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A MACROECONOMIC AND POLITICAL OVERVIEW OF TURKEY2
The Republic of Turkey was founded in 1923 on the remains of the Ottoman Empire and became a
democratic country in 1945. The territory it occupies has been on the international crossroads between
Europe and Asia for at least two millennia, creating both advantages and disadvantages for the country.
Strategically placed, militarily powerful and influential in the energy-rich new states of Central Asia,
Turkey was the largest economy in Eastern Europe, the Balkans, the Black Sea basin and the Middle East.
At the same time, torn between its affiliations with East and West, the country suffered from continuous
political and economic instability. Political stability has been problematic in Turkey with the military
intervening in political sphere and taking power on three occasions, 1960, 1971 and 1980. The current
government was formed in March 2003 under the leadership of the Justice and Development Party (in
Turkish, Adalet ve Kalkınma Partisi, or AKP). In 2007, AKP’s Abdullah Gul was elected president amid
major protests from both military and secular circles.
On the state level, Turkey’s orientation has been firmly to the West. A committed member of the North
Atlantic Treaty Organization (NATO) since 1952, Turkey has had an association agreement with the
European Union (EU) since 1964 and a custom union agreement with the EU since 1995. In 2005, Turkey
entered into formal accession negotiations with EU but they were fraught with difficulties related to
Turkey’s slow and erratic implementation of human rights reforms.
In spite these fears and criticism, the AKP has performed well in government, and its management of the
economy has been good. Despite some slippages and delays, the AKP has broadly adhered to the reform
program backed by a series of International Monetary Fund (IMF) standby agreements. As a result, the
Turkish economy was now more robust and resilient to shocks than when the AKP first took office.
However, as shown by the sharp falls in the lira and the Istanbul stock exchange in May and June 2006, the
country’s economy continued to be vulnerable to volatility and sharp changes in investor sentiment.
Turkey’s economic performance had been as volatile as its politics. The annual real gross domestic product
(GDP) growth rate averaged 3.7 per cent between 1991 and 2000. Although higher than the two per cent
GDP growth rate of the Organisation for Economic Co-operation and Development (OECD), Turkey’s
GDP growth rate was significantly lower than that of the other emerging markets and disappointing by its
own historical standings: six per cent in the 1960s and four to five per cent in 1970s to 1980s. Growth,
which had always been volatile, became even more so in the 1990s. Although the 1994 recession had been
sparked by a currency crisis and a subsequent tightening of fiscal policy, the 1999 contraction reflected the
impact of the Russian financial crisis, which had reduced demand for Turkish exports (including tourism,
construction and engineering) and had prompted the flight of capital. The effects of the downturn had been
compounded by massive earthquakes that same year. On the other hand, in the so-called “boom” years of
the 1990s, the economy had been driven by domestic demand with sharp increases in expenditure both on
private consumption and on gross fixed investment.
A severe recession, exacerbated by a burgeoning current account deficit and severe problems in the
banking sector, swamped the country in 2001, and the GDP contracted by 7.5 per cent, the sharpest drop in
Source: Robert O’Daly (Editor), “The Country Profile: Turkey;” The Economist Intelligence Unit Ltd London, UK, 2007.
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economic activity since the Second World War. Incomes and consumer confidence were severely hit by
the devaluation, the attendant surge in inflation, high interest rates and a significant rise in unemployment.
Economic activity bounced back again from 2002 to 2006. In 2002, GDP rose by 7.9 per cent, driven
mainly by stock building and exports, which continued to benefit from the positive impact of the
devaluation in 2001. Further sustainable growth of seven to eight per cent continued till 2006, supported
by the sharp increase in consumer spending, which had been triggered by the strength of the Turkish lira,
declining nominal interest rates and increased consumer lending. The abrupt fall in the lira in mid-year had
led to a rise in inflation and sharp monetary policy tightening. As a result, GDP growth had slowed to a
still robust five per cent in the second half of the year.
Turkey had experienced significant bouts of inflation in the late 1950s and for most of the 1970s. Between
1988 and 1999, the average annual rate of consumer price inflation ranged between 60 per cent and 90 per
cent. By year-end 2000, the new exchange rate policy had begun to reduce both imported inflation and
inflationary expectations to 39 per cent. However, inflation surged again, following the abandonment of
the currency peg, to reach a peak of 73 per cent in January 2002. A generally stronger lira and continued
excess capacity helped to drive inflation down to 7.7 per cent by the end of 2005, just below the eight per
cent target agreed to with the IMF. The steady decline was mainly the result of several influences: the
impact on import prices of a prolonged appreciation of the lira since April 2003, the disinflationary
monetary policy followed by the Central Bank, wage moderation, strong productivity growth and a
downward adjustment in overall inflation expectations. Inflation started to edge upward from the end of
2005, reaching 12 per cent in August 2006. Since then it had eased slightly, fluctuating at approximately
10 per cent. Given the sharp tightening of monetary policy and the recovery in the value of the lira in 2007,
the rate of inflation was expected to decline again toward the 2007 year-end target of four per cent, as
agreed upon with the IMF.
Turkey had comprehensive fixed-line and mobile-telecommunications networks, but its infrastructure for
Internet and data services was less well developed. The fixed-line penetration rate was approximately 26
per cent of the population, well below the rates in most European countries, a discrepancy partly explained
by Turkey’s generally larger households.
Unlike fixed-line subscriptions, the number of mobile-phone subscribers continued to grow rapidly. By the
end of 2006, Turkey had 52.7 million mobile telephone subscribers, representing a penetration rate of more
than 70 per cent, which was expected to rise further, closing the gap between Turkey’s penetration and that
of the EU, at 108 per cent in 2007 (i.e. more than one mobile phone per person).
Internet usage had also been increasing steadily in Turkey. Although widespread home usage continued to
be hampered by low computer ownership, the Internet had become essential for business, and adolescents
and young adults commonly frequented Internet cafés. Approximately 16 million Turkish people were said
to use the Internet, but the number of subscribers was much lower.
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Turkey had the third-largest population in Europe (73 million in 2006), after Russia and Germany. The rate
of population growth was estimated at 1.3 to 1.4 per cent per year, a strong growth rate by EU standards,
down compared with Turkey’s growth rate of 2.3 per cent from the 1970s to the 1990s. The deceleration in
the birth rate since the 1950s was related to improvements in the educational level of women, greater
migration from rural areas to urban areas and a wider use of modern birth control practices. Cities were
expanding through migration from rural areas, resulting in the urban population (comprising provincial and
district centers) accounting for about 65 per cent of the country’s total population, compared with 27 per
cent in 1960.
The education in Turkey was improving because of continuous reforms implemented by the government.
Government and private spending on education was approximately seven per cent of GDP, well above the
OECD average of 5.2 per cent in 2002 and lower only than Denmark and the United States. The biggest
educational challenge facing Turkey was transforming the school system that educated a small number of
students at the highest international standards to a system that educated all students well.
The size of Turkey’s workforce varied according to seasonal trends, particularly in agriculture.
Unemployment from 2004 to 2006 averaged 10 per cent, and an additional 3.6 per cent were considered
“underemployed” (in part-time or temporary work, but not by choice). Women comprised just less than
one-half of the population, but little more than one-quarter of the workforce. Approximately 50 per cent of
working women were employed in agriculture. The non-participation of urban women in the workforce
was the main reason that Turkish women’s workforce participation rate was just below 50 per cent,
compared with more than 60 per cent in most EU countries.
Information regarding wages was limited, especially because of the extent of informal employment.
However, the available evidence suggested the government had sought to tailor its incomes policy to the
inflation targets agreed on with the IMF by adjusting the minimum wage at least once every two years, but
usually twice a year. Income distribution was poor and was affected by regional and rural-urban
differences and by inadequate education and a lack of effective redistributive mechanisms. In 2000,
income per head was reported at US$7,556 in the industrialized northwest, but at only US$725 in the
remote east. Inequality in Turkey was considerably higher than in other west European countries and
similar to that in Russia, Ecuador and Tunisia. Educated Turks had often expressed concern that poor
income distribution could lead to political radicalism, social unrest and rising crime (see Exhibit 1 for
development indicators for Turkey and for selected countries in the region).
THE HISTORY OF FINANCIAL SERVICES IN TURKEY3
The banking sector in Turkey had witnessed considerable development in the 1990s, in terms of assets,
profits, sophistication and number of institutions. However, the sector also faced a number of problems.
