is updated automatically to BKM Express.
- SMS-OTP application specific to BKM Express: SMS-OTP is a system to send to a customer's mobile phone a "one-time password" for the authentication of payment operations. It is more convenient/user friendly compared to a 3D secure method.
The TCA argues that the above-mentioned features can only be provided thanks to the integration between BKM and its member banks. It also states that the mentioned integration services have not been offered − at least in practice −to the other digital wallet services. Thus, such a situation makes BKM Express more attractive in the eyes of merchants and consumers. From this perspective, one may argue that existing digital wallet services offered by non-bank fintech companies would be hurt and similar innovative services potentially offered by startups would also be restricted. The TCA also considers opening up the mentioned features through the BKM. However, as it puts it in the decision, such a practice makes the non-bank fintech companies dependent on BKM and makes them resellers, which may limit the potential of diverse value-added services.
In its assessment of the future of the sector, the TCA considers developments in the EU. Particularly, it emphasizes the regulations to curb the exclusionary behavior of banks towards non-bank companies. It notes the role of PSD2 (Payment System Directive-2)5 in opening the banking infrastructure − in terms of right of access to accounts, etc. − to other payment service providers.
The TCA stressed the BKM's structure − as an association of undertakings − as the main cause of competitive concerns numerous times. The TCA stressed that the founding purpose of BKM was to facilitate settlements of receivables between banks arising from credit cards, and voiced its concerns about the BKM's entry to new markets. The TCA explicitly stated that the BKM's entry to new markets with the power generated from settlement business may heavily affect competition, and found that the BKM's books being inseparable in terms of business lines contributes to these concerns. Therefore, the TC ordered BKM to distinguish financial records on the basis of business.
In summary, the TCA found that BKM Express is not qualified for exemption since its restrictive effects on competition outweigh the benefits to general welfare. Although it gives it credit for the innovative effects of the notified service, it judges that those effects can only be achieved by the exclusive integration between BKM and its member banks, which restricts competition. Finally, the TCA orders BKM to stop the BKM Express service no later than 30 June 2020.
1. BKM's 13 partners can be seen at https://bkm.com.tr/en/about-bkm/member-and-partners/partners/.
2. TCA decision numbered 19-20/291-126 and dated 30.05.2019. Accessed on 17.10.2019, https://www.rekabet.gov.tr/Karar?kararId=d14d4d2d-6584-430f-a825-1f8c781bfba8.
3. TCA decision numbered 16-31/525-236 and dated 23.09.2016. Accessed on 17.10.2019, https://www.rekabet.gov.tr/Karar?kararId=920d11a2-04d7-4bda-9e94-90318349c886.
4. BKM's 35 members can be seen at https://bkm.com.tr/en/about-bkm/member-and-partners/members/.
5. See Payment services (PSD 2) - Directive (EU) 2015/2366 at https://ec.europa.eu/info/law/payment-services-psd-2-directive-eu-2015-2366_en.
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