Abstract
The concept of FinTech, which is the combination of finance and technology, aims to facilitate many services offered by financial institutions. This chapter examines the development of FinTech practices in terms of Islamic finance in Turkey. The chapter assesses the viewpoints of the sector participants, including participation banks, corporate customers, and FinTech companies operating in Turkey, about Islamic finance and FinTech. In this regard, the ultimate goal of the study is to present a projection to the market actors and decision makers in order to be able to enhance the share of Islamic finance in the sector. The interview findings of the study indicate that (1) new technological products and services will dominate the banking sector and these will change the way of doing business in the near future; (2) perception, knowledge, infrastructure, service network, and campaign factors affect the Islamic banking preferences of the customers; and (3) the challenges of legal acts, confidence, competition, and human resources primarily influence the development of the financial ecosystem.
TopIntroduction
Nowadays, rapid developments in the field of technology have brought about great changes in every aspect of life. The financial technology called FinTech is seen as a compelling technology that will enable companies to compete effectively in the current century. The Financial Stability Board defines FinTech as “technologically enabled innovation that could result in new business models, applications, processes, or products with an associated material effect on financial markets and institutions and the provision of financial services”.
The financial sector is undergoing a major transformation thanks to “FinTech”, which means innovative financial technologies. FinTech, which takes its name from the combination of finance and technology, aims to facilitate many services such as payment, deposit storage, the financial consultancy offered by financial institutions, and makes them faster, accessible, cost-effective and secure at the same time. In other words, even when FinTech is thought of as only financial technologies, FinTech actually refers to companies that combine technology with innovative business models that make the financial services sector more accessible and easier. This means, in a sense, the toppling the banks from the throne, which is the most important actor of the financial system, and reminds Bill Gates’ famous saying that “Banking is necessary, banks are not” in 1994. Financial technology companies, which emerged with this idea, have made great progress with the advancement of technology after the 2008 global financial crisis. The newly established technology companies have carried out the birth of FinTech with the efforts to change the banking system radically. In addition to offering new opportunities to customers, FinTechs, which pioneered the development of banks, continue to significantly change their traditional banking and personal finance approaches.
Banks in Turkey follow the technology closely and offer innovative products and solutions to the customers in many different areas of technology for years. This also allows Turkey to be a significant position in the banking sector in the world. Turkey using technology intensively has begun to generate awareness in this area together with the spread of technology. For example, ING Survey (2015)’s research results on the use of mobile banking show that the use of mobile banking in Turkey is at an advanced level compared to many European countries. While the mobile banking usage rate is 53% in Europe, this ration is determined as 65% in Turkey. Furthermore, due to Turkey’s young and dynamic population, the use and appeal of technological products with the effect of internet penetration are increasing every day. With the interest of this attraction, the banking sector consumes intense energy to differentiate itself by offering products that will make life easier for the young and dynamic audience. In the same way, this young and dynamic group clearly shows that their interest in new products and services and their enthusiasm for using new technologies are in this direction.
In developing countries, and especially in Turkey banks have an important share in the financial ecosystem. Banks constitute approximately 80% of the financial markets in Turkey. In addition to the commercial banks carrying out traditional banking activities, participation banks aiming to increase their market share in recent years have started to take part in this ecosystem. On the other hand, although participation banks, which are operating in accordance with Islamic principles, grow faster than the commercial banks, their share in the sector is around 6 percent. However, in both Islamic countries and other countries around the world, Islamic banking is becoming widespread and these banks are adding new financial instruments in order to increase their share in the sector.
Key Terms in this Chapter
Application Programming Interface (API): The interface covers a set of routines, protocols, and tools in order to run software applications. Chiefly, an API defines a specification for the interfaces used by software components and indicates how software parts should communicate with each other through allowing transfer of data between applications. The interface consists of items for routines, data structures, object classes, and variables. These specifications enable other programmers to use components of existing software, allowing for faster and more reliable software development.
Interbank Card Center (BKM): BKM is a legal entity established in 1990 for the purpose of finding a solution to common problems regarding card payments and developing rules and standards for the debit and credit cards in Turkey. The center provides clearing and settlement of domestic transactions between banks and other institutions arising from the use of credit, debit and prepaid cards. The main activities of BKM are; carrying out the authorization operation between the banks, developing the procedures applicable to the banks in the credit card and debit card sector, forming the domestic rules and regulations, making efforts in relation to provision of standardization and taking the relevant decisions, establishing relations with the international organizations and commissions and representing the members in these organizations when necessary and executing the ongoing bank operations from a single central operation site in a more secure, fast and cost-effective manner.
Golden ATM: It is an automated teller machine (ATM) that provides dispense of physical gold. The machine contains a computer that tracks the market price of gold in real-time. Failsafes are built-in to prevent money laundering, including a maximum of three purchases in a single day, and a required identification number scan accompanying all purchases exceeding a specific amount.
Blockchain: Blockchain is the technology especially used by cryptocurrency transactions. It actuates like a distributed public ledger where information, once entered, cannot be changed. The straightforward interpretation is that blockchain is a decentralized digital ledger which transcribes all digital business activities as a string of data stored on a global network of computers. Blockchain technology has various non-cryptocurrency implementations, consisting of smart contracts and records of digital transactions. Blockchain is a data recording process including a digital ledger of transactions, agreements, contracts, and in short, anything that comes to your mind in a digital environment that needs to be independently recorded and verified as having happened. The blockchain operates across several, hundreds, or even thousands of data processing machines basically across computers. Each time a new batch of transactions is encrypted, it is added to the ledger “chain” as a “block.”
Open Banking: It is a system that supplies a user with a network of financial institutions’ data through the use of application programming interfaces. The concept of open banking in financial services based on several principles such as the use of open application programming interfaces allowing third-party developers to build applications and services around financial institutions, increased financial transparency options for account holders, and the use of open source technology to achieve these principles.
Startup: That is a company which is in the first stage of its operations. Pioneering founders of startups roll them initially as they attempt to capitalize on developing a product or service for which they believe there is a demand. More specifically, startups are newly emerged business ventures and aim to develop a viable business model to meet a marketplace need. Due to limited revenue or high costs, most of these small-scale operations are not sustainable in the long term without additional funding from venture capitalists.
Peer-to-Peer (P2P) Lending: A way of debt financing that enables individuals to borrow and lend money without the use of a financial institution as an intermediary. It is also known as social lending or crowdlending.
Participation Banks: the banks which are situated in Turkey operate banking services based on Islamic principles. Participation banks are able to implement many different banking facilities according to Islamic rules. In this respect, participation banks are alternatives for traditional banks.
Point of Sale (POS): It is a physical machine or a virtual (via a mobile device) application that sellers use to acquire payment credential information for buying or selling goods or services. POS devices which captures the payment transactions could be different tools such as cash registers, optical and bar code scanners, magnetic card readers, computers or any combination of these instruments. Also, POS is the district where a retail transaction takes place. A POS terminal means more generally to the hardware and software used at checkout stations.