State banks were weakened by financing public expenditures, and the banking system was overly
dependent on high-interest earnings from government securities. In addition, many small private banks
lacked economies of scale and in some cases existed mainly to finance the other business activities of their
owners. The authorities began to tackle some of these problems under IMF monitoring in 1999/2000,
seizing troubled banks and establishing a banking sector watchdog. However, imbalances grew, as banks
sidestepped regulations and increased their short-term hard-currency borrowing. When liquidity tightened
Source: Robert O’Daly (Editor), “The Country Profile: Turkey;” The Economist Intelligence Unit Ltd London, UK, 2007
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as the lira devalued in early 2001, banks with net foreign-currency liabilities experienced an instant loss,
and the problem of bad loans exacerbated.
Since 1999, banking sector reform had been one of the central pillars of the IMF-backed programs. Major
improvements included the establishment of an independent watchdog, the Bank Regulation and
Supervision Authority; recapitalization of public and private banks; the closure or sale of failed private
banks; the start of a process of consolidation; corporate bank debt restructuring with the backing of the
IMF and the World Bank. Banks had also been required to set up internal risk management systems and to
make more thorough provisions for bad loans. Banking regulation and supervision was tightened further
and, in October 2005, Turkey’s new Banks Act replaced the 1999 Banks Act. Among other reforms, this
law sought to smooth the path of ongoing bank mergers and takeovers.
Privatization of state banks had made limited progress. In late 2005, a share offering for approximately 22
per cent of the shares in the state-owned Vakifbank was successfully concluded, but whether the state
would relinquish overall control of the bank was unclear, given the doubts about Vakifank’s ability to
compete as a privately owned bank. In late 2006, preparations for the privatization of Halkbank, which had
traditionally provided loans to small and medium-sized enterprises, were underway but were later delayed,
owing to legal difficulties and political concerns ahead of the next general election in July 2007.
In 2007, the financial sector was dominated by a handful of large domestic banks, some state-owned and
some private. The private banks were often members of conglomerates with widely dispersed holdings
throughout the economy. Banks frequently controlled, as subsidiaries, many major non-banking financial
institutions, such as insurance companies, mutual fund firms, factoring firms and financial leasing
companies. Although small in asset terms, foreign banks played a dynamic role in bringing innovations to
the local industry.
The Forecast for Turkey’s Financial Services
A recent study by Philip M. Parker4 outlined the 2007 to 2012 world outlook for financial services across
more than 200 countries. Using econometric models that project fundamental economic dynamics within
each country and across countries, the report estimated the potential industry earnings for each country.
This study was strategic in nature, taking an aggregate and long-run view, irrespective of the players or
products involved, without considering short-term cycles that could affect the sales realized.
Market potential represents the industry earnings of a market when that market becomes accessible and
attractive to serve by competing firms. It is typically expressed as the total revenues potentially extracted
by firms if a market is served in an efficient manner. Market potential can be either lower or higher than
actual sales if a market is inefficient (i.e. not representative of relatively competitive levels). Inefficiencies
can arise from a number of factors, including a lack of international openness, cultural barriers to
consumption, regulations and cartel-like behavior on the part of firms. In general, however, latent demand
was typically larger than actual sales in a country market.
The world’s market potential for financial services was estimated at $565.5 billion in 2007; however, it
was not evenly distributed across regions. Asia was the largest market, representing 35 per cent, followed
by Europe and the Middle East with 30 per cent, and then North America and the Caribbean with 23 per
Philip M. Parker, The 2007-2012 World Outlook for Financial Services , ICON Group International, Inc., San Diego, CA,
2006, www.icongrouponline.com, accessed November 10, 2008..
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cent of the world market (see Exhibit 2 for the market potential for financial services in Turkey and other
COMMERCIAL BANKING IN TURKEY5
Key Official Institutions
Three official institutions dominated Turkey’s banking landscape. The first was the Central Bank of the
Republic of Turkey (CBRT). CBRT’s primary objective was price stability accomplished by setting short-
term interest rates to manage inflation. Prior to December 1999, the lira had depreciated broadly in line
with actual inflation. Between December 1999 and early 2001, the currency was managed by way of a
crawling peg, which limited devaluation to the targeted rate of inflation (not the actual rate, which was
often higher). Since early 2001, the lira had been a floating currency.
The second key institution was the Banking Regulatory and Supervisory Authority (BRSA), which was set
up in 2000. The BRSA also oversaw the Banking Sector Restructuring Programme (BSRP), which had
been initiated in response to the crisis of 2000/01. BSRP had four main pillars; the first three were (1) the
restructuring of the state banks, (2) the strengthening of the private banks and (3) the overall supervisory
framework. The final fourth pillar was the prompt resolution of the banks transferred to the Savings
Deposit Insurance Fund (SDIF), the third key institution. Since 1997, 20 banks had been transferred to the
SDIF, most of which had been liquidated or sold, with just two remaining under the control of the SDIF.
The roles of the BSRP and the SDIF had become more important since the complex financial crisis from
November 2000 to February 2001. In essence, a mounting current account deficit meant that interest rates
rose to crippling levels as a result of Turkey’s crawling-peg exchange-rate regime. Because the banks were
substantial (and, indeed, primary) holders of Turkish government bonds, they were hurt hard by the rise in
interest rates. Some banks suffered from very tight liquidity conditions and incurred losses when the
currency was allowed to plunge in February 2001.
The Competitive Landscape
In addition to the two SDIF banks, the Turkish banking sector consisted of three state banks, 18 private
sector commercial banks, 12 foreign banks and 14 non-depository finance institutions.
The state-owned Ziraat Bank (Ziraat) was the largest bank in terms of assets, and it accounted for about
one-fifth of the Turkish market’s total assets and by far the largest share of deposits (23 per cent).
However, its loans accounted for only eight per cent of the total. Although Ziraat traditionally focused on
the rural sector, it had become a universal bank with a wide clientele.
In terms of assets, Akbank and Isbank, both within the private sector, were Turkey’s second- and third-
largest financial institutions. Akbank was a part of the Sabanci business group, whereas Isbank was at the
center of its own corporate empire. Akbank and Isbank each accounted for approximately 12 per cent of
the Turkish market’s total financial assets, loans and deposits.
Source: Turkey Commercial Banking Reports (Q1, Q2, Q3, Q4, 2007, Q1, Q2 2008) Business Monitor International Ltd.
London, UK (2007), accessed November 10, 2008.
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Yapi Kredi Bank (Yapi) and Garanti Bank (Garanti), private banks controlled respectively by the
Cukurova and the Dogus groups, were almost exactly the same size. They each held nine per cent of the
Turkish market’s total assets, 11 per cent and 12 per cent (respectively) of the country’s total loans and
eight per cent and nine per cent (respectively) of total deposits.
The two other state-owned banks, Halkbank and Vakifbank, followed in terms of size. Both banks
accounted for approximately seven per cent of the Turkish market’s total assets and deposits, although
Vakifbank’s share of lending, at eight per cent was twice that of Halkbank.
Various private banks, each of which was significantly smaller than any of the four large groups,
accounted for approximately 23 per cent of total assets, 30 per cent of loans and 22 per cent of deposits.
The 14 investment banks represented four per cent of total assets and eight per cent of lending. These
banks did not take deposits. Pamukbank and Bayindirbank, which remained under the control of the SDIF,
each had four per cent of total assets and deposits and just two per cent of loans.
Of the few foreign banks in Turkey, the largest was widely believed to be HSBC, which bought
Demirbank from the SDIF in late 2001 and currently held less than two per cent of total assets in the
Turkish market. From 2005 to 2007, the Turkish banking sector saw a sudden upsurge in foreign interest,
including such major deals as the National Bank of Greece buying 44.6 per cent in Finansbank; Dexia
(Belgium/France) acquiring 75 per cent in Denizbank; and U.S. Citigroup purchasing 20 per cent of
Akbank. Foreign banks, despite controlling only five per cent of total assets in the Turkish market,
compared with 77 per cent in Poland and Hungary and 94 per cent in the Czech Republic, appeared to be
growing strongly and increasing their market share at the expense of the bigger local players.
