The Regulation on Operating Principles of Digital Banks and Banking as a Service (“Regulation”) was published in the Official Gazette dated 29.12.2021 numbered 31704 and became effective as of 01.01.2022.

Fintech sector attained to the expected legal arrangement as the Banking Regulation and Supervision Agency (“BDDK”) introduced two new banking services to the Fintech environment under the Regulation:

- Digital Banking
- Banking as a Service (“Baas”)

The regulation provides that a Digital Bank refers to the credit institution offering its banking services through electronic distribution channels instead of physical branches.

BaaS, on the other hand, is defined as a service model in which customers can perform banking transactions by connecting the systems of Service Banks through API’s offered by the Interface Providers.

Significant Matters in the Regulation

Digital Banking

1. Digital Banks will be able to perform all the activities that credit institutions can perform unless stated otherwise. The establishment and operating permit conditions that apply to other banks will also apply to Digital Banks.
2. The total of unsecured cash consumer loans that Digital Banks can make available to a customer will not exceed i)four times of the monthly average net income of the customer confirmed by Digital Banks, and ii)TRY 10.000 if the customer's average monthly net income cannot be determined.
3. The minimum paid-up capital required for Digital Banks to obtain an operating license has been determined as TRY 1 billion. Banking Regulation and Supervision Board can lift certain operating restrictions

for Digital Banks that increased their paid-up capital to TRY 2,5 billion.

1. Digital Banks are prohibited from opening physical branches, yet, they are required to establish at least one physical office to handle customer complaints. In addition, Digital Banks are allowed to set up ATM networks or offer their services through pre-established ATM networks.
2. The committed continuity percentage for internet banking and mobile banking distribution channels of Digital Banks cannot be less than 99.8%.Banking as a Service (BaaS)
3. Service Banks shall provide BaaS only to local Interface Providers within the framework of their operating permits, and, they are not allowed to be Interface Providers.
4. Service Banks shall be the entity to have discretion whether to provide banking services to a customer through BaaS, hence, the banking services shall be performed under the financial accounts of the Service Banks.
5. The fintech companies developing interfaces as Interface Providers cannot make promises or statements that may create the impression that they operate as a bank, payment institution, electronic money institution, or as a bank/payment service provider.
6. The Service Banks shall be able to audit the Interface Providers and to examine relevant documents, records to ensure the confidentiality and security of data and to comply with the authentication and transaction security criteria in transactions to be carried out through the service channels of the Interface Provider.

You may access the Regulation by the link and contact us for further queries.

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Authors: Bilge Derinbay, Mahmut Ramazan Ertaş

Contact: [email protected]