Smart Technologies and New Perspective for Payment Systems
I interviewed Celal Cundoglu. He is the deputy managing director of the Interbank Card Center (BKM). We talked about the present and future of Blockchain and payment systems
Cetin: Let’s start with a general question, when we consider the historical development of Blockchain system, what kind of reflections did this technology create?
Cundoğlu: The main popularization of Blockchain was in 2008, with an article, by Satoshi, on the distributed structure of money about Bitcoin. Especially the cryptocurrency part attracted attention. When looking at the real level, we realized that the underlying blockchain was a reliance (trust) machine. So, it does not necessarily have to be a cryptocurrency on this. In the world, many business processes are carried out on paper or on a pier to pier single-sided database. They are either contracts or they are based on such a central structure that allows the parties that work with each other to trust each other. However, Blockchain uses the power of cryptography to create a technical possibility and reduce the cost of trust. Slowly, we started looking into whether we could use this system called “Blockchain” to solve our existing problems, including the business world and, of course, the banks, and whether we could create new business forms. There are no standards at the moment, each consortium is trying to set its own standard to solve its problems. In this way, a framework is being created. In the future, when these have matured enough, some structures that will respond to the relevant sectors will be brought to the scene. At the basis of the effort was a brand new machine of trust. In the past, the tool of the trust was the contracts or promises, today it is mathematics. With Blockchain, everyone can keep their own records and nobody can object to it as everyone on the network sees it. Many new business models can be built on this.
Cetin: What other areas can it be reflected to?
Cundoglu: Let’s assume, a bank in the middle of Turkey produced a product, and has sold it to U.S.A. This product must travel to U.S.A.. It will go to a port, where it will be loaded in a container, but there will be different products in that container, and then the container will be loaded on a ship. This ship will perhaps go to Italy and the container will be loaded there on to a larger ship. There are a whole lot paperwork at all of these transition points. Many parties need to approve these operations. The reason of this is the providing the trust. If we can give another example, think of a building, the municipality will go on a tender and give it to a company to build it, but the municipality needs to trust the company, so it wants a bank guarantee. Therefore, the bank creates a trust relationship between the body giving the project and the one building the project. Even this is a type of process that can actually be done with smart contracts. Apart from this, the use of this technology can be something that does not exist today. For example, we can think of a device, with sensors on it, orders something when a certain limit is reached, or when the drug is brought to a certain level, when the warehouse is running down, and the order is made with an automatic contract.Hence, it can be adapted many sectors.
Cetin: How can we assess Blockchain in terms of credit cards?
Cundoglu: Of course, it can be used on this matter as well. But when we inspect the point where there are problems, firstly we must ask the question whether we need it. Today, what kind of problems do you have when using credit or debit cards? Do you get any per occupations when you get close to the cashier’s desk? When you want to pay someone in cash, first you expect to have that much cash; but when you enter market you know that the card will work in the cachier’s desk. These are pretty matured payment networks. Perhaps this can be considered in the future when some problems arise, when the transaction volumes increases and when Blockchain matures. At this point, we need to solve the Blockchain problems that are not electronic but manual.
Blockchain, forces competitors to work together in governance.
Cetin: Does Blockchain have any drawbacks or advantages in terms of Competition Law?
Cundoglu: It is a situation about how governance is built. Blockchain means a distributed structure, which means that no company alone can create it. The structures competing with each other will have to build good governance. This governance structure can be built in an open or closed format. Today, however, the restrictive structure of competition can only continue for a certain period of time. Competition laws are quite mature in many other countries as well as in our country. The necessary steps will be taken in regard with these situations. For example, the Banking Regulation and Supervision Agency (BDDK) can control the applications of the regulation. Let’s assume that a governance structure has been established with Blockchain so that the regulator can have a say here and that the technical and operational rules for entering that network are known and only those that catch up with it can be included in this Blockchain network. Thus, everything is regulated via an audit only. Hence, there will be approaches that the regulator will prefer. The engagement of the Regulator must be: “try it, struggle on it, then I will make an arrangement according to these”. It will be easy to inspect if a standard occurs and the regulator accepts it,
Cetin: Suppose that the personal data set is transferred to Blockchain, is this a disadvantage in terms of protection of personal data or can it be converted into an advantage if we think it is a closed structure?