The Turkish banking industry was fragmented compared with the situation globally. The top five players
controlled 57 per cent of loans, 63 per cent of deposits and constituted 62 per cent of total assets of the
industry. Also relatively unusual in a global comparison were the large variations in market shares of the
top players in the different categories (i.e. loans and deposits). For example, Ziraat Bank, the largest bank
by assets, had eight per cent of the total loans but 23 per cent of total deposits. Garanti Bank’s business
constituted nine per cent of total assets and nine per cent of total deposits. Interestingly, a combination of
two of the players outside of the top three, but in the top seven, would result in a bank close to the size of
the largest bank in Turkey. Given that some of the smaller players were very aggressive and the market
was fragmented, the industry seemed to be dynamic, with significant benefits ahead from consolidation
activity in the industry.
The Turkish banking sector, although large by both Central and Eastern European (CEE) and Middle
Eastern standards, remained underdeveloped, especially given the low loan-deposit and loan-asset ratios,
which indicated that very strong loan growth could easily be funded by Turkish banks. Loan growth,
fueled by low interest rates, promoted the boom currently being witnessed by the Turkish commercial
banking sector. Even by regional (i.e. Central and Eastern European) standards, growth of assets, loans and
deposits has been very strong, at 21 per cent, 38 per cent and 22 per cent respectively.
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THE CREDIT CARD SECTOR IN TURKEY
Over the last few decades, credit cards had been increasingly adopted as a plastic currency all over the
world. In this respect, Turkey was not an exception. In terms of issued cards, Turkish market was the third-
largest market in Europe after England and Spain; Turkey ranked 10th in Europe in consumption volume,
revealing a great potential for growth.
As a modern payment system, the credit card market required an appropriate infrastructure to run
smoothly. Turkey’s frequent financial crises and high-inflation episodes had delayed the adoption and
widespread usage of the credit cards until recently. Credit cards were first introduced in Turkey 50 years
after their introduction in the United States. The Diners Club card entered the Turkish market in 1968.
However, its usage was very limited, and the interest rate fluctuations were high throughout the 1990s.
The typical Turkish cardholders were educated high-income earners with professional jobs. The banks in
Turkey preferred to lend money through lower-risk instruments, such as treasury bills, due to their high
real interest returns and low-risk premiums. Widespread usage of treasury bills was achieved toward the
end of 1990s; however, when interest rates started to decline after the 2001 crisis, treasury bills had lost
their profitability and therefore the banks channeled their operations more toward the consumer credit
market (see Exhibit 3).
A credit-related legal infrastructure had been partially established in 2003. Moreover, BRSA had started to
announce credit card rates in January 2005, to enable consumers to compare the interest rates of all credit
card issuers in Turkey. The first draft of the new regulations package for the credit card market had been
announced at the beginning of 2005.
The Nature of the Competition
The Turkish credit card market differed from other countries. For instance, credit card issuers announced
their rates on a monthly basis but applied a compounded interest rate on the accumulated debt.
Competition among credit card issuers focused not on lowering the interest rates but on non-price
competition through loyalty programs and increasing the grace period with interest-free equal payments
for up to 18 months.
In 2006, the Turkish credit card market comprised 22 players, which seemed to be enough for competition,
especially for a relatively homogenous product. The main networks were Visa and MasterCard, with equal
market shares of overall consumption. The other players, such as American Express, were proprietary
networks, and their usage was very limited in the Turkish market given that they simultaneously served as
an issuer, acquirer and the network operator. The Turkish market had essentially two leader issuers and
two follower issuers (see Exhibit 4). These four together constituted 84.9 per cent of all transaction volume
and 61.4 per cent of all cards in the market. According to the volumes and card numbers, the market
leader, Yapı Kredi Bank (YKB), had sustained the advantage of being the first issuer in Turkey (see
Ahmet Faruk Aysan and Nusret Ahmet Muslim, “The Failure of Competition in the Credit Card Market in Turkey: The New
Empirical Evidence,” discussion paper 2006/10, Bogazici University, Istanbul, Turkey, 2006.
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Chronic uncertainty in the Turkish market had led to extremely high interest rates, especially in the default
interest rates (interest for consumers with default history) prior to 2003. Moreover, the uncertain
conditions had led to an asymmetric response to the cost of fund changes whereby decreases were largely
ignored by the issuers while the increases were matched overnight. Whereas other credit markets, such as
consumer credit, home and auto credit, converged to competitive rates within a year after the 2001 crisis,
credit card rates continued to float at approximately four times the funding costs, despite the low inflation.
In December 2005, average compounded annual interest rates for credit cards were approximately 87 per
cent, whereas risk-free treasury bills had interest rates of only 14 per cent. The leading issuers in the
market were also commanding the highest interest rates (see Exhibit 4).
High interest rates could be explained by several factors, including lack of price competition, high
operating and funding costs, and peculiarities of the Turkish regulatory system. The credit card market in
Turkey had not been consolidated with the rules and regulations for years. Some regulatory aspects were
incorporated into the consumer protection law of 2003, which confined the default credit card interest rate
up to 30 per cent more of the initial credit card rate.
One reason for high credit card interest rates was the relationship between the default annual percentage
rate (APR) and the actual APR. The banks charged higher rates for default consumers because their risk
levels were higher than regular consumers. Nearly all Turkish banks set their default APR at the upper
limit permitted by regulation. Although the Turkish Central Bank had the right to impose lower credit card
rates on banks, the relationship between the actual and the default APR could lead to the Turkish banks
moving their operations overseas if they could not operate profitably. As an example, some U.S. banks
moved their credit card branches to other states, such as Delaware, when their home states enforced price
cap regulation. Because the Visa and MasterCard infrastructures served all over the world, the
overpressures on the issuers could induce them to relocate their operations abroad.
Profitability of the banks had been positively affected by these high interest rates. The second-largest
issuer received 60 per cent of non-interest banking profits from its credit card branch in 2004. According
to the Interbank Card Centre (ICC) survey, these high rates also reduced the revolving credit card debt
stock incurred because 78 per cent of cardholders paid their debt fully in 2005. The remaining 22 per cent
of outstanding balances resulted in approximately $15 billion in interest-bearing funds with 87 per cent
APR. The low percentage of revolving cardholders in Turkey (compared with 90 per cent in the United
States) likely stemmed from Turkey’s high credit card interest rate.
Competition in the Turkish credit card industry mainly concentrated on loyalty programs. The reward
bonuses of the second-largest player reached US$160 million in 2005. Other than the top four credit card
issuers, the remaining 18 banks captured less than half of the aggregate market. Because the issuers offered
identical products (either a Visa card or MasterCard), they preferred differentiating their services instead of
indulging in price competition. The four largest card-issuing banks were also the main players in the
acquirers market. Most sellers had many point-of-sale (POS) machines that offered the benefits of the
corresponding loyalty program. More POS machines and inefficiency resulted in extra costs for the credit
card operations. Currently, Interbank Card Center was working on improving the infrastructure to serve to
all issuers through the same POS machine. The success of this project was expected to have a positive
effect on the competition by diminishing the entry costs. Otherwise, a small issuer bank needed to set up
its own POS machines to all sellers for a loyalty program.
In 2005, delinquency rates increased considerably, reaching 7.5 per cent of all cardholders. Nonetheless,
the default volume in Turkey was approximately 1.67 per cent, compared with 4.5 per cent in Europe. The
corresponding debt amounts of the average consumer with repayment difficulties were low. Hence, any
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debt consolidation was not likely to affect the default risk position of the industry. The maturity of home
loans exceeded 20 years, and the interest rates for home loans declined less than one per cent monthly. The
card-issuing banks predicted better interest rates and a better overall credit situation in the coming years.
European Union candidateship also contributed to this optimistic behavior of the interest rates. Moreover,
the central system had started to collect the credit card histories of consumers, giving the issuers better
tools to assess their customers and to plan their future for a longer horizon.
Key Trends and Developments, 2002 to 20077
Between 2002 and 2007, the number of credit cards had grown, due to an increase in launches,
advertisements and promotions. For example, the launch of Garanti Bank’s Flexi card offered consumers
the ability to determine their own credit limits, interest rates and card designs. On the other hand, mergers
of financial institutions had slowed the growth of credit cards: when two institutions merged, their two
credit cards became one credit card, representing the newly merged entity.
Spending per transaction slowed from 2005, but continued to increase toward the end of the review period.
