Upcoming: Digital Banks!



In my article titled "Only Digital Bank" and published last May, I included the global developments regarding digital banks with a worldwide history of nearly ten years and stated that legislative regulations on the digital banks in our country were expected to be issued by the end of 2021.


Last week, the Banking Regulation and Supervision Authority (BRSA) finally published the first draft of the regulation. I want to share the prominent issues of the Draft Regulation on the Operating Principles of Digital Banks and Service Model Banking that sets the standards for digital banking and banking as a service model.

The regulation has three fundamental goals regarding our Banking industry

1. Promoting financial innovation

2. Increasing financial inclusion

3. Streamlining access to services

The minimum capital required for the establishment of digital banks will be 1 billion TRY

Aims to promote financial innovation, increase financial inclusion, and streamline access to services in the banking industry, the regulation limits the activities of digital banks, requiring 1 billion TRY as the minimum capital for the establishment of digital banks.





The significance of managers responsible for information systems

Ensuring the required know-how and due care for information systems, the most crucial component of Digital Banks, the draft regulation highlights that "the top-level manager responsible for information systems should be the assistant general manager at a minimum, and the very manager a natural member of the board of directors". Namely, the draft regulation clarified that the top managers must have the necessary education and experience to be IS managers and are authorized and responsible for their duties.

The credit limit cannot exceed four times the average monthly net income for financial consumers

According to the regulation that defines digital banks as loan institutions delivering banking services via electronic banking services distribution channels instead of physical branches, the total of unsecured cash loans that digital banks can expand to a particular customer who is a financial consumer cannot surpass four times the average monthly net income of the relevant customer. If the average monthly net income of the customer cannot be confirmed, the total of the unsecured cash loans that can be extended for such customers will not surpass 10.000 TRY.



Digital banks will not be able to open physical branches

Digital banking customers will only be financial consumers and SMEs. Digital banks will not be able to organize and open physical branches apart from the headquarters and its affiliated service units. It will be mandatory for digital banks to set up at least one physical office to manage customer complaints. Units to be created as customer service will not be used as a branch except for this purpose. Also, the percentage of continuity committed for digital banks' Internet and mobile banking distribution channels cannot be less than 99.8%.


Clears the way for Banking-as-a-Service (BaaS) model.

Knows as BaaS abroad, Banking as a Service is included in the draft regulation under the name of service model banking. Based on the regulation, the service banking service will only able available to the interface developers residing in the country. Thus, this section's regulations contribute significantly to non-banking industries (eCommerce, telecom, retail, etc.) in terms of delivering their banking services to financial consumers soon.


Besides, ensuring the fulfillment of the liabilities regarding know-your-customer (KYC) and transaction security was included among the operating principles of service banks as a liability of the relevant service bank.

Moreover, the Regulation sets forth that both digital banks and all banks included in the Banking Law will be able to offer BaaS services by becoming a service bank.


The compliance of the current financial institutions is more coherent.

According to the draft regulation, the current banks seeking to become digital banks are not required to deliver an additional application but to prepare a plan and obtain compliance to reduce and close branches. Considering the current bank types (deposit, investment, participation) in our country, a transformation need will most likely increase in this regard.


Also, the draft regulation indicates that if payment service providers, electronic money institutions, and other financial institutions (financial leasing, factoring, financing, and savings finance) would like to operate as digital banks, they must deliver compliance and apply for an operating permit.



2022: Just Digital Banks

I believe that having a strong legal basis regarding "Digital Bank" and "BaaS", which have been widely addressed worldwide during the last decade, is a highly significant development for the banking activities in our country.


Every party has a critical role in turning this significant development into a rewarding gain for all stakeholders. Having made the draft regulation to the public just in time, the regulatory authority BRSA has allowed those concerned to provide opinions and comments regarding the draft.

Expected to be entered into force on January 1, 2022, the regulation is undoubtedly a significant step for digital change and transformation in our country. With digital banks, the transformation of banking within itself will inevitably gain momentum. Meanwhile, the scope of the relationship between banking with the BaaS model and eCommerce, telecom, retail, and other similar industries will deliver us an outward transformation. The convergence among different sectors and FinTech-specific developments will bring along innovative business models offering numerous new opportunities.


Delivering an inevitable transformation, the period we live in is enjoyable to observe and exciting to be a part of. And I sincerely believe that it will provide significant outcomes for the whole ecosystem.

Soner Canko

FinTech Istanbul Advisory Committee Member, Digital CEO

Article Source: Fintech İstanbul

Group 7.png