Cunoglu: I can say neither of them Actually, it is related to which data you want to preserve in the network. We can take advantage of keeping the personal data in the blockchain. Let’s imagine that banks inter-built a Blockchain network on digital identity sharing. Celal, whom bank A has taken through the customer recognition process, wanted to receive services from Bank B with which, he had no banking relationship at all. In my opinion, the bank B does not have to go through a similar process where the bank A has already passed him through the customer diagnostic process, Banks must be able to share it through Blockchain. If the banks agree upon, each bank can encrypt the customer information and place it in this network. But I think that’s not the right thing to do, because you will keep the information of millions of people. Instead, if Celal’s identity, which is held in bank A, is sent to bank B, it may suffice to have a record of the transaction between these two banks. KVKK is a very valuable law, an important regulation on the protection of private and confidential information of people. However, personal data doesn’t need to be kept in Blockchain. You don’t contradict with KVKK, but it is important what you kept on Blockchain. Trying to keep personal data on the network can be problematic.
Cetin: How do you evaluate the use of Blockchain in terms of preventing money laundering and transparency of financial relations?
Cundoglu: I think, it is certainly useful. “pseudonym”. It is even said that Bitcoin is anonymous, but it is infact a pseudonym. The record has already been created and cannot be deleted.
Cetin: How do you evaluate the smart contract and AI in the terms of the present?
Cundoglu: Smart contracts are one of the using areas of Blockchain. We can create the smart contracts pretty complex. Even, there will be some Advanced AI’s that can create these smart contracts in the future.
Cetin: You have an application called “Keklik” in fighting with cash. Can you talk about it?
Cundoglu: The purpose of revealing “Keklik” is that we are having difficulty telling Blockchain on paper. What is distributed book structure, why do not need to central data base, what is smart contract, what is digital ID, what is cryptocurrency; we were explaining them verbally. Why is it our job to explain this?Because we want to make people live the experience of future of payments. Working with the banks, we want the bankers to imagine what problems Blockchain can solve. For that, we need to provide them that they understand the technology. This created the need to create a practice. The case we built was based on loyalty to the company. We were developing projects so that our friends use our different products and create feedbacks for them, and as a result that our products would mature.
Then, when we developed a project and the challenges were overcome, we thought of giving them cryptocurrency instead of giving them a theater ticket. We named it as “Keklik” (Grouse). And we created stores where they could spend those cryptcurrencies. They can spend here as much as they earn. Where’s the distributed book structure? We trisected the company and according to this, every floor is a company, so everybody can go shopping in their company and in others. These operations are encrypted in the distributed book structure. Since we can see the same “Keklik” structure in different databases, we also have a distributed book structure. In this context, I can log in every floor with a digital ID. In fact, we have also published a nice report on this project, which is available in BKM Express. Robotoic.Legal and SiberBülten readers can download this report in return for a 1 ₺ donation.This project has helped both our company and many players in the ecosystem, tounderstand these concepts.
CetinHow can the banking and finance sector customers can benefit from this technology in the services provided tothem?
Cundoglu:We will see many applications in the future. They make these processes much easier and more relaxing. For example, I think it can be used for international money transfers. This way, you will be able to monitor the progress of the money in transfer process.
Cetin: Should the internal dynamics in Turkey be encouraged to develop it, or what type of different steps should be taken?
Cundoglu: First, “which problem is to be solved” must be defined, then, “which minimum stakeholders should be present in this solution” should be taken into account. Stakeholders should demonstrate their commitment in carryingout this solution within their own ecosystem and in their own governance. Then the projects will become real, but a sort of ranking must take place. Also, as BKM, we are working on gathering banks around different projects. Every industry can benefit from this technology in Turkey, it’s also very important for edutaciton the people.
Cetin: How can we make it more active for common citizens?
Cundoglu: It is too early. As always I say, the problem must occur so that we want to find a solution. Are these problems business to business (B2B) or business to consumer (B2C)? First of all, B2B must be formulized. It’s not so easy to realize blockchain, many parties must come together and achieve a consensus on it. I assume that this year and the next , will be the years ecosystems start being created. Let me give you an example I face as a citizen. I have a child under 18. There are a lot of documents I need to put together to renew her passport. During this process, I have to go to the notary office and the bank. I have to get a student certificate from the school. Then we have to attend the appointment.All of these, are due to the lack of trust. The government’s identity document does not seem adequate due to lack of trust. I could solve this if I had a trust machine As this is a method to reduce the cost of trust, I reason that the citizen should head to it in the future.
Respects to Dear Celal Cundoglu...