Turkey: Technological silver linings in finance and trade

Opinion | 26 June 2017

Technology, and specifically digitisation, is having a beneficial impact on Turkey's trade. In this roundtable discussion, hosted in Istanbul by BNY Mellon, bankers and corporates look at how technology is a bright spot for finance and trade and may help the country's role as a regional hub

Katharine Morton: Tell me about the trading relationships Akbank has with its clients and the extent of digitisation and trade.

Efsal Gülen: I've been cash management product development vice president at Akbank for five years. We're joined here by Petrol Ofisi (POAS) which is one of the large corporates utilising our payments and collections solutions. We are currently fully integrated with their systems within online infrastructure in terms of these areas. For collections, we have [Swift] MT940 [a standard structured Swift customer statement message] and online account statements and we supply credit cards, which is used in the B2B platform of POAS, and we also have an online direct debit system. On the payments side, we have Turkish lira and FX payments, working fully online communicating with POAS on their ERPs (enterprise resource planning systems). So we are working within fully automated structure on collections and payments solutions with POAS.

Doğan Çelik: Yes. I am responsible for Turkey and for financial planning and analysis for our business groups. We are managing integration projects with Akbank, as well. We have over TRY45bn per year, for payments and also for collections. So, gross for the company is TRY90bn per year in terms of Turkish lira. We are automating all those processes with the banks.

Cihat Takunyacı: I'm the country manager of Turkey and Azerbaijan for BNY Mellon, based in Istanbul and have been here for coming on to 20 years this year, so I guess I've almost become an institution! We've grown along with the market and our bank partners in terms of our offering. We work in synchronisation with what Turkey needs. It started with the currency, then realisation, making payments, and that becomes trade finance, which has [evolved into a] big trade business for us, and [we follow] other steps we see in the market, such as borrowing, etc.

Oğuzhan Taniş: I've been working with Çolakoğlu Metalurji for the last two years. Previously I was working at TEB Corporate banking. I'm responsible for treasury, risk management and compliance. Çolakoğlu Metalurji works with TEB on full banking services such as collections, payments, letter of credits and guarantees. We operate in the steel business. The main raw material is steel scrap, which is supplied from the major suppliers in the US and Europe, and the main products are steel slabs, billets, hot rolled coils, and deformed rebar [reinforcing bars]. Our export markets are North America, the Mediterranean region, and European countries.

There are some interesting trade finance angles to cover there. Burak?

Burak Erdem: I head the trade and financial institutions department at TEB. TEB was established as a trade finance bank in Turkey and continued like that for many years, then entered many different business lines in the banking system but its soul is still trade finance banking. We are part of a global financial institution, BNP Paribas, also well-known as a trade finance-oriented bank globally. We try to serve our clients with the best and most innovative products and services in the field.

Eylem Ekmekci: I head cash management and trade finance both on product development, IT-related issues and sales support for Yapı Kredi. We have one of the largest teams in the country, including myself, 41. We are present in five cities, but the reason we are here today with Ford Otosan is that, for the last few years, especially on trade finance, the bank has been focusing on digitisation. We are working hard to digitise trade finance activities despite all the regulatory realities of the country.

Ford is the first company to which we introduced our digital payments and collections systems which we have been developing together. We had started to discuss digitisation-related necessities of companies, especially to compete in the world, together with Ford, so I'm glad Özlem is here as she was there at the very beginning of the project and has been involved with almost all digital payments and collections activities at Ford Otosan. We are fully integrated online, in every aspect of trade finance.

Maybe you could give me some details Özlem?

Özlem Süzen: I'm treasury supervisor at Ford Otosan. As you know, at Ford we produce light, heavy, and medium commercial vehicles. From 2015 to 2016, we were the export champions in Turkey, and we hope to do the same in 2017. We export and import a lot, so we need digitisation. Yapı Kredi was the first bank [we worked with on digitisation in Turkey], and our work together has improved processes for other banks. Now, we have three banks for import payments, an electronic banking system, and we want to have more.

What does digitisation mean to everybody?