This slower rate related to credit card transactions in sectors where consumers had shopping limits. For
example, at gas stations, people were limited by the size of their fuel tank. In supermarkets, consumers
usually purchased only as much as they could carry. However, promotions at supermarkets and gas
stations increased the growth in spend per transaction in 2007.
Positive Economic Conditions Increased Spending
High interest rates and increasing credit card debts had the potential to lower consumers’ continuing use of
credit cards; however, most consumers did not use their credit cards sensibly. Instead, many compensated
their low incomes by using their credit cards and, ultimately, could not pay off their growing debts.
Consumer problems with credit cards in 2003, 2004 and 2005 resulted in changes in the law that restricted
credit card limits, made it illegal for banks to increase limits without informing the consumer and
increased both the penalties for late payments and the minimum payment required. The sector recorded a
boom after this consumer problem in the middle of the review period.
Since 2003, decreasing inflation and increasing purchasing power have influenced the level of consumer
demand. Previously, consumers tended to see credit cards as a mechanism for spending limitless amounts
of money. However, after 2003, many consumers experienced the side effects of irresponsible credit card
spending. Good economic conditions allowed consumers to normalize their spending and realize the
benefits of responsible credit card use.
After the economic recovery began in 2003, consumers were able to spend more of their income because
their purchasing power was stronger. However, spend per transaction also increased because consumers
started to use more tools of the banking systems (e.g. using their credit cards for bill payments) and
alternative banking channels. According to research conducted in 2006, by the Turkish Banking
Association, credit card purchases accounted for more than 15 per cent of all consumption.
Banks, following the positive economic conditions, started to lower their consumer credit interest rates.
Consumers started to use cash to pay their credit card debts, which avoided the harsh financial penalties
Source: “Country Market Insight: Financial Cards-Turkey” Euromonitor International Ltd. London, UK, 2008.
Page 11 9B09M002
levied on late payments, thus allowing consumers to raise their level of credit card spending. After the
crisis, people slowly started to consume again, aided by the use of credit cards, which helped people to
regain their consumption habits. Mindful of their unpaid debts, many people stopped incurring further debt
that was beyond their payment capacity.
The Banking Sector Monitoring Board took precautions by restricting credit card limits, intervening with
regard to banking interest rates and increasing the minimum payment required. According to the new
regulations, credit card limits could be no more than double the income earned by the cardholder. The
number of consumers unable to pay their debts started to grow at a much slower rate after these
precautionary measures were introduced. Because of Turkey’s more stable economic environment,
consumers were expected to be more responsible about their debts and to follow interest rates more
closely, which was likely to fuel competition among banks.
Promotion and Advertising Raised Credit Card Consumption
Promotions and the availability of different payment options increased the demand for credit cards
considerably, as consumers with no debt continued to use credit cards to benefit from gift promotions or
extra points that were convertible to cash. Installment payment options, especially at gas stations,
supermarkets and hypermarkets (large retail centers incorporating both a supermarket and a department
store), encouraged credit card use among consumers who had difficulty in spending large amounts in a
single transaction. Decreased growth in credit card transactions forced issuers to offer more attractive
promotions, such as free reward miles and points that could be redeemed for a range of goods and services.
Advertisements started to become one of the competitive tools of the companies. During recent years,
celebrity endorsements, promotional incentives and television advertising became de rigueur for credit
card companies in Turkey. To attract consumer attention, issuer and operator companies competed for the
most attractive promotions, such as gifts and points that could be redeemed for money in return for a
predetermined level of spending. Consequently, many people used their cards more frequently to qualify
for these gifts.
The marketing areas of financial card companies could be found at the most popular shopping outlets.
Credit card companies started to enter into agreements with popular outlets to offer both installment
payments and additional gift promotions. These outlets also functioned as advertising channels where
companies could display their advertisements. The issuing companies also used newspapers and magazines
to advertise the retail outlets where cardholders were eligible for discounts.
The increasing promotions were expected to encourage credit card activity in new areas. For example,
consumers were encouraged to use their credit cards for such tasks as bill paying and travel spending,
which would greatly increase credit card spending. In one promotion, extra points (convertible to money)
were offered to consumers who used paid their electric bills by credit card. Issuing companies were also
expected to make deals with other utilities, such as natural gas and water companies, to introduce greater
credit card payment options. According to Euromonitor International, more areas of the market would
become subject to credit card promotions.
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Security Concerns Increased the Prevalence of Smart Cards
In response to growing security threats from fraudsters, Turkey had begun to introduce chip and personal
identification numbers (PINs) to increase consumer confidence. The chip and PIN system, launched in
Turkey in June 2007, required consumers to enter their PIN in a point-of-sale machine before using their
credit card. This system considerably decreased the incidence of credit card copying, the use of fake
identities and stolen card activity. In advertisements, Okan Bayülgen, a famous Turkish actor and
comedian, encouraged consumers to convert their cards to the chip and PIN system by contacting their
Since the introduction of security precautions, more services began accepting payment by credit card.
Telephone and credit card companies started to work together similar to the way banks operated, offering
consumer credit by telephone. Also, because of the enhanced security, tourists were more likely to use
their credit cards, especially in restaurants, where others were not present at the point-of-sale machine.
Companies also upgraded their Internet operations to make them as secure as possible. In some banks,
consumers accessed their Internet accounts using many passwords and/or PINs that were changed
Because of consumers’ sensitivity to issues of confidentiality, companies started to compete on the quality
of their security systems. Halk Bank, Garanti Bank and Akbank developed high-level security systems that
protected their customers’ accounts from fraudulent activity. In addition to passwords, identification
numbers and PINs, customers could also be asked to identify images they had previously defined in the
system. When customers wanted to transfer money, they needed to order, via a cell phone text message, a
temporary security number that expired in three minutes. Because fewer fraud operations meant better
service and more consumer activity, companies were encouraged to upgrade their security technology
frequently and to increase their spending on security applications. However, because security technology
developments could quickly become obsolete as hackers caught up with the new technology, companies
needed to develop systems with inherently high levels of security.
Installment Payments Changed Consumer Spending Habits
In many Turkish retail outlets, at the point of sale, consumers could choose to divide their payments into as
many as 20 monthly installments, which allowed consumers to buy more expensive goods and pay only a
portion of the price upfront. Such installment payments, which were only possible with credit cards, had
led to many cardholders having quickly spent their limit of available credit. Moreover, this payment option
also encouraged consumers to have more credit cards, which offered a multitude of promotions.
Credit card issuer and operator companies earned huge profits from these installment payments and
discounts. However, these features were changing consumer spending habits, binding people to payments
for at least one year, which limited their other retail spending. The Banking Sector Monitoring Board
expressed concern that a financial deadlock could occur for middle-income consumers who risked running
out of credit. Some newspapers speculated about a government ban on payment periods longer than 12
months. As a result, longer payments periods, such as 20 months (as seen five years ago) were, in recent
years, reduced to three months.
The trends of installment paying and promotions were predicted to benefit the larger banks, which could
afford discounts and installments. These larger issuer companies were also more likely to have better
Page 13 9B09M002
bargaining positions in their agreements with retail outlets. Longer installments were expected to be
popular for payments of electrical appliances and holiday purchases, such as airline and hotel bookings.
Promotions were predicted to be more applicable in supermarkets and gas stations, where consumers who
spent a predetermined level qualified for gift promotions or points that were convertible to cash.
Because of the large number of credit card accounts at their limits, bank-sponsored consumer credit loans
were expected to increase. Cash spending was predicted to become more popular, especially in the
household and textile sectors, where people tended to use their credit cards less frequently. Although for
small purchases, consumers continued to pay by credit card, in general, people were expected to consume
less. Retailers determined the prices of goods by considering the installment option. With increasing
demand for fewer divisions, prices were expected to fall.
Consumer Credit and Lending
Total credit lending and consumer credit increased in 2007, due in part to the effects on the Turkish
economy of the international financial crisis related to oil prices. These conditions resulted in decreased
consumption and difficulties in paying debts. Installment payments could now be paid by credit card, and
despite credit debts being included in credit evaluations, many people started to take out more consumer
credit to pay their debts before the economy worsened.
Moreover, because of banks’ increased information technologies infrastructure, the consumer credit
evaluation process was easier and less time-consuming. Credit applications could even be arranged via cell
phone message systems. Companies started promotions to offer more credit and to attract more credit
applicants. Additionally, Turkey’s high rate of consumer lending was due in part to high unemployment
rates: unemployed people often applied for consumer credit to fund their current needs with the hope of
paying back their debt after finding a job.
