Turkey, with its population of 86 million is boarded by Armenia, Bulgaria, Georgia, Iran, Iraq, plus the Mediterranean and Black Seas. The country has one of the largest bank card populations in the middle east region, according to the Turkish regulator agency, as Hurriyet Daily News reports. The economy, however, is beginning to slow down says the European Bank for Reconstruction and Development.
The Turkish payment card market is progressive, with major banks such as Akbank, Garanti Bank, Yapi, DenizBank and TEB being early adopters of EMV and digital banking; the first payment wallet supposedly originated in that market. Turkey launched a domestic payment card to compete with Mastercard and Visa. Similar to other domestic payment schemes, such as Mir (Russia), RuPay (India), and Union Pay (China), Turkey’s Troy Card has international operability due to its bilateral arrangement with Discover Financial Services.
What caught our eye on the market was a recent announcement to lower interest rates in the country in an attempt to stimulate consumer purchases. As MarketWatch reports the contracting economy, where the 2019 GDP decrease of 3% eliminated growth achieved in 2018, Ahval, a local news agency reports that the Turkish Central Bank reduced credit card interest rates.
- Turkish Central Bank announced on Friday that it had decreased the monthly maximum contractual interest rate for the credit card borrowings to 2.15 percent for the Turkish lira.
- The bank revised the monthly maximum contractual interest rate for the credit card borrowings as 1.72 percent for foreign exchange transactions.
- It also set the monthly maximum overdue interest rate as 2.65 percent for the Turkish lira and 2.22 percent for foreign exchange transactions.
- The monthly maximum contractual interest rate for the credit card borrowings was previously set in the last quarter of 2018 as 2.25 percent for the Turkish lira and 1.80 percent for foreign exchange transactions, while the monthly maximum overdue interest rate was announced as 2.75 percent for the Turkish lira and 2.30 for foreign exchange transactions.
This is not the country’s first play to lower interest rates. In January, Hurriyet Daily News noted that Turkey’s Halkbank became the third state bank to offer consumers the opportunity to refinance credit card debt at 13.1% over 4 years in an effort to “maintain market stability.”
Among Turkey’s innovation in payments is how they structure credit card installments. Unlike the U.S. standard of 1/36th or so, or about 2.5% of the current balance, Turkish credit cards are structured to pay out in less than 12 months, which creates a much larger minimum due amount. Another unique aspect is that some transactions and merchant category codes amortize on a quicker schedule. As an example, jewelry is structured at 4 months for repayment; airfare and hotels are priced for 9-month payout.
The takeaway in today’s read is that innovations occur in many markets. Here, in Turkey, one of the world’s oldest civilizations, we see the country modernizing, and in some ways leaping ahead. As they react to the challenges of their current economy, they are adjusting rates to stimulate the economy and help consumers reel in their debt.
Overview by Brian Riley, Director, Credit Advisory Sevice at Mercator Advisory Group