Batuhan Tufan: I'm the head of financial institutions (FI) at Garanti. Under FI, we have three responsibilities: trade finance, correspondent banking and structured finance, which refers to the funding of the bank. Of course, Garanti is one of the largest banks in trade finance in Turkey, as well as supply chain.

Digitisation is also on our priority list, also coming from our shareholder BBVA, which is going through a digital revolution. With that being said, I think digitisation is a word that we use a lot, but is it just a fancy word to use among our peers? We'll see about that, but I think the vision of the whole sector, as well as Garanti, is to be the leader in digitisation and to be the leader in streamlining these processes to be quicker in response times to clients, in the execution of trade finance transactions.

We were one of the first banks to join the TSU network [Swift's Trade Services Utility network which is a centralised matching and workflow engine], with the same view to becoming more digital, to utilise the BPO [Bank Payment Obligation]. To be honest, we had difficulty finding the right banks who were ready to process such transactions, and the right clients who understood the product, why it benefitted them, how it benefitted exporters, etc.

After several years, we were able to execute our first BPO last week [mid-April]. So, this discussion is timely. Digitisation is a good and fancy word to use but you need the partners to do it. You need your other parties to be up to speed and knowledgeable about its benefits, if there are benefits to be had.

Do you think BPOs are still likely to grow as a product offering given the challenges or will it be sidelined?

Batuhan Tufan: For us at Garanti, even though we didn't stop marketing the BPO, it was quite dormant. We did only one transaction during the course of several years, and that comes from a sizeable bank like us with a sizeable market share, a bank that's proud of its digital progress. We weren't able to convince our clients, nor the partners' banks to be able to execute it.

Burak Erdem: We had a BPO last year with two clients. We invested a lot, held seminars, customer training, and it was difficult to find counterparties globally to execute such transactions. TEB was the second [BNP Paribas] subsidiary globally to start doing BPOs. The evolution is there but it's not becoming an economic product for everybody. Some products, like iPhones, fit to the market, some just disappear. So, it is just good to follow them.

Cihat Takunyacı: From our point of view we look for critical mass as a global institution. We have an engine to adapt but on the BPO, we couldn't find enough demand, so it's not heading completely in the right direction. That's one angle, another one is to educate partners, not only local ones but international ones as well. They need some technological background, the same understanding. That must be overcome to reach critical mass. It may not take as long as five years next time around, but if corporates do want it, they will need to put more of an emphasis on utilising technology to speed up processes.

Let's look at digitisation from a different perspective. Turkey is advanced in this area compared to many countries - e-invoicing, e-signatures, and so on, driven by regulation. Where is digitisation in Turkey, and what are the next steps?

Efsal Gülen: Turkish legislation is supportive of digitisation because, as you said, there have been some changes in the legislative framework which makes digitisation easier, and e-invoices are a good example of that. I know that electronic cheques are being studied in banks and corporations and it's a very good way to digitise trade inside Turkey. Turkish legislation is supportive of fintech start-ups and the fintech ecosystem, that's important for new technologies. As far as I know, there are more than 200 fintechs in Turkey. Changes are being made in Turkish legislation for payments for those kinds of fintech start-ups and Turkey may become a global hub for fintechs.

Burak Erdem: But protectionism is a big threat in front of us. There is a will at the level of the legislative forces, but at the same time, there is a will towards protectionism for political reasons and this protectionism seems to be a global phenomenon at the moment. As banks in Turkey, we are highly advanced in digital investments and in becoming more digital, but maybe we are overinvesting in this field. All banks separately invest in this field without even outsourcing to a single company which all banks can utilise. But at the same time we are facing the protectionism issue to develop our fintech companies or our cash management products on a global scale.

Still, there is a law in Turkey, for example, that protects the Turkish currency that doesn't allow our corporates to establish international treasury operations. So all companies have to act local under this framework. They cannot combine their treasuries with their base in Europe, for instance. But, on a trade finance front, we do not face such problems. In payment flows, though, protectionism is definitely affecting our businesses in a negative way.

It always struck me that Turkish banks were very far advanced compared with international banks in terms of technology and insourcing. You could almost be exporting these technology services, but you can't.

