Welcome to Breaking Banks, the number one global fintech radio show and podcast. I’m Brett King. And I’m Jason Henricks.

Every week since 2013, we explore the personalities, startups, innovators, and industry players driving disruption in financial services. From incumbents to unicorns, and from cutting edge technology to the people using it to help create a more innovative, inclusive, and healthy financial future. I’m J.P. Nichols, and this is Breaking Banks.

Welcome back to Breaking Banks, the world’s number one fintech and banking podcast and radio show. So great to have you guys with us. Now, you know, on my travels recently, I was in Istanbul in Turkey.

And I’m going to talk about that in a moment, because it sort of drove this story. But one of the things that, you know, we like to see at Breaking Banks, and we celebrate, and I know, you know, Jason, in particular, is a bit of a champion of banks who are really getting digital right. And, you know, this, we’re going to talk about a bank who I’ve observed is sort of made some great traction.

The other element of how, you know, you really assess the ability of incumbents to get into this new space of digital engagement and digital excellence is whether they’re willing to really partner with fintechs and so forth, especially as now we see AI’s influence coming into the mix, you know, how progressive are they in terms of partnerships with fintechs and things like that. So there are a couple of framing sort of situations for the guests that we’re going to talk to next. We spoke to, we, I was up in AcBank in Istanbul for their launch of their recent innovation hub or innovation lab.

And we have with us today, the EVP, who looks after that function of the business and who’s deeply involved in the digital platform and, you know, competency there, Bircu Sivilek. Welcome, Bircu. Hi, Brett.

So, you know, let’s start with some of the data that, you know, you shared with me in terms of the level of digital engagement you’re getting across the bank, the depth of product capability you have across digital, how that’s reshaping revenue and acquisition of customers. Can you give me some sort of, you know, picture of how digital has already changed AcBank? Sure. We’ve been investing in our digitalization for some time.

And let me give you some context regarding Turkey and AcBank so that we can visualize those numbers better. Turkey has a very sizable population. It’s around 85 million.

As far as I know, it’s the 18th country in terms of its size of population. It’s still a very young population. Median age is still being at 34.

And AcBank is one of the largest banks in this domestic market. It was established back 77 years ago. So it’s a large incumbent bank.

We have an active customer base of 14.5 million. And in the last three years, in fact, we have already, we are an incumbent bank. We’ve grown as a fair startup.

The number of our active customer base increased by 70% net after churn and inactivation. It means 7.0, 7.0%. And our digital customer base, our average monthly traffic per customer are at their highest levels. And this we believe we’ve achieved thanks to our digitalization efforts, especially in the last couple of years.

This has different aspects. The customer acquisition is one aspect. Servicing is another aspect.

And sales of products is another aspect. I can give several figures around these three aspects. For new to bank customer acquisition, two out of every three new to bank individual customers are acquired through digital.

And three out of every four new SME customers are again acquired through digital and digital, by the way. 96% from servicing point of view, 96% of our financial transactions are conducted via our mobile banking app, which is called AkBank Mobile. AkBank Mobile is a universal, all-inclusive mobile banking app, which has around including all the services around 700 different services inside AkBank Mobile.

Our digital active customer penetration exceeds right now 87%. And in sales as well, we’re very active in selling all our products through digital channels. Just to give you a couple of examples around, it depends from time to time, but around 60 to 70% of our credit cards are sold through digital.

85% of our time deposit openings are through digital, which is, by the way, quite unique in our domestic market. Generally, time deposit openings are done through branches in our market, whereas our majority of time deposit openings are through digital. And over 90% of personal loans are sold through digital.

Around 75% of our insurance products are sold through digital. So I can go on like this over and over again. Most of, again, investment products, all investment transactions, majority of our investment transactions are done through digital.

Investment products are sold digital. So it’s an incumbent bank that has become a digital bank bread. Yes, that’s fairly clear.

The data tends to support that thesis. In terms of, obviously, you know, we’ll talk about the Innovation Lab in a moment. But, you know, there has been, obviously, more active fintech traction in the Turkish market.

We have spoken with some of the fintech association there in the past and some others. So there’s some good traction there. Of course, you know, you have the influence of European apps and other things coming into the space as well.

So how, you know, in terms of sort of traditional retail banking products, you seem to have good coverage there. But have you been experimenting a bit more with some approaches that tend to look a little bit more fintech-like, you know, like buy now, pay later, you know, salary advance capabilities, being able to switch your debit card off in real time. And, you know, some of those sort of influences, have they come into the digital sphere as well? Turkish banking sectors and also the payments, by the way, sphere is quite advanced as compared to many other markets.

