Last month US VC QED’s Yusuf Özdalga took the firm’s founder and head of early-stage investment on a 48-hour whistle-stop tour of Istanbul to deepen the firm’s understanding of Turkish fintech. The partner tells Sifted they met with a who’s who of Turkish fintech, including the founders of investment app Midas and banking startup Colendi, which raised funds at a $700m valuation in May.
It’s one of the signs that 2024 is shaping up to be a breakout year for Turkish fintech, after years of seeing VCs conduct a love affair with the sector elsewhere in Europe. The UK was the top country for fintech funding last year, with $4bn invested, while fintechs in France and Germany raised $872m and $644m respectively.
But Turkey, a country with a highly digitised banking sector, a population of 86m — around 25% larger than the UK — and home to domestic fintechs that boast customer numbers in the tens of millions, has largely been ignored; only $86.1m went to fintechs in Turkey last year.
Things are starting to change though. “In the last years, the game has changed from a focus on growing customers to profit and revenue,” says Özlem Denizmen, founder of financial wellbeing app Monay, and that’s benefitted the country’s startups. “Fintechs in Turkey have shown they can make money.”
Denizmen also tells Sifted that Monay — which offers its 200k users investment and savings products — is on the cusp of closing new financing from New York-based VC firm GoodLight Capital, which will take its total funding to $5.5m.
Investor interest increases
Monay’s not alone in attracting investors. This year’s enthusiasm for fintechs in Turkey kicked off in February, when the European Bank for Reconstruction and Development invested in banking infrastructure startup DgPays.
Other significant investments include Canadian VC firm Portage leading a $45m funding round into investment platform Midas in April, London-based investor Anfa leading payments processor Sipay’s $15m raise in June.
“Turkish fintechs and banks are very sophisticated,” Özdalga says. “They’re at level with a developed country but in an emerging market context.”
In 2006, Turkey became the first country in Europe and the Middle East to offer contactless card payments — it’s also estimated that 63% of Turkish consumers use digital wallets for transactions.
Fintech penetration is also high. Papara, a consumer financial superapp equivalent to Revolut, says it has 20m users, while embedded finance company Param, which closed a $50m in 2022, claims 9.5m use its cards, according to its website.
What’s changed?
Fintech industry insiders say investors warmed to Turkey after the country scaled back fiscal policies that saw annual inflation rates climb to over 60%. This was largely due to the Turkish government moving away from traditional economic policies to looser fiscal policies. After last June’s election, the government’s finance minister aimed to restore stability to the Turkish economy by raising central bank interest rates to 50%.
And while inflation is still high compared to the rest of Europe, there are signs of recovery. Last month, Moody’s Ratings — a system judging the creditworthiness of a government or company — upgraded Turkey’s credit rating for the first time in more than a decade.
VCs were also encouraged by a recent exit in the country’s fintech sector, says Sipay CEO Nezih Sipahioğlu: Netherlands-based payments provider PayU acquired e-commerce business iyzico for $165m in 2019.
And while IPO markets in the UK and Amsterdam remain icy, Turkish capital markets boomed last year with 56 companies joining the public market.
“It’s high risk, high return,” Sipahioğlu says. “It’s the same in all emerging markets.”
That said, there are still barriers.
“The banks have a huge lobby on the regulation side,” says Sozdinler. “Open banking (a system enabling the sharing of financial data) came very late, for example. We only got it this year.”
And while inflation may be cooling, there’s not much appetite for Turkey’s neobanks to start offering lending services while interest rates are so high.
A silver lining
Operating without easily available venture capital compared to fintechs in other countries has been a blessing in disguise for some fintechs in Turkey.
“Turkey hasn’t always had VCs backing us,” says Ilker Sozdinler, the CEO of United Payment, a fintech-as-a-service platform enabling overseas players like Wise and Remitly to operate in the country. “All startups — not just fintechs — had to bootstrap and reach EBIDTA positive as quickly as possible.”
That profitability push aligns with the current VC focus on money-making startups over just customer growth; Sozdinler says that United Payment has been in the black for the last five years.
Following its founding in 2019, Sipay was bootstrapped until its June funding round. Sipahioğlu claims the fintech drew $75m in revenue and $7m in profit last year and is on track to quadruple those numbers this year.
Expansion plans
Papara is part of a group of Turkish fintechs with ambitions beyond its home market. Last July, the company acquired its Spanish counterpart Rebellion in a push to expand outside Turkey.
Sipay also aims to be the first Turkish fintech to IPO on the Nasdaq, says Sipahioğlu. To do that, it needs to show that 50% of its profit is coming from outside of Turkey, and is currently in the process of finalising a licence to operate in the UK.
Monay’s Denizmen says that Turkey’s geographical location — and history as Europe’s gateway to Asia — along with its diaspora of over 10m people in Europe will come in handy when fintechs look to expand. “We want to leverage the Turkish diaspora,” she says.
But QED’s Özdalga urges caution. Grocery app Getir, one of Turkey’s most famous tech exports, famously flopped its international plans. Europe’s best-funded speedy delivery startup quit the US, Germany, the Netherlands and the UK in April this year to focus on its home market.
“Turkey in itself is a huge market,” he says. “Expanding to other countries shouldn’t be rushed.”
Read the orginal article: https://sifted.eu/articles/turkey-fintech-startup-latest/