Burak Erdem: Yes we could easily provide a base for back office or mid office services, like India does.

Doğan Çelik: The benefit of being a developing country rather than a developed one is that you can establish all those systems from the beginning. There are no old business infrastructures and habits. Also, globalisation has happened from the beginning of the 2000s. This is the same digitisation that gives governments control over everything easily and in real-time. Now we have integrated all our payments, around $50bn per year, we are making those payments without any human interaction, it's online. These lines are direct between banks and our ERP systems and it gives government agencies the ability to monitor and project all those online transactions with a database. They don't have to come and check all the invoices because we have e-invoices.

We also have our dealers, and they are using one single screen, an e-order screen, to give orders to me and to make their payments with eight banks. They can manage all of them in one screen. Also government agencies can check all those transactions, so they don't have to hire thousands of controllers and they don't have to come in to check annually, although they still do. They can check all those transactions in real time online.

So, as a developing country, technology is [an enabler] for banks, for companies, for our customers and the government. And because of this, all the agencies and governments and banks and companies are using technology to create huge development.

So, in a way, Turkey is leap-frogging ahead.

Eylem Ekmekci: Digitisation is, of course, very important for companies and for banks. First, it brings operational efficiency, but it should also be end-to-end to satisfy the expectations, especially of corporates. Coming back to BPOs, what has been lacking from BPOs is that although it's a digital product, it's only digital for banks. It doesn't have anything digital for the companies, that's why I know bankers and Swift are working to make it end-to-end digital so that companies can also benefit from it. And this is very important, and why all the banks focus on end-to-end digitisation. The digitisation of the banks or integration with the specific customers is not enough, that's why we must focus on that.

Speaking for Yapı Kredi, we're handling more than 75% of all banking activities of corporates and commercial customers from digital channels. I'm sure this is similar for other large banks in the country. This is very important. We are digital, definitely. All the products that we are serving to the market, not only for trade finance but also for cash management, for all collections and payments, are linked to e-invoices, e-trade activities as mentioned by Doğan. What is also important is that you need to fix your service model to be digital. If you don't put a service model into this digital end-to-end process, it will have issues.

We are fully digital in trade finance. None of our customers need to call the branch or the area [manager] for a Swift message, for payment information, for an export which arrived in their accounts, for an LC or LG [letter of guarantee] to be issued. What is important for Turkey and local Turkish banks, and what makes local banks differ from the rest of the world, is the regulatory aspect of the country as Burak mentioned. We're trying to fix the necessity of the regulations. For example, we send bulk money to an exporter, but make all of the import payments separately so that companies can benefit from customs declarations for each payment, but that's a customisation that's only valid for Turkey. I'm sure that will evolve as regulations evolve. None of the customers need to call the bank for any trade-related documentation information for Turkey. That's very important.

Let us come back to what Ford are doing, from a multinational point of view. How has the digitisation process happened for you in terms of trade?

Özlem Süzen: Before our current system, we made import payments manually. We printed bank papers and they had to be signed by our authorities and later faxed to the banks, which were also running manually. With the current system, all these things are done electronically - we send the files - and it's processed automatically by the banks. Our company and banks make savings on labour, paper, time, and we minimise the risk of timing of import materials. It's been nice to see the change, and it has been running successfully for five years. Now, we want to improve this system to make our payments, not only payments for import materials, but also payments for invisibles done on the system. We want all payments to the banks to be made electronically by 2017 - this year.

How appropriate is trade digitisation to what Çolakoğlu Metalurji does?

Oğuzhan Taniş: When it comes to digitisation, we should discuss the issue from multiple perspectives. First of all, we must consider digitisation in terms of both domestic and international trade. This is important because domestic trade in Turkey has already been going in the direction of digitisation. Because domestic trade has more standardised practices including supply chain relationships, which already made digitisation easier to set up a long time ago between banks and clients. However, in international trade due to different documentation requirements and due to local regulations, there's quite a long way to go to reach a certain level of digitisation.