It’s a very unique case. We don’t have siloed legacy infrastructures. So Turkish banking sector and also the customers as well, Bret, are quite unique in that sense to experiment new innovative products and services.

And they are very much eager to embrace the products and services, innovative products and services and channels across the board on all types of fronts that you might imagine. For instance, the services like buy now, pay later, advance payments, all of those are using, for instance, digital first credit cards, digital first debit cards, soft POS, you name it. All of those products already exist in the market for quite some time already.

And we are also using and providing those solutions and services and products to our customers as well. However, there is still a lot of room for growth for collaborating with fintechs. At AtBank, in our institution, collaboration is the key word when it comes to innovation, because we believe to be adaptive to change, very fast change, disruptive change in this era.

We believe that we can’t do it by ourselves, all by ourselves. We have to cooperate with fintechs. Back in 2016, 2017, in fact, fintechs were seen as competitors to banks by many of our peers.

That was the case. However, as AtBank, we established AtBank Lab, our innovation center in those days, in 2016, to effectively institutionalize collaboration in innovation with fintechs. What does AtBank Lab do? It does lead the bank’s innovation initiatives, especially through collaborating with fintechs and big techs, not just fintechs, but also big techs, not just from our local market, but from all around the world.

Our vision back then was becoming the partner of choice in the region for innovative tech startups. We have an award-winning governance model. It is a systematic open innovation approach.

What do we do? We engage with over 1,000 ecosystem stakeholders every year. We believe we have accumulated the know-how to how to best cooperate with startups and tech companies. We can do a very rapid market introduction of innovative fintech solutions.

We reduce the project timelines from those traditional two-year processes to a maximum six months of POCs. We go live when there is success for all parties. Since 2016, we have proven success with already 46 POCs projects.

21 of them have already gone live, and eight of them are still ongoing with different fintechs from all around the world. We discover collaboration potentials from everywhere, from Silicon Valley. We’ve done projects with Silicon Valley, with Singapore, with fintechs from UK, Ireland, Spain, Turkey.

It’s like we figure out the solutions that will make a difference in environment for our customers or for our employees with fintechs and technology startups. Can you give me a specific example of a fintech partnership that has produced something that has been impactful to your customers? Sure. For instance, we embrace AI on every front.

We might discuss this until the morning, but for instance, a very early example of our AdBank Labs collaboration with fintech was around use of AI for the benefit of the customer. What did we do? We called this the banking IQ. In banking IQ, we put a set of machine learning algorithms behind our customers’ own data, which they give us permission to process, and we process their data and bring in hyper-personalized financial insights to each and every customer.

In AdBank Mobile, we have a communication area, which is quite unique, by the way, which is not the case in most of the banking apps from all around the world. But rather, we have a communication area which is dedicated to communicating with the customer in a hyper-personalized way. And all of those financial insights spread monthly, by the way, around 40 million unique hyper-personalized financial insights are delivered to our customers through AdBank Mobile.

And these financial insights are… So where’s the fintech partnership? Is that powering those insights? This is the solution that the fintech brought in. Okay. So we implemented and integrated it into our customer database, and we can deliver all those solutions and financial insights, hyper-personalized financial insights to our customers.

This was one example. Another example, we cooperated with fintech from Spain. For instance, their solution was geared towards SMEs.

SMEs are struggling, especially in Turkey, with their financials, their financial calendar, their cash flows. So it’s a very delicate area that you have to address as a bank for the needs of the SMEs, especially small ones. So what we did, we seeked around the world for a solution, a BFM solution, which is called the Business Financial Management Solution in the future.

And we found a very good one in Spain, and we collaborated with fintech. We did a POC. Now, that solution is embedded in AdBank Mobile’s corporate mobile app.

And all our SMEs, commercial companies, customers can access this solution. By the way, pro bono, we do not charge our customers any fees for this service. They can get their, again, financial insights, they can manage their cash flow, they can manage their financial calendar using this, and they have a different dashboard for that.

So it’s a service that we have integrated in our platform. So what do we do? We do figure out the problem, the pain point. We do figure out the solution wherever in the world that solution is.

We work with the fintech. We do a proof of concept for around three to six months together with the fintech. And if it proves to be successful for the customer, for the bank, for the fintech, so we scale up, we go live.

And those solutions become parts of our own platforms. So the customer experiences those services, those solutions, those products, as if they’re our own solutions towards the customer. That’s how we work with fintech.

Okay. Now, how do you scale that up? How do you speed that up? We have examples now of, you know, for Revolut and Chime talking about this. I know, had a very similar discussion with Varo recently.

And we’ve got an upcoming recording with the CEO of Nubank, David Velez, David, from Nubank, of course, now the largest bank outside of Asia, digital bank. And, you know, they’re all talking about turning, creating new products and getting them to market within hours or days, you know, as a fintech and having thousands of sort of mini programs going on at the same time amongst them. You know, all sort of testing out concepts very quickly and trying this stuff out.

