TURKEY: An Introduction to FinTech Legal
Current Economic Conditions Affecting Clients and the Legal Profession
Turkey has been undergoing a difficult period in terms of economic stability due to the extreme rise of the inflation rate. Further, the Turkish lira (TRY) lost value against major currencies such as USD, EUR, and GBP in the past year, losing more than 50% of its value against major currencies in 2023.
As a result of this trend, it became more difficult for clients in Turkey to budget and plan ahead. Further, potential clients that are planning to enter the Turkish market may also experience some doubts due to lack of ideal economic stability.
This of course affects the legal profession, with clients becoming more and more careful about their legal expenditure, rather trying to handle most standard legal issues in-house. Therefore, the trend which we saw during the global financial crisis in 2008–2009 seems to be repeating itself.
Having said that, the political environment after the elections took place in May 2023 has become more stable, which affected the overall economic course of Turkey. In this regard, contrary to the period between 2018–2023, Turkey now follows an orthodox economic approach to overcome high inflation and extreme exchange rates.
Following this, some clients believe it is the right time to enter and invest in Turkey, especially in some markets/areas which some may define as unconventional.
Level of activity and developments
The demographic of Turkey continues to rule the narrative in terms of trends and developments. Turkey has a population of 85,279,553 and comes in 18th in the world in terms of population size. 26.5% of the population in Turkey is below the age of 18. The youth population in Turkey amounts to 15.2%, making the country the leader in this respect in Europe. This demographic is important to understand the developments and trends.
In addition, over 95.5% of households in Turkey have internet access, with an e-commerce penetration of 49.5% of the population.
As a result, this trend and the high number of people that are customers of e-commerce websites affect the fintech industry and the need for new players, new models, and competition. In this regard, Turkey has one the most vibrant fintech ecosystems in the region, with 656 fintech companies, 26 licensed payment institutions, 53 licensed electronic money institutions, and 4 licensed digital banks. It is possible that more are on the way, since we see an increased number of enquiries for potential licence applications.
Additionally, different banking solutions/models are also starting to be introduced into the banking system in Turkey, such as digital banks, service model banking, and open banking. Further, the legislative basis for such models has been enacted in the past year.
Another important development is the designation of Istanbul as the new Istanbul Finance Centre (IFC) and publication of the relevant legislation stipulating the advantages with regards to employment, grants, taxation, and other benefits of being in the new IFC.
New legislation that will have an effect on clients
Due to the dynamic nature of financial technologies, the Central Bank of the Republic of Turkey, the authority responsible for the regulation of such financial services, tends to keep up with the global developments and, thus, the relevant legislation is subject to change in line with the necessities of the sector and the novel business models.
The most recent amendment regarding the payment legislation is the introduction of digital wallet services. Digital wallet services are now considered as payment services, which provokes the licence requirements for digital wallet service providers. Accordingly, in order to provide digital wallet services, these service providers will be required to obtain a licence as a payment service provider and/or electronic money institution, from the Central Bank.
Potential hurdles and difficulties faced by clients and how these can be overcome
As mentioned, we evaluate that the main difficulty in Turkey is related to the economic situation which may negatively affect clients’ business plans, budgeting, and future investment. Having said that, there are some clients who see this as an opportunity, based on their previous experience.
Overall, while we evaluate that there are difficulties in the country and in the region, we believe that Turkey has a big potential to offer investors interesting investment opportunities in fintech, gaming, telecoms, e-commerce, and other technology-driven sectors.