Second, we should look at the issue from an industry perspective. In the automotive industry, for instance where the supply chain relationship has been structured just like in the white goods industry, digitisation came into practice a long time ago. Again we can talk about standard relationships between the parties. When it comes to companies dealing with commodities, however, although the material is a very standardised one, the relationship between buyers and sellers there, is a very delicate one, which highly depends on the price of the commodity. Since the price of the commodity fluctuates, it is not impossible but very difficult to establish a standard way of doing things.

Not only the nature of the industry but also as you may very well know, the ticket sizes in commodity driven industries are higher compared to other industries. Companies therefore prefer sophisticated products like letters of credit between them and this type of banking product for instance requires a high level of knowledge and experience which naturally means more human labour and less digitisation because the risk at the end is high.

Could this be where blockchain fits in?

Oğuzhan Taniş: Sure blockchain could be the future of international trade, which is often discussed these days, but there's a long way to go, in my opinion.

So, do you want blockchain to come?

Oğuzhan Taniş: Yes. It's the future at least on the international side because, as we've discussed, the domestic side has been solved to a certain extent.

Burak Erdem: For blockchain technology, we're working together with BNP Paribas group to follow the evolution and to pioneer in a way. The resources are there, so we use them. But we are not behind, we are acting together, so in some ways, we are even pioneering innovations within the whole group.

The need coming from the customer side has to link with the product itself and the digital solution coming out of that will be an end-to-end solution in the end, which all parties will be satisfied with. Maybe with BPO, as we discussed, it doesn't satisfy the whole chain. But, in a blockchain type of technology, the data processing, the need for such customers to reach to the end-users directly without any intervention or quickly, and in a reliable manner, will bring a much better solution to the whole industry in my view. But still the regulation must follow. The regulation will be the blocking point for blockchain.

Cihat Takunyacı: As I said, we are a global player, dealing with big numbers, so we definitely need digital structures in order to be efficient and responsive to client needs. International regulations compliance has become one of the most important things, such as KYC (know your client), etc. So, that's something we need to bear in mind, otherwise we can't rely on the next 200 years. That's one angle.

The second angle is that as this approach is very wide, we are trying to focus on what our clients are demanding in different geographies, what our capabilities are to respond accordingly, and we need to focus and expend our efforts and energy properly to bring something quicker but also in the most efficient way. To do that, we're trying to follow up all the global trends and initiatives and pick out certain ones, become members of them from the outset. If we do that without them reaching a big enough network, none of them will be successful. For instance, the compliance and AML (anti money laundering) part could be a good use [of blockchain], but it will all require a sizeable network in order to happen.

Our approach is to meet with the clients, understand their needs and share experiences and ideas in different locations, including Turkey, and get local engagement. For instance, we're part of a nice initiative here called Fintech Istanbul. It's important to get engaged and reach consensus.

Efsal Gülen: Payments, fund transfers and trade finance are the major focus areas that new technologies (such as blockchain, artificial intelligence, biometrics and identity management, cryptocurrencies) offer better customer experience, speed, transparency and operational efficiency. In today's world, trade finance is highly paper and labour intensive and has multiple components and touch points. There is limited automation, which makes it costly and creates a lack of transparency. So banks started to use fintech to leverage these new technologies and new delivery channels. Especially in cross border payments and trade finance, many banks are cooperating with fintechs to use blockchain technologies. The aim is to enable end-to-end transparency for all parties, eliminate paperwork, offer customers a seamless, fast and secure platform, and contribute to a better trade ecosystem. In this context, Akbank has invested in blockchain and has struck a deal with Ripple. Following this, we launched a pilot study concerning corporate payments through Akbank AG, an affiliate operating in Germany.

Where is Garanti bank with blockchain?

Batuhan Tufan: We're obviously following the industry and keeping up with the pace, that's definitely a focus point for us. But what I was referring to in the beginning is that not all the peers are moving at the same pace, or they do not pay the same attention [to digital technology]. Likewise, blockchain is a very innovative way of doing business, but we will see how many parties will be on the blockchain. If you're ready with the infrastructure, but you don't have any other parties that you can execute transactions with, you're on your own. If you only have one party to do a transaction with, it's still not an efficient use of resources. The way is very clear in the digital world, everyone is going in the same direction but we have to make sure we are all moving at a similar pace to make the most use of it.