And you can see that with Revolut, how they’ve done their crypto and how they’ve got the different tiers of customers. Now, this is all coming through these, this experimentation process. So how is the culture that you see in fintechs like that? How is that influencing the teams at ActBank? It’s a great question because it’s not just the products and the services that they provide to us, but the way of working, their influence on our culture has been immense in the last of these eight years.

They have very short time to market periods. They’re very innovative and they’re very customer centric. And also they’re quite laser sharp and very much focused on making their solutions perfect.

I think that is very impressive. And what do we provide to fintechs? We provide the scale, the infrastructure, the customer base, banking know-how and the willingness to disrupt and recreate ourselves through fintechs. So by collaborating, I think we learn a lot from their way of working and it influences very well our culture, especially innovation culture in an incumbent like ours.

And we also give them the opportunity to enter the Turkish market. We give them the customer base, the employee base and the infrastructure that they can access to. We know that fintechs sometimes have little opportunities or let’s say resources to test their products with a partner.

So the partner like us should be very efficient in delivering those POCs, doing those NDA agreements, doing the procurement. You can’t put those fintechs into the common, you know, standard banking processes. That’s impossible for them.

So we have created a different route for fintechs. NDAs, the compliance issues, everything is tackled with great urgency. It’s a different route, you know, like an express route so that we have to utilize their resources very efficiently.

We have to act like them. Of course, I think we have to act like them. I don’t know if I told you the story and if you guys have been listening to Breaking Banks for a few years, you would have heard me probably tell this story before, which was the move in partnership with TD Bank, you know, which as of now has been still, I mean, they’re still using our tech.

So it’s been, wow, it’s on a decade now that they’ve been using our tech at TD. But the really interesting part of that was exactly what we’re talking about, which is it took us four months to develop the initial prototype for testing in the market, four months to get the technology married together, including creating a data lake and using that and sitting on top of that, creating the APIs, creating the app, deploying the app to the app store, about four months. And it took us nine months to get the contracting and compliance and legal stuff done, right? So that’s the point is that, you know, that our speed to market was not limited by the technology agility of the organization or us as a fintech, but it was limited by those processes, which sounds like you guys are aware of that.

But let’s go back to the technology. And, you know, you’re talking about artificial intelligence and so forth. This all requires a very agile tech stack.

So tell me about what you’ve done to build your tech stack up to a standard where this type of sort of seamless integration with a fintech is possible. Actually, we have invested end to end. It’s not like just the tech stack.

Of course, the modernization tech stack was an immense and is a continuous effort on our side, delivered especially led by our CIO. We changed everything. It was a total transformation.

It was putting a fancy, nice looking front line, a mobile app and claim that we have digitalized ourselves. But we said, first of all, we have to recreate all our interaction points with the customers, all of it. And also we said we have to recreate all our processes with a zero based approach as if no bank exists.

So we recreated. It took us a very long time to design. And, of course, the application development behind it as well to change all those processes.

We implemented a central brain behind it using our AI strategy. So we had to recreate from scratch an AI strategy and background. The infrastructure was totally reshaped by our technology people.

So it was an end to end effort. Of course, it still requires modernization in certain areas, and there are still efforts going on. However, we are now in very much good shape in testing easily and quickly with fintechs, our integrations.

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All right, so let’s talk about where this goes. Let’s talk about in three to five years time, how would you compare ActBank in three to five years time with ActBank today or with sort of the leading edge AI based fintechs in a few years time? How’s that going to influence what ActBank becomes? For the last couple of years, we made a strategic choice. We were discussing whether we should establish a separate digital bank or whether we should become a digital bank ourselves.

And we deliberately made the choice, strategic choice, of becoming the digital bank ourselves. It was most probably a more challenging choice, because creating something from scratch could be easy. But scale came in.

And it was, I mean, once we built the digital bank ourselves, once we recreated ourselves as a digital bank, I think scale up story was easier. But until then, of course, the journey was difficult. Now, going forward, we have identified AI as the most significant initiative area to redefine ourselves.

Of course, we have been investing in developing a huge set of machine learning algorithms, cognitive algorithms within the bank, we have a huge use case scenario base, we have our AI governance, etc. However, now, for the next couple of years, we have identified the generative AI as the next wave to catch. We have tested several generative AI use cases for the last couple of years.

But this year, we have decided to go big. And we have identified several verticals. And now we are going to recreate those verticals from scratch, just like we did when we were redefining our business model from scratch.