Banks decreased their consumer credit interest rates both to compete with each other and to attract more
consumers. Banks even offered consultancy services to plan consumers’ total financial needs. Garanti
Bank, for example, offered a credit limit equal to 10 times a consumer’s income, and Vakif Bank set its
interest rates three points lower than other companies. Competition focused both on advertising how
companies’ options exceeded their competitors’ in terms of consumer credit loans and on payment
strategies that could be changed at any time.
Consumers often preferred the shopping environment on the Internet, instead of shopping in person. Using
the Internet, consumers could peruse an array of products described in detail, read product comments and
reviews and share their own findings. Internet shopping also increased consumer knowledge of products
and their prices. As a result, Internet transactions and purchases increased considerably: in 2007, the total
number of Internet users in Turkey had reached 15 million, and the total size of e-commerce in Turkey was
YTL2 billion8. Thus, companies in the credit card market and companies where customers shopped in
person started to invest in Internet sales.
In 2007 YTL1.15 to YTL1.44 = US$1
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When using credit cards for online shopping in Turkey, customers could use their credit card to pay in full
or in installments. Retailers’ websites were developed to include wider payment options, increased product
portfolios, and better and swifter access to shopping areas. These companies invested in their payment
systems, offering such features as confirmation by e-mail or cell phone text message, to enhance fast and
secure shopping. Euromonitor International predicted high Internet credit card transaction growth of more
than 50 per cent a year in the next five years.
Mobile commerce (m-commerce) referred to the buying and selling of goods using a mobile device, such
as a cell phone or a personal digital assistant (PDA). Despite having been introduced in 2003, m-
commerce, started to develop rapidly only in late 2006. Because of the increased number of airline
customers and ticket buyers, m-commerce activities had significantly increased. M-commerce was
particularly popular for purchases that needed to be transacted quickly, usually by telephone, which was
more widely accessible than the Internet. However, although m-commerce seemed to be developing in
Turkey, it still represented only a tiny fraction of the overall retail market.
Companies that offered Internet sales would likely also provide m-commerce services in the future. In
particular, some watchers predicted that companies that accepted Internet orders for lunch and dinner
orders would soon turn to accepting telephone orders routed through call centers. However, without
investment, m-commerce would remain negligible, because its costs were much greater than the costs of
an Internet sales channel. M-commerce, which needed equipment and much human capital, was still only
applicable to businesses whose services were required within a limited timeframe, such as airline tickets,
theater tickets and concert tickets. In other businesses, m-commerce was not expected to develop due to
the increased focus of companies on e-commerce, which provided both marketing and sales.
Automated Teller Machines and Point-of-Sale Terminals
Turkey was home to more than 17,000 automated teller machines (ATMs), many of which were installed
because of industry players’ desires to reach every consumer and to attract potential consumers. Free-
standing ATM kiosks began to replace the previous system of kiosks located near banks. The new ATMs
offered customers more functions than before: consumers could pay their bills, buy Global System for
Mobile communications (GSM) accounts, buy bonds and make electronics fund transfers (EFTs). These
added services increased consumers’ usage of ATMs and led to the installation of even more ATMs to
meet the rising demand.
ATMs appeared in even less developed regions, such as rural areas and the undeveloped eastern regions of
Turkey. These locations provided companies with access to more potential consumers. When an ATM was
situated in a rural area, even when no banks were available locally, consumers were more likely to have
bank cards or credit cards.
ATM services sometimes could not carry the business load in crowded locations and ran out of cash or
broke down. Whereas bigger companies could provide better technical support systems and networks, in
rural areas, the time needed to solve a problem or malfunction was much longer than for ATMs in busy
urban locations. Companies were expected to invest more in ATM transactions because, especially in
urban settings, consumers needed both the fastest transaction channels and the highest levels of security.
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Cash Withdrawal vs. Card Purchases
According to the Interbank Card Center (in Turkish, Bankalararasi Kart Merkezi, or ICC), 15 per cent of
transactions were for cash withdrawals and the remaining 85 per cent were card purchases. When credit
cards were used for cash withdrawals, consumers incurred both a cash usage commission fee and an
interest rate that could be punitively high if the sum withdrawn was not paid back quickly. On the other
hand, some companies, such as the Garanti Bank issuer company, offered the option of installment
payments to repay cash withdrawals.
Compared with cash withdrawals, credit cards were more frequently used for purchasing because most
people thought of credit cards as tools for shopping. In grocery and gas station retailing in particular, credit
card companies named their cards with specific retailers that offered more installment payments or
discounts to customers of that issuer’s credit card. This promotion was expected to bring dynamism into
card purchases at the expense of cash withdrawals. Credit card purchases were expected to continue to be
popular in the future.
Increased Number of Mergers Led to Dynamism and Stability
The Turkish banking industry had been working through a period of consolidation in an effort to boost
efficiency and stability in the post-crisis era. A series of high-profile mergers and acquisitions had taken
place, most notably in the credit card sector. Once the banks had stabilized after the effects of the 2001
crisis, they started to merge their systems either totally or only in their card systems or ATM systems. This
activity started a movement towards standardization in the banking system and helped with the move
toward high-quality service. In some cases, however, the merger of two banks — neither of which
previously had an efficient system — did not guarantee that the new system would be efficient.
BankEuropa started to convert its credit cards to the World Card, owned by Yapi Kredi and was followed
by Koçbank in late 2006 and by one of Turkey’ small banks, Millennium Bank, in 2007. Oyak Bank and
Isbank struck a similar agreement to convert Oyak’s cards to Isbank’s Maximum Card in 2007, as did one
of the biggest banks, Ziraat Bank, also in 2007. Denizbank was merged with Dexia and also converted its
credit cards to Garanti Bank’s Bonus Card in early 2007. Later the same year, Garanti Bank forged similar
credit card usage agreements with Turk Ekonomi Bank and Seker Bank. Garanti Bank merged with
General Electric and Disbank was taken over by Fortis Bank in late 2006. All these mergers were expected
to both stabilize the banking sector stable and pave the way for greater credit card usage.
The Competitive Landscape
Garanti Bank continued to be the leader among the acquirers. Garanti Bank’s Bonus Card and Flexi Card
could be easily distributed to consumers, helping the bank to maintain second place among the issuers.
Among the operators, Visa preserved its leadership in credit card volume and value transactions and
cemented its leadership in the number of cards. E-Kart, which had the majority share among
manufacturers, increased its share even more.
Visa recorded the biggest increase in personal credit card volume. The company started to increase its
share in credit card transactions in 2003 and held the leading position in the number of cards. Visa
advertisements were influential, as evidenced by Garanti Bank’s successful promotions of its Shop&Miles
card, which targeted a premium image for the Visa card users.
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In 2006, Axess card by Akbank was relaunched, offering new payment opportunities. The company
increased its advertisements, which featured the famous Turkish actress Özgü Namal, who emphasized the
advantages of the Axess card through small sketches that illustrated how an ordinary girl’s life was
changed by her Axess card. HSBC increased demand for its Advantage card with advertisements targeted
at the middle-aged working population that sought the highest promotions for credit cards. Garanti Bank’s
Flexi card advertisement selected Tugba Ünsal, one of Turkey’s leading models, to attract attention to the
new concept of its card.
In late 2006, Denizbank launched the Sea&Miles card, which offered sea miles that could be redeemed for
sea transportation, a popular activity in Turkey. In 2006, Garanti Banki launched its new Flexi card, which
allowed consumers to determine their own limits, designs, interest rates and installment numbers.
Multinationals Visa and MasterCard dominated the operators, while issuers comprised a few multinational
banks led by HSBC. Many banks were set to merge with multinationals in the forecast period.
Multinational companies were not dominant among the issuers, however, and the majority of all
manufacturers and acquirers were domestic players in Turkey.
American Express cards were available in Turkey, but not as charge cards, only as credit cards. In 2006,
Garanti Bank took over from Akbank the rights for issuing American Express cards and started to issue the
cards as credit cards that could only take advantage of discounts if the cards were used in point-of-sale
machines as credit cards (see Exhibit 4 for a breakdown of credit card market shares).