It's interesting to see the difference between domestic trade and international trade. Garanti is big in international trade and structured finance - tell me about the good and bad points of international trade.

Batuhan Tufan: In terms of international trade, if I can focus more on Turkey, it's very dependent on economic developments. Not only domestically, but also with our trading partners. We're obviously looking at a world which is recovering from the global financial crisis - growth figures are looking positive for Turkey. The outlook is not nearly as positive for our neighbouring countries, who are subject to certain political factors. In terms of the Turkish economy, considering the challenges we've had over the last few years, growth is still there. We are now past the referendum cycle so hopefully we will be out of the political question marks about how the country is governed. We will hopefully see more stability in the currency and the economy. We understand that there will be an official focus on economic growth in Turkey returning to 5% average GDP growth. What is encouraging is that we'll have more resources allocated to that and that will translate into our trade finance businesses.

Let's look at Turkey as a hub, what possibilities are we looking at in terms of national trade flow, and also inflows?

Efsal Gülen: Turkey has legislative support and our banking sector is strong. There are many fintech start-ups here and banks are starting to collaborate with fintechs to leverage new technologies. There is a geographical advantage for being a global hub. There is economic stability and good prospects for growth. And, Turkey has a very young population in that half of the population is under the age of 30 and the penetration of smartphones is very high, which makes it possible for digitisation with the younger generation.

How do you see Turkey getting over some of its pain points and what are the prospects in terms of trade in the near future?

Cihat Takunyacı: There are certain structural issues that need to be resolved, and once they've been resolved, it'll take some time to reach an optimal point. But, a decision needs to be made now because the global environment is changing rapidly. Our growth is on a knife edge, which affects Turkey's ability to sell goods, not only producing for domestic purposes. We need to work a little more on the quality of education and other infrastructure.

On the trade side, Turkey is lucky because of its geography. We need to put more of an incentive on attracting foreign business. I know there are some issues that are slowing that down, for example relations with Europe, but the other side of the coin is Asia. I keep hearing that China, South Korea and Japan are having more interest, because of their own issues over there, in using Turkey as a production hub and for bilateral trade. Overall, I'm cautiously optimistic about things, but I think Turkey needs to act quickly and act on its structural issues.

Doğan Çelik: Our geographical benefit also creates a cultural benefit. We can understand European culture and we can also understand Middle Eastern culture. Here we're speaking in English to an international audience for a global trade magazine, but I suspect that most of us around this table can sing and dance to local songs at local weddings too. It's a translation process, we can translate business culture, works and ethics both ways, to each other. So, yes, we have a technologically advanced country in terms of business, and we have a very adaptable culture. For instance, we've seen the economic and cultural shocks in the 1980s, 1990s, and at the beginning of the 2000s, that has all hugely improved our 'adaptability genes' both in business and technology. Our adaptability culture and our culture which is a mix of middle eastern and European means our hub position is bolstered by all of this and I remain positive.

The roundtable, Turkey: Technological silver linings in finance and trade, was hosted by BNY Mellon in April 2017, and was held in Istanbul, Turkey

Box-out 1

The Panel

Burak Erdem

Bank relations and trade finance director, Türk Ekonomi Bankasi (TEB)

Cihat Takunyacı

Managing director and senior representative, treasury services EMEA, Istanbul representative office, BNY Mellon

Doğan Çelik

Treasury and financial planning manager, Petrol Ofisi

Efsal Gülen

Cash management product development vice president, cash management and trade finance division, Akbank

Özlem Süzen

Treasury supervisor financing & risk management, Ford Otomotiv Sanayi, (Ford Otosan)

Eylem Ekmekci

Head of cash management and trade finance, corporate and commercial banking, Yapı ve Kredi Bankası (Yapı Kredi)

Oğuzhan Taniş

Manager, group asset liability management and treasury, Çolakoğlu Metalurji

Batuhan Tufan

Senior vice president, financial institutions department, Garanti Bank

Chair - Katharine Morton Editor-in-chief, TFR

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