Fintech world clarifies its route

The fintech report of the Sectoral Overview series prepared by KPMG Turkey has been published. According to the report evaluating the fintech ecosystem in the world and in Turkey; the fintech ecosystem in Turkey is growing with the support of the banking system. Banks, which make great efforts to increase the speed and quality of the services they offer, are rapidly adopting the approaches offered by new enterprises. The ‘contactless transaction’ trend strengthened in the pandemic period supports the need for rapid deployment of new technologies. Evaluating the report, KPMG Turkey Fintech Sector Leader Sinem Cantürk said that: “The fintech sector, which offers speed, convenience and security in financial services, continues to grow every year despite its 10-year history. It is a fact that start-ups established outside the financial sector stand out from the competition in the services offered by banks. Start-ups, which adopt new approaches in their current market and business models, are pushing the limits of general acceptance in the way they do business. Older generation companies, on the other hand, may face challenges in how to tackle this front. These companies, which sometimes copy and develop old models and sometimes rewrite the rules of the game, will shape the business world of the coming period. The highlights of the report are as the following:

• Between 2015 and 2020, an average of 30 billion USD was invested annually in the fintech field in the global arena. The global fintech market