In 2007, 21 per cent of Turkish population held an average of 2.2 credit cards, less than the European
average of three to four cards. On the other hand, credit card usage in Turkey was significantly higher (98
per cent) than debit card usage (two per cent). The shares of card usage in individual and household
consumption were 7.1 per cent and 19.7 per cent, respectively.
Akbank was founded in Adana, Turkey, in January 1948, to provide financing for the cotton producers in
the region. In 1950, Akbank opened its first branch in Istanbul, where it relocated its headquarters in 1954.
After rapidly increasing the number of its branches, Akbank automated all banking operations in 1963.
Akbank pioneered Internet usage by launching, in 2000, the Commercial Internet Branch, which targeted
small and medium-size companies and by opening, in 2001, its English-language Internet branch for
Together with its core banking activities, Akbank offered a wide range of retail, commercial, corporate,
private banking and international trade financial services. Non-banking financial services, as well as
capital market and investment services, were provided by the bank’s subsidiaries.
Akbank operated through its headquarters in Istanbul and from its 13 regional directorates within Turkey.
With a strong and extensive distribution network that included 682 branches and 12,333 employees,
Akbank provided services beyond traditional distribution channels through its innovative branches, such as
Source: Akbank website www.akbank.com, accessed June 2008.
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“Credit Express” branches (which extended only consumer loans), “Big Red House” branches (which
extended only mortgage loans), as well as through nontraditional channels, such as Retail and Corporate
Internet branches, the Telephone Banking Center, 1,615 ATMs, 641 Akbank’s brand of ATM (BTMs),
233,520 POS terminals and through cell phones and web platforms, which utilized the latest technologies.
In addition, a Freedom Banking Area had been set up within branch premises to offer customers banking
service access via the Internet and telephone. Akbank’s overseas operations were managed by Akbank NV
in the Netherlands, Akbank AG in Germany and a branch in Malta.
On January 9, 2007, Akbank and Citigroup successfully completed their strategic partnership agreement,
in which Citigroup acquired a 20 per cent equity stake in Akbank for approximately US$3.1 billion
(YTL0.095 per share).
At year-end 2006, Akbank’s net profit was YTL1,600 million (approximately US$1,131 million), and total
assets reached YTL57,273 million (approximately US$40,476 million). Akbank’s capital adequacy ratio of
20.7 per cent was one of the highest in the sector. In 2006, Akbank continued to obtain loan facilities from
overseas markets at favorable terms; the amount of these funds reached US$6,422 million.
Akbank was recognized as the “Best Bank in Turkey” five times by Euromoney and three times by The
Banker and was ranked as Turkey’s most valuable bank, after having achieved the most profitable banking
operations among privately owned banks in Turkey in 2007 (see Exhibit 5 for Akbank’s selected ratios).
AKBANK’S CREDIT CARD DIVISION
Akbank was among the largest participants in the payment card industry in Turkey, offering both credit
cards and debit cards. In September 2000, Akbank transferred its credit card business from its mainstream
operations to a newly incorporated, wholly owned subsidiary, in an effort to enhance the bank’s marketing
strategy and provide customers with higher quality services. The Akbank Credit Card Division was
managed by a senior vice president and staffed by a total of 23 employees.
Akbank was one of the pioneers in the credit card market in Turkey and continued to offer a variety of card
options to customers: Visa (Gold, International and Domestic), MasterCard (International, Domestic and e-
Card) and co-branded cards in conjunction with MasterCard.
Credit Risk Management
Akbank’s Retail Credit Approval Department was responsible for the allocation and monitoring of credit
cards, consumer loans and micro business credits. The department aimed to implement the credit approval
processes on the basis of minimum cost, minimum risk and maximum speed; it assessed credit based on
decision models developed through data and statistical modeling and on business flows that fit customers’
On January 1, 2005, Akbank finalized a project to establish a fast and accurate credit card allocation
system encompassing systematic assessments and automatic credit decisions. Effective credit decisions
and limit allocations were determined by queries on Consumer Credit Bureau information and
investigations of other banks’ data on customers’ usage of credit-based consumer products, which were
modeled on a decision tree. As a result, Akbank’s ratio of non-performing loans (NPL) in 2006 was 2.1 per
cent, significantly lower than the average ratio of 3.6 per cent in the banking sector in Turkey.
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Market Segmentation Strategy
Akbank’s credit card customer segmentation was initiated in 2004, when Akbank started tracking the
spending cycles and habits of cardholders in each segment to enable the bank’s promotional activities to
focus on customers’ expectations. To achieve this goal, Akbank’s credit card portfolio was reorganized to
address the needs of different customers.
Another segment of customers held co-branded CarrefourSA and Yimpafl cards, which entitled
cardholders to specific benefits at these retailers. At the same time, these cards give member merchants the
opportunity to provide their customers with superior service while generating cross-selling opportunities.
The co-branded cards created retail synergies within the Sabanci Group and offered customers more
attractive payment conditions. Under a cooperative agreement between CarrefourSA and ChampionSA,
Turkey’s leading hypermarket chains, consumers with CarrefourSA credit cards were entitled to discounts
when shopping at ChampionSA and were eligible for enrollment in installment payment plans. Points
earned when shopping with these cards could be exchanged for gift checks redeemable in any CarrefourSA
store. Other valuable cardholder campaigns were continuously being promoted by CarrefourSA.
In November 2001, Akbank launched the Axess card, based on the so-called “smart card” technology that
recognized consumer preferences and spending habits and offered personalized benefits. Axess was the
first credit card in Turkey to accumulate cash through purchases; the cash could then be used immediately
for new purchases. Axess also offered discounts at contracted stores, campaign sales and other surprises.
More than 200 contracted brands were available at advantageous terms to Axess cardholders at more than
3,000 sales outlets. Within almost a month of its launch, the number of Axess cardholders had reached
200,000, a record number in the credit card market.
In 2003, thanks to the success of the Axess card, Akbank strengthened its position in the plastic card
market in Turkey and had the greatest increase of any bank in Turkey in its market share of the number of
cardholders. Developed according to consumer preferences, Axess quickly became an outstanding market
success. MasterCard International acclaimed it as the fastest-growing credit card brand in Turkey and
Europe in 2002. As of year-end 2002, Akbank had approximately two million credit cardholders, a year-on
increase of 96.7 per cent that raised the bank’s share of the credit card market from 6.3 per cent to 12 per
cent. Thanks to innovative and successful personalized marketing, Axess had gained 750,000 new card
customers, increasing Akbank’s penetration of the retail banking market. Axess’s ground-breaking market
penetration strategies and practices in 2002 made this card a role model, and its features were being
imitated by competitors. By the end of 2002, the Axess network of participating businesses encompassed
1,800 brands and 14,000 retail sales outlets, thanks in large part to strategic cooperation with such leading
brand names as BP and Migros.
In 2003, the Axess turnover increased 193 per cent, three times the sector’s growth rate in Turkey. By
2004, Axess was the fastest-growing credit card in the market with growing numbers of cards and member
merchants. Rapidly, Axess developed the largest member merchant network in the installment-based credit
card sector and positioned itself well ahead of other cards because of its cardholder benefits and its various
privileges and promotional campaigns. Diversified in a parallel manner among different customer
segments (Classic, Gold and Platinum cards), the number of Axess cards issued grew by 86 per cent
reaching nearly three million in 2004. Axess demonstrated a real increase of 90 per cent in 2004 in
turnover, achieving the highest growth in terms of turnover market share in the sector.
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In the space of just four short years after its introduction, the number of Axess cards issued surpassed three
million in 2005. With close to 160,000 points of sale in early 2007, Axess had the most widespread
merchant member network in Turkey.
The Wings Card
The Wings credit card was launched in March 2007, with the slogan “Turkey’s easiest card to fly with.”
The only card having “black” status, The Wings was Akbank’s new travel and entertainment credit card
with the most comprehensive miles program ever launched in Turkey. Miles were instantly earned on
every purchase at the rate of one mile per YTL1 spent. Miles could be redeemed with any airline without
blackout dates. Unlike most flying programs, all ticket taxes were included, and miles were earned even on
the free, miles-funded, flights. The Wings card was the only credit card offering both miles and cash
points, which could be converted to miles. This card met with customer appreciation due to its
advantageous miles program, which doubtlessly helped it exceed the bank’s year-end sales target of
The Axess Loyalty Program
The main pillar of the Axess loyalty program was “chip-money” — a feature offering instant cashback on
purchases, allowing the customer to enjoy instant earnings in both Axess-affiliated and non-Axess-
affiliated merchant stores and in other Axess-enabled alternative channels. One chip-money was equal to
one Turkish lira (YTL). Buying from merchants affiliated with Axess presented customers with a double
advantage: earning more chip money (up to 20 per cent of the purchase value) than in non-affiliated
merchant locations and the ability to redeem the money instantly. Chip-money was funded 82 per cent by
the merchant, and the balance was funded by Akbank. Chip-money received for purchases from non-
affiliated and international merchants was funded by Akbank only.
Axess loyalty program created advantages for all the three parties participating in the process: customers,
merchants and Akbank. To create shopping convenience for the customer, Axess offered up to 12 months
of interest-free installment payments and cash flow management tools, such as cash advance and balance
transfer. During special marketing campaigns, customers were able to earn more chip-money, especially if
they increased their purchase frequency and volume at a particular merchant. Additionally, customers had
a wide range of value-added services available, such as utility payments, “yellow line” concierge services
supported by 450 customer service representatives, access to an airport lounge, valet parking and shuttle
services at the Istanbul and Ankara airports, and information services accessed via mobile phones.
Although merchants funded chip-money and the cost of funding the installments, they benefited amply
from higher traffic and sales. As a result, the number of participating merchants increased dramatically
from 1,700 in 2001 to 143,000 by mid-2007. Two-thirds of merchants with Akbank’s POS equipment had
joined this program. In addition to increasing their sale volumes, merchants also benefited from extensive
customer relationship management (CRM) support to track customer behaviors, cross-campaign
opportunities between merchants (e.g. BP and Carrefour) and an opportunity to organize instant sales
promotions and discounts and stronger customer loyalty. Merchant initiatives were supported by 54
merchandisers and supervisors who conducted more than 23,000 merchant visits per month. More than
15,000 merchants were reached via the Axess Interactive Incentive program, which, since 2005, had
offered training and conferences, and a merchant support web site, launched in 2007.
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The Axess loyalty program helped Akbank to generate a sustainable profit in an increasingly competitive
environment by increasing per card spending (33 per cent above market average in Turkey), improving
customer loyalty (attrition rate of less than five per cent), reducing customer acquisition costs and enabling
cross-selling opportunities with banking products (70 per cent of Akbank customers were Axess
members). As a result, the Axess card became one of the bank’s most profitable products.
Market research conducted in 2006 showed that the Axess brand identity was strongly established as a life
companion, characterized as trustworthy, innovative and most advantageous in clothing purchases. The
card and its advertising campaign were most recognizable for research participants.
Axess’s advertising campaigns achieved their effectiveness by aiming at a specific marketing goal. Chip-
money campaigns proved to be an effective way to increase volume among affiliated merchant network,
whereas gift-based campaigns were preferred by customers who were sensitive to instant rewards. Extra
installment campaigns were particularly effective for the textile sector, while extra GSM air-time
campaigns were popular among food and oil merchants.
The Axess Exi26 credit card was launched in 2005 to meet the demands and needs of the youth segment
and was marketed at universities. The following year, Axess started a new system in Turkey that enabled
users to earn TeknoPuan (Techno Points), in addition to chip-money. Customers who reached a
predetermined level of TeknoPuan could buy select electronic equipment at a special discount and using
Since 2005, the Platinum Mile Program, a unique program for Axess Platinum cardholders, had been
giving upscale customers the opportunity to earn mile points, as well as chip-money, to qualify for free
airplane tickets. Thanks to these differentiated services offered to the higher-income group, the share of
this segment captured by Axess had grown rapidly.
In 2006, Akbank launched some innovative products and services in response to the needs and
expectations of customers. Installment Cash Advance met Axess cardholders’ cash needs instantly through
alternative distribution channels and offered advantageous interest rates for installments. Installment Debt
Transfer enabled Axess cardholders to transfer their debt on other banks’ credit cards to their Axess credit
card and offered installment payments at advantageous interest rates. Offering services that could make
customers’ lives easier was another innovative effort implemented in 2006. The services offered as a part
of Axess Assistant Services were further enriched after the launch of Axess Driver Service in February.
Axess Yellow Line was enhanced to offer customers much more comprehensive services.
In 2007, Akbank began extending instant consumer loans from its affiliated retailers as well as its
branches, using the unique Axess Consumer Credit feature. Launched in April, Axess Consumer Credit
allowed customers to make regular consumer loan payments through Axess, increased cross-selling
possibilities and provided great convenience for the bank’s customers. As a first in Turkey, Akbank
launched its Instant Card Issuance application in May and, at select branches, began issuing ready-to-use
cards in only seven minutes. This innovation was met with great interest at the CardIst, Compex and Cebit
trade fairs. Currently available in 25 Akbank branches, the Instant Card Issuance innovation was
expanding to more branches each day. Akbank developed innovative application channels for its credit
cards during 2007. For example, consumers could submit their Axess and Wings credit card applications
within three minutes via the Internet, a short message service (SMS) or through the 444 00 11 Credit
Page 21 9B09M002
Hotline. In addition, Akbank launched the instant temporary credit card application at Credit Express
branches located in certain member retailers.
In 2007, Akbank’s focus on customer relations and minimizing customer loss led to structured programs
and reacquisition campaigns to retain Axess and Wings customers or to persuade lapsed customers to
return. In 2007, Akbank continued to offer services to make customers’ lives easier. Content of the Axess
Assistant Services was further enriched and all customers began receiving much more comprehensive
services with Axess Yellow Line. Through Installment Cash Advance, Axess cardholders could meet their
cash needs instantly using the alternative distribution channels and repaying it in installments at suitable
interest rates. With the Installment Balance Transfer feature, customers could transfer debt from another
bank’s credit card to an Axess credit card with favorable installments (see Exhibit 6 for selected Akbank
credit card data).
CURRENT SITUATION AT AKBANK CREDIT CARD DIVISION
Although overall the Axess card had been a success story since its inception, much uncertainty surrounded
this business on different levels. Government stability and positive macroeconomic trends provided a
continuous opportunity for growth; however, new regulations and increasing local and international
competition put pressure on profitability.
Sector Growth Prospects
Credit cards were expected to enter a phase of slow growth, which was related to stabilization in the sector
and the passing of the first boom caused by massive innovations and investments after the recovery of the
economy. Moreover, government regulations on credit card usage, such as restrictions on card limits and
higher minimum credit card debt payments for all credit cards, were expected to reduce unconscious credit
card usage. Overall, the credit card sector expected to see trends toward manageable debts, conscious
spending, and a higher quality of service and security.
New applications for credit cards were expected to be introduced, including for public transportation fares
as well as for payment of electric, telephone, water and natural gas bills. The chip and PIN system, which
was introduced in the late review period, was expected to increase credit card usage as consumers gained
trust in the system’s security features, which were intended to reduce fraudulent activity.
Credit card transactions were expected to rise as a result of more home delivery options and greater
Internet usage. Internet credit card usage was expected to be boosted by more secure systems, more
installment options, better promotions and Internet advertisements. In the forecast period, financial
institutions were expected to make greater investments in research and development, innovation and
promotional activities. The favorable credit atmosphere was expected to attract acquirers to enter into
intense competition in bringing the latest technology to Turkey.
Among the issuers, companies were expected to be more limited over the forecast period due to credit card
usage merger agreements and wholesale mergers, such as that of Yapi Kredi Bank and Koçbank. Major
banks that were expected to enter into competition were the Isbank, HSBC, Garanti and Yapi Kredi issuer
Page 22 9B09M002
companies. Garanti was favored to take the leading position in the forecast period because of the strength
gained through its merger with General Electric. However, Yapi Kredi’s merger with Koçbank, the biggest
holding group in Turkey, was predicted to boost Garanti Bank in the fiercely fought competitive
environment. Garanti Bank took the distribution and issuing of American Express from Akbank. American
Express was expected to have a higher share in total credit cards.