Now we believe it’s time for us to recreate those verticals from scratch, using generative AI capabilities, because we’ve tested, we’ve got very good results. So now we believe that we can redefine certain business areas within the bank to reshape from scratch. This seems to be the way forward.

Yeah, I mean, you know, we use the analogy sometimes of dropping a speedboat in the water for a digital spin-off versus turning the big ocean tanker. But it is possible. I mean, you know, it’s even happening with JPMorgan to some extent, which brings up a debate, actually, a question which I have to ask you, because I know the answer to this.

But, you know, there’s some of our listeners who will be saying, but JPMorgan Chase is still building branches. And yet we know that their net branch numbers are down significantly from their peak. So it’s a bit of very clever marketing on the part of Chase in respect to that.

But how has this digitization effort affected AkBank’s branch network? And, you know, has it consolidated at all? And, you know, is the role, you know, what is the role of the branch? Has that changed in AkBank, you know, both culturally, internally at the bank and for customers? All of that happened. We were the first large bank in our domestic market to start downsizing the branch network, like nine years ago. We downsized our branch network by more than 30 percent.

And we were the early, in fact, action taker in the market. Also, the number of, not just the number of branches, but the composition of human capital in the branches changed drastically. In spite of our major competitors, our peers’ response to digitization, we preferred a very cash light model.

Although the society in Turkey is still a cash society, we decided to remove cash from our branches. So the branch, the model inside the branch, the choreography within the branch changed drastically. And we were the only one who chose to get rid of cash from our branches.

Our peers preferred a seller-teller convergence where sellers became also tellers and tellers became also sellers. So they came more intertwined with cash. So we removed cash.

We brought in very high capacity machines, which replaced our tellers. And this required, by the way, a huge re-skilling approach of re-skilling our tellers and ops people to become sellers and service people rather than dealing with cash. So we did run a huge program of human resources change.

And we changed all the choreography, the movement of the customers, the screens and the processes, even our architectural design of branches, removing those teller, you know, desks and everything from our branches. So not just the number of branches, but the composition inside of the branches, the choreography, the business model and sales and service model within the branch changed. So now we have more sales people.

We have very few teller people. We have very few ops people. We have a very centralized operations center already.

We’ve had this for the last couple of years as well. So it’s not just numbers, but also the way we interact with the customer has changed drastically in response to digitalization. What do we have right now? The screens that our sales people in the branches use through using their iPads, by the way, not like, you know, desks behind, you know, huge piles of paper or printers or etc.

They’re all using Akbank Mobile as the tool for interacting with the customers while doing their consultations. So Akbank Mobile is the tool that they use within the branches as well. So now we do not have a discrepancy between the experience of a branch, even ATM.

We have changed our ATMs. We have changed our mobile. So everything is quite clear from the perspective of the customer.

It looks just like the same. The processes are all the same. The brain behind that offers them those recommendations and everything is the same.

So it’s a unique experience across all channels for our employees, for our customers. So the role of the branch, yes, it changed. Now it’s more of a contact point for the customers, for more sophisticated products like mortgages and etc.

Okay. Well, it’d be really interesting to see what you guys think of like how generative conversational AI and how smart glasses and things like that might take this forward. But unfortunately, we’ve run out of time.

So Birju, just before we finish up, in terms of the Innovation Lab itself and the stuff you were doing, how can people sort of track what’s happening at Akbank today and some of these projects you’re talking about? Oh, it’s a great question. By the way, Brekt, we had this POC challenge last year, by the end of last year, and you were there with us. It was very amazing to hear your conversation as well with our audience.

So we have global challenges. We ran two global challenges last year with Singapore FinTech Association and also we ran a global one where we had 65 different applications to do POCs with Akbank Lab. So we invite all the FinTechs that might provide valuating services to our customers and to our employees to contact us from Akbank Lab.

We can provide the numbers and email addresses of my colleagues as well. It’s a very compact but a very powerful team of people who have learned and who know how to work and cooperate with FinTechs in a very fast and efficient manner. So we would like to invite all the FinTechs and technology solution providers to Akbank Lab to provide their solutions to Akbank customers and employees.

Is there a URL they can go to or a page? Yes, we will provide the URL as well. Okay, great. All right.

So we can put that out over the Breaking Banks and the Provoked Cast channel. So Birgit Sivilek, thank you very much for joining us on Breaking Banks today. Thank you very much.

That’s it for another week of the world’s number one FinTech podcast and radio show, Breaking Banks. This episode was produced by our US-based production team including producer Lisbeth Severins, audio engineer Kevin Hirsham with social media support from Sylvie Johnson. If you like this episode, don’t forget to tweet it out or post it on your favorite social media or leave us a five-star review on iTunes, Google Podcasts, Facebook or wherever it is that you listen to our show.

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