A guide to local European fintech ecosystems: Top five impressions from Istanbul

As members of the QED team continue to tour local European fintech ecosystems, we will share our top five impressions and highlights from each trip in order to give our followers a better sense of the rich and diverse fintech communities that are rapidly emerging across Europe.

The first in this “top five impressions” series will be Istanbul, which my partner at QED Investors Matt Burton and I visited in early January 2023.

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Impression No. 1: While there is a lot of noise around inflation and politics, the Turkish economy remains very large and dynamic, albeit not without huge risks and imbalances.

The Turkish economy is currently getting most of its press in the Western media around the fact that inflation is running high at around 80% per annum. While this is true, and inflation has caused a lot of disruption for consumers and companies alike, a very striking fact upon visiting Turkey is how large and dynamic the economy is.

The population of 85 million in 2022 is now higher than any other country in Europe, and despite the inflation, the Istanbul stock market was up close to 100% in USD terms in 2022, with house prices having seen a similar rise with the influx of a lot of hot money from the region. Turkey ranks 19th on the list of global economies and 11th on a purchasing parity basis. In Europe, it is the sixth or seventh largest economy.

Having said that, the economy and the currency remain volatile, and Turkey is undoubtedly high on the macro risk index, especially if put into a European context.

Above: Trump Towers in Istanbul adds a certain color, diversity, and pizzazz to an already bustling business culture

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Impression No. 2: There is a rapidly developing fintech ecosystem, with niche industries such as agricultural fintech developing rapidly.

Turkey has had its share of fintech exits (e.g. Naspers-owned PayU acquiring iyizico in 2019) and the current banking system is competitive, with high card as well as digital penetration putting Turkey on par with many Western economies. As an example, card penetration in 2019 was relatively high at 2.4 cards per capita according to a JPMorgan research report.

And while there is a lot of general fintech activity in Turkey, certain interesting sub-sectors such as agricultural fintech and logistics with an element of embedded fintech stand out the most. As an example, Tarfin, a fintech that has been operating in the market for close to five years, has pioneered innovative ways to fund farmers, both when they purchase seeds, fertilizers, and other factor inputs into agriculture.

Above: Turkey is a top three global producer in more than 20 fruit categories, and this richness can have big consumer benefits.

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Impression No. 3: Istanbul’s historical role as a bridge between continents and cultures continues to be an asset.

Dating back to the East Roman Empire, which was later referred to as Byzantium and onwards to the Ottoman Empire, Istanbul has set at a crossroads of cultures and commerce. This is widely evident today in Istanbul, with a big influx of people from all surrounding regions be it Eastern Europe, Central Asia, Middle East, or Africa.

From a fintech perspective, this gives Turkey a very unique role to play especially in cross border trade, supply chain finance, and international remittance. As a result, there are many interesting fintech players emerging in these areas, such as Figo Para that is active in invoice discounting and supply chain finance.

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Impression No. 4: Turkey is one of the top five crypto markets in the world.

Given the inflation and amount of cross border commerce, it is perhaps not surprising that Turkey is one of the largest crypto markets in the world in terms of user penetration. In fact, according to the website Analytics Insight, Turkey has the fourth largest crypto user penetration globally, at 18.6% (or around eight million users). Other countries with high user penetration include Argentina and Nigeria, which tend to be countries defined by frictions around dollar scarcity.

Above: This is not a food blog, but if we continue visiting Istanbul we may well turn it into one.

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Impression No. 5: Elections are coming, and will be main story in the first half of the year.

Making political predictions in Turkey is not easy, and when asking locals to tell us what will happen in the upcoming elections, the divergence and implied uncertainty that is revealed by the answers is notable. What is clear is that these elections will clearly dominate headlines, while also adding an incremental amount of uncertainty into the existing mix.

No matter the outcome, we think that the fintech ecosystem in Turkey will continue to develop, with notable activity in payments, crypto, cross border commerce, and e-commerce enablement to name just a few.

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In our next installment in the local ecosystem top five series, we will turn slightly North West, and staying in the Balkans will look at the rapidly developing fintech ecosystem in Sofia, Bulgaria where QED led the Series A of Payhawk.

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