European Union Accession
Turkey’s candidacy to the European Union (EU) increased the significance of the country’s credit card
market. Foreign banks took an increasing share in this flourishing market through mergers and
acquisitions. This trend was expected to accelerate even more in the near future. According to 2004
statistics, credit card usage grew 14 per cent in the Euro zone and 34 per cent in Turkish credit card
market.10 Defaults on credit card debt in the European market of 4.5 per cent was higher than the Turkish
market at 1.67 per cent. The high interest rate spread together with low default rates provided substantial
profit opportunities for credit card issuers in the Turkish market and was one of the reasons for the
increasing appetite in recent years of the international banks to acquire Turkish banks. HSBC quickly
bought a credit card network (Advantage Card) after entering into the Turkish financial markets. Another
international financial giant (General Electric) became the equal partner of the second-largest issuer in the
Turkish credit card market.
Government Intervention in the Credit Card Business11
Although the credit card business remained the highest-yielding banking product in Turkey, falling interest
rates on credit card loans and possible abolishment of annual fees on credit cards had created uncertainty
in the sector.
The Central Bank had recently lowered the interest rate cap on credit card lending from 4.93 per cent to
4.54 per cent, thus curtailing the yield on credit card loans, which was likely to edge down from 36 per
cent possibly to 32 per cent. At first glance, Yapi Kredi Bank and Garanti Bank, which dominated the
credit card market, were expected to suffer the worst impact. Isbank and Akbank also commanded a
significant presence in this market, and their yields were also expected decline with the lowering of the
credit card interest rate.
The abolishment of the annual fee on credit cards was currently under consideration. If this proposed
change were to become law, Yapi Kredi Bank and Garanti Bank would likely be most affected, by virtue
of their commanding presence in the market. Isbank and Akbank were also likely to suffer, but not to the
Issues with Co-branded Cards
According to the academic research,12 brands can and do serve as valuable relationship partners, and brand
behavior reflects the degree and depth to which consumers link brands with concepts of self and identity.
Euromonitor International: Credit Card Transactions 2002-2007 London, UK, 2008.
Sadrettin Bagci, Turkish Equities: Banks (Sector Update) FinansInvest , Istanbul, Turkey, April 21, 2008
Susan Fournier, “Consumers and Their Brands: Developing Relationship Theory in Consumer Research,” Journal of
Consumer Research¸ Vol. 24 No. 4, pp. 343–373.
Page 23 9B09M002
To this extent, brands are often considered a meanings-based communication system used to portray who
we are and what we want people to think of us. Brands can only be understood within the broader context
of people’s lives and experiences. At the same time, many loyalty programs appear unrelated to the
cultivation of customer brand loyalty and the creation of customer assets. The key idea is that firms must
commit to their customers and establish a satisfied customer base. The customer base, in turn, becomes a
valuable asset that provides substantial benefits in the future.
True loyalty programs invest now for the future, commit now to the customer and trust rather than demand
trust. However, many loyalty programs fail because they produce liabilities rather than assets.13 These
programs often produced short-term revenue while producing substantial future obligations to customers.
In 2005, Garanti Bank’s loyalty program rebated YTL222 million in bonuses and disbursed the equivalent
of YTL172 million in free purchases.14 Rather than demonstrating trust by committing to the customer, the
firm asked the customer to trust that, in return for current revenues, the firm would provide future rewards.
If true brand loyalty created an asset, the customer would need, over time, to form an attachment to the
brand, which might stem from such factors as learning, increased switching costs, habit or customization.
Credit Card Division Strategy
To develop a sustainable growth strategy, the management of Akbank’s credit card division needed to
answer the following questions: Given this unpredictable environment, what factors should be taken in
consideration when designing a strategy? In what areas should the next growth opportunities be planned?
Should other countries in the region be targeted? What criteria will most accurately assess potential market
Steve M. Shugan, “Brand Loyalty Programs: Are they Shams?” Marketing Science, Vol. 24 No. 2, pp. 185–193.
Yasemin Balaban, “Pazar 5 Yilda 4’e Katlandi,” Capital, July 1, 2005, accessed June 2008.
http://www.capital.com.tr/haber.aspx?HBR_KOD=2954, accessed June 2008.
Page 25 9B09M002
MARKET POTENTIAL FOR FINANCIAL SERVICES IN SELECTED COUNTRIES AND IN SELECTED
% of % of
Turkey US $ mln
2007 US$ mln region globe
Germany 25,530 2007 5,015 3.01% 0.89%
Kingdom 19,305 2008 5,239 3.06% 0.90%
France 18,644 2009 5,472 3.11% 0.90%
Italy 16,524 2010 5,715 3.17% 0.91%
Spain 9,534 2011 5,970 3.22% 0.92%
Russia 7,067 2012 6,235 3.27% 0.93%
Turkey, % of
Pakistan 3,476 2007 US $ mln country
Belgium 3,233 Istanbul 1,927 38.4
Sweden 3,227 Izmir 602 12.0
Egypt 3,189 Ankara 577 11.5
Saudi Arabia 3,143 Bursa 298 5.9
Ukraine 2,900 Adana 266 5.3
Austria 2,685 Mersin 233 4.7
Iran 2,621 Antalya 227 4.5
Norway 2,365 Konya 204 4.1
Greece 2,326 Samsun 122 2.4
Denmark 2,260 Gaziantep 114 2.3
Portugal 1,922 Kayseri 100 2.0
Czech Rep. 1,739 Diyarbakir 99 2.0
Finland 1,735 Eskisehir 98 2.0
Romania 1,689 Sanli-Urfa 79 1.6
Ireland 1,592 Malatya 69 1.4
Source: Philip M. Parker, The 2007-2012 World Outlook for Financial Services , ICON Group International, Inc., San Diego,
Page 26 9B09M002
THE CREDIT CARD SECTOR IN TURKEY
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Disposable Income (YTL mln) 162,616 212,492 243,816 254,855 264,100 272,865
Consumer Credit (YTL mln)
Total lending 24,140 46,453 99,082 152,302 178,996 190,000
Consumer credit balances 14,317 23,749 40,457 62,334 68,086 75,000
Consumer credit outstanding 3,317 10,482 19,344 32,217 37,000 34,000
Credit card outstanding 2,774 8,275 18,749 28,265 35,000 28,500
Value Lost to Fraud (YTL mln) 7 24 22 24 20 12
Counterfeit cards 3 10 10 11 10 6
Card stolen or lost 2 7 6 6 6 3
Total Credit Cards Sector
Number of transactions (mln) 636 829 1,133 1,300 1,348 1,395 1,482 1,578 1,687 1,808 1,943
Transaction value (YTL mln) 25,613 39,414 64,627 85,281 112,099 122,419 131,927 142,307 153,652 166,212 180,135
Personal Credit Cards
Number of transactions (mln) 630 821 1,122 1,287 1,334 1,380 1,467 1,562 1,672 1,792 1,926
Transaction value (YTL mln) 25,357 39,020 63,981 84,428 110,978 121,195 130,648 140,969 152,247 164,731 178,569
Corporate Credit Cards
Number of transactions (mln) 6 8 11 13 14 15 15 16 16 16 16
Transaction value (YTL mln) 256 394 646 853 1,121 1,224 1,279 1,338 1,405 1,481 1,567
Smart Cards (mln) 7 12 14 18.1 26 35 47.3 64 84.5 109.9 140.6
Actual Forecast Expenditure by Sector, 2007 Credit Card Debit Card
Growth rates, % 2006/07 2002-07 2002/0712 CAGR 2007/12 Food and drink 8,814 144
CAGR TOTAL CAGR TOTAL Motoring 24,484 229
Total Credit Cards Sector Other retailers 37,950 699
Number of transactions 3.5 17.0 119.3 6.8 39.3 Financial 4,285 19
Transaction value 9.2 36.7 378.0 8.0 47.1 Other services 6,733 68
Personal Credit Cards Household 6,121 57
Number of transactions 3.4 17.0 119.2 6.9 39.6 Mixed business 17,016 212
Transaction value 9.2 36.7 378.0 8.1 47.3 Travel 2,693 68
Corporate Credit Cards Clothing and footwear 12,854 302
Number of transactions 4.9 18.6 134.4 1.6 8.2 Entertainment 122 28
Transaction value 9.2 36.7 377.9 5.1 28.0 Hotels 1,347 64
Smart Cards 34.6 38.0 400.0 32.1 301.8 Total 122,419 1,890
Note: YTL mln= millions of yeni türk lirasi (in English, new Turkish lira); CAGR=compound annual growth rate.
Source: Euromonitor International, 2008.