Fintech Landscape of Turkey in 2022
How has the development of fintech and wider digital been in the Republic of Türkiye (Turkey)?
As highlighted in Fintech Times‘ Fintech: Middle East and Africa 2021 report, Turkey is an upper-middle economy that has a large population and Istanbul itself is a major financial center 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 favorable position for economic growth.
Nevertheless, it has had its own challenges. It has experienced an ongoing currency and debt crisis in recent years. The pandemic, combined with Russia’s invasion of Ukraine, didn’t help either as the world experiences sky-high inflation.
The Turkish lira, for example, has lost almost a quarter of its value this year due to soaring inflation and the reluctance to The Central Bank of the Republic of Turkey to raise interest rates.
Here comes cryptocurrencies. Due to the decline of the Turkish lira, crypto has gained popularity in the country. In accordance Chain analysis‘ 2021 Geography of Cryptocurrency The report ranked Turkey the second highest ranked country in the Middle East at 26th place (first Afghanistan was 20thth). In terms of transaction volume, Turkey led the Middle East with over $130 billion.
During this summer, it was reported that the Turkish government is drafting legislation to establish greater control over cryptocurrency in the market, which could include imposing a “crypto tax”. It came as the country saw the collapse of cryptocurrency exchanges that Webitcoin and Thodex, which resulted in the central bank banning the use of digital assets for payments in April last year. Therefore, supervision and regulation can help protect consumers.
Beyond just cryptocurrencies, according to mondaqfintech regulations in Turkey are mostly harmonized with European Union (EU) regulations (example is Payment Act is the equivalent of First Payment Services Directive (FPSD)). As of April this year, however, the Second Payment Services Directive has not yet been adapted; regulated payment activities are subject to different regulatory regimes.
The fintech ecosystem consists of those with significant players across payment processing, money transfers and remittances, bill payments, accounting and personal finance, and cryptocurrency exchanges. Due to the strict or non-existent regulations, other fintechs such as insurtech, neobanks and peer-to-peer lending are not as widespread 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 money fintechs, as well as five accredited equity-based crowdfunding platforms.
Of the 520, there are by far the most payments at 216 companies in first place. In second place is banking services at 70, while blockchain and crypto assets are in third place with 64 companies. Insurance is in fourth place with 58 companies, while corporate finance takes fifth place with 54.
Financing (40 companies), trading, investment (27) scoring, identity, fraud (25), crowdfunding (15) personal financial management (14), money transfer (13) and wealth management (eight) round out the sixth to twelve places. It is also estimated that each year now around nine percent of new startups are fintechs.
according to Finance Office of the Presidency of the Republic of Turkey website, “[They] consider making Turkey one of the most important and prominent countries in fintech as one of the main goals of the office.”
Regarding the Turkish infrastructure, according to the Treasury:
- Almost 83 million credit cards in the country
- Seventh globally for credit card usage and ninth globally for the number of credit card transactions
- 7 million POS devices (48 percent contactless payment in store)
- +70 million active online banking customers
As for the startup ecosystem as a whole, the country has seen tremendous growth in it. For example, the country had 65 accelerator programs in 2020 (compared to six in 2010). The country is now also increasing 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, AEGIADS, Erban, Galata Business angels, GAP BAN, Keiretsu Forum, Mavi Ocean, Şirket Ortağım and TR Angels. The state-sponsored angel accreditation program that started in 2013 now has 674 angel investors as of September last year.
To note, not producing a single unicorn, from 2020 to date the country has produced six. One of them is the gametech company Dream game. Istanbul, which is the driving force as it is the country’s financial center, can even be reflected in Startup genome‘s 2021 report compares global startup ecosystems showing that Istanbul is ranked 15th among the 100 most emerging ecosystems globally.
In terms of regulations, in addition to the potential crypto-legislation, the pandemic helped bring regulations for banking digitization that enabled digital onboarding, QR code standardization and also digital signing of contracts.
Last year was Digital Turkish Lira Collaboration was also launched. According to the Finance Office’s 2021 report on Turkey’s fintech landscape, others also included: principles for debt-based crowdfunding were published, a definition for bank-as-a-service/digital banking was created (also potentially neobanks), The Association of Payment and Electronic Money Institutions in Türkiye was established, the secondary regulation for payment services was 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 one Istanbul financial center – according to the same source.
Despite the global challenges and also in recent years, fintech has been shining in Turkey and continues to see a more important role in the future for the growth of the country.
