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Innovation in digital payments sees Turkey set to become cashless

Mr. H. Bader Arslan – Secretary General, Turkish Exporters Assembly

With an environment well suited for innovation and entrepreneurship and a young population that is eager to live at the forefront of technology, Turkey is well on its way to becoming the world’s next cashless society. The country is excelling from a business and economic perspective, and has seen the birth of several hot start-ups that are taking on traditional banking methods and revolutionising the payments landscape. Turkey’s goal –to be totally cashless by 2023. According to the World Bank, Turkey is currently the 17th largest economy in the world, with a GDP of around US$850 billion. The country has ambitious plans for the future and is on track to becoming one of the top 10 economies in the world by 2023.

Mr. H. Bader Arslan

Mr. H. Bader Arslan

Increasing domestic and foreign investment into Turkey’s financial technology sector, along with a higher than average acceptance of payment cards and tech-savvy population, makes for an economy that is ready to transition to becoming cashless. The question is whether they can achieve this. All signs point to “yes” for a number of reasons.

Young Population

Turkey’s population demographic is a key factor in determining whether it achieves its goal of becoming a cashless society over the next 5 years. Almost a quarter of Turks are younger than 14, and around half are under 30. Only 9% are above the age of 65. It is more likely to be the younger generation who leads the adoption of new digital services, and Turkey’s demographic already suggests that there is an incredibly strong base of consumers who are ready, and already starting, to make the shift to digital payments.

There is clear evidence to suggest that Turks are more engaged than their European counterparts when it comes to digital payments. According to a study by ING, 56% of the Turkish population has used a mobile payment app at some point, contrasting with those of France (25%) and Germany (23%) – where the adoption rate is much lower. This means that banks and other financial institutions can place a strong degree of confidence in the adoption of existing or upcoming mobile payment technologies introduced in the Turkish market. With such a significant proportion of the population open to these technologies, it’s also likely that any solutions introduced will quickly cover many sectors of the economy.

Turkey’s high acceptance and usage of digital payments also means that it has the highest number of registered cards (over 170 million) in Europe.Only China, the US, Brazil, Korea, Russia and Mexico can claim more registered payment cards. In 2011, the number of cards per capita in the country sat at 1.7 – as of 2016, this had risen to 2.2. and is beaten only in Europe by the UK (with 2.7 cards per capita). To date, cashless credit card payments accounted for 3.1 billion transactions per year in Turkey, worth a value of TL 537 billion. In online retail, Turkey has now surpassed USA, Spain and Germany in mobile payment transactions share during 2016.

Globalised Technology Sector

Strong business ties with Europe and Asia, along with the advantages of its geographic location and timezones, have helped Turkey to develop its technology industry and start-up scene. An increasingly multi-lingual young and well-educated population, high literacy rates, and high smartphone penetration has also enabled it to become a world-renowned centre of excellence for technology, engineering and creative industries.

As a result of all these attributes, Turkey has developed a booming and rapidly growing technology industry that is increasingly globalised. In fact, Wired UK recently announced that 10 of Europe’s 100 hottest start-ups in 2017 come from and are based in Turkey, largely funded by investments from Middle East-based VCs and big-money IP-focused seed funds.

Iyzico – a Turkish payments company – are one of the start-ups included in that list. Based in Istanbul, its CEO, Barbaros Özbugutu, has seen first-hand the rapid growth of the technology sector and quickly recognised the untapped potential:

“Innovation doesn’t happen with one individual. It happens with a concentration of people exchanging ideas, best practices, and engagement. Silicon Valley’s success has been the different people from all over the world going there. Today’s Turkey, particularly Istanbul, is undergoing the same phenomenon.

Istanbul is not only a city of over 15 million, but it is a young city. Young people are everywhere here – and they are from everywhere – Europe, the U.S., the Middle East, Russia, Central Asia, Asia, and North Africa. It’s become an exciting place to be an entrepreneur.

And where there are entrepreneurs, regardless of industry, there is a need for a payment platform. FinTech is advancing at a rapid pace here primarily because innovations are coming out at a rapid clip.

Turkey is home to around 2.5 million SMEs. However, only about 60-70,000 of these are engaged in e-commerce. That leaves a wide opportunity to bring the remainder into the digital realm… That is why you’re seeing a rise in investments in this space.”

Government Support

The Turkish Government has worked hard to build an eco-system that nurtures and supports entrepreneurs and businesses in Turkey, introducing a number of favourable economic reforms in recent years. This is part of the country’s strategy to spur further economic growth, particularly championing start-ups. The positive effects of this investment are seen clearly within Turkey’s financial technology sector, which has grown at an annual average of 14% – and shows no signs of slowing down.

Turkey is also unique when it comes to who’s propelling the innovation in financial services, and payments specifically. Whereas other countries tend to rely on agile start-ups to lead the development of new solutions for consumers, in Turkey it is often the incumbent players driving innovation and establishing collaborative networks of vendors, start-ups and established institutions. Last year, for example, The Interbank Card Center (BKM) – a partnership of 13 public and private Turkish banks –established TROY, the first and only Turkish domestic card scheme, with an aim to reduce cash usage with increased financial inclusion.

The country’s booming FinTech sector has also attracted foreign investment which is helping to increase availability of digital payment options. According to Deloitte, the amount of FinTech investment in Turkey, which was $4.6 million in 2012, grew by 175% in 2016, reaching $29 million. Venture capital and angel investment networks have invested a total of $ 53.2 million in FinTech initiatives in Turkey in the last four years (2012-2016). The overall size of the FinTech market in Turkey, with more than 200 companies, is currently estimated to be worth $15 billion.

With a combination of a young, tech-savvy and educated workforce, a booming technology scene, overseas investment and financial institutions willing to drive change, Turkey is uniquely positioned to take advantage of the boom in the digital payments space. The country has already gone a long way to achieving this, but has only started to tap into a market extremely willing and savvy enough to embrace the change – time to discover the potential.

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