What have the developments of fintech and wider digital been like in the Republic of Türkiye (Turkey)?
As highlighted in The Fintech Times‘ Fintech: Middle East and Africa 2021 report, Turkey is a high-middle economy that has a large population and Istanbul itself being a major financial centre in the Middle East and Africa (MEA). Its unique historical and cultural bridge between Europe, the Middle East and Asia puts the country in a favourable position with respect to economic growth.
Nonetheless, it has had its own challenges. It has been experiencing an on-going currency and debt crisis over the past few years. The pandemic, combined with Russia’s invasion of Ukraine, didn’t help either as the world experiences soaring inflation.
The Turkish lira for instance has lost nearly a quarter of its value this year due to soaring inflation and the reluctance of the Central Bank of the Republic of Türkiye to raise interest rates.
Here comes cryptocurrencies. Due to the decline of the Turkish lira has made crypto popular in the country. According to Chainalysis‘ 2021 Geography of Cryptocurrency report, Turkey was the second highest ranked country in the Middle East at 26th place (first was Afghanistan at 20th). In terms of transaction volume Turkey led the Middle East at over $130billion.
Over this summer, it was reported that the Turkish government is crafting legislation to establish greater control over cryptocurrency in the market, which could include imposing a ‘crypto tax‘. It came as the country saw collapses of cryptocurrency exchanges like Vebitcoin and Thodex, resulting in the Central Bank banning the use of digital assets for payments in April of last year. Therefore, oversight and regulation could help protect consumers.
Beyond just cryptocurrencies, according to mondaq, the fintech regulations in Turkey for the most part are harmonised with European Union (EU) regulations (example being the Payment Law is the equivalent of the First Payment Services Directive (FPSD)). However, as of April this year has not yet been aligned with the Second Payment Services Directive; regulated payment activities are subject to different regulatory regimes.
The fintech ecosystem comprises of those with significant players across payment processing, money remittances and transfers, bill payments, accounting and personal finance, and cryptocurrency exchanges. Due to the strict or non-existent regulations, other fintechs like insurtech, neobanks and peer-to-peer lending are not as prevalent in the country compared to other parts of the world. It is estimated that there are 520 fintechs in the country and 56 accredited payment and emoney fintechs, as well as five accredited equity based crowdfunding platforms.
Out of the 520, by far the most are payments at 216 companies in first place. In second are banking at 70, while blockchain and crypto assets are in third at 64 companies. Insurance is in fourth at 58 companies while corporate finance takes fifth place at 54.
Financing (40 companies), trading, investing (27) scoring, identity, fraud (25), crowdfunding (15) personal finance management (14), money transfer (13) and wealth management (eight) round out the sixth to twelve spots. It is also estimated that every year now, around nine per cent of new startups are fintechs.
According to the Finance Office of the Presidency of the Republic of Türkiye website, “[They] consider making Türkiye to be one of the most important and prominent countries in the field of fintech as one of the most important goal of the Office.”
In terms of the Turkish infrastructure, according to the Finance Office:
- Almost 83 million credit cards in the country
- Seventh globally for credit card use and ninth globally for number of credit card transactions
- 7 million POS devices (48 per cent in-store contactless payment)
- +70 million active online banking customers
In terms of the startup ecosystem as a whole, the country has seen tremendous growth in it. For instance, the country had 65 accelerator programmes in 2020 (compared to six in 2010). The country also now boosts 38 co-working spaces (as of June 2021) and also 82 incubation centres. As of November last year the country has nine angel investor networks – ARYA, EGIAD, Erban, Galata Business Angels, GAP BAN, Keiretsu Forum, Mavi Ocean, Şirket Ortağım and TR Angels. The government-sponsored angel accreditation programme that commenced in 2013 now has 674 angel investors as of September last year.
To note, not producing a single unicorn, from 2020 until present the country has produced six. One of which being the gametech company Dream Games. Istanbul, which is the driving force as it is the financial centre of the country, can even be reflected in Startup Genome‘s 2021 report comparing global startup ecosystems showing Istanbul ranking 15th amongst the top 100 emerging ecosystems globally.
In terms of regulations, besides the potential crypto legislation, the pandemic helped bring regulations for banking digitalisation that enabled digital onboarding, QR code standarisation and also digital signing of contracts.
Last year, the Digital Turkish Lira Cooperation was also launched. Also, according to the Finance Office’s 2021 report on Turkey’s fintech landscape, others included: principles for debt-based crowdfunding were published, a definition for banking-as-a-service/digital banking was created (aka potentially seeing neobanks), the Association of Payment and Electronic Money Institutions of Türkiye was established, the secondary regulation for payment services being renewed and open banking arrangements were made in accordance with PSD2.
To note, a National Fintech Strategy is in the works as well as a regulatory sandbox that will be based in the new Istanbul Financial Centre – according to the same source.
Despite the global challenges and also the past few years, fintech has been bright in Turkey and continues to see a more important role in the future of the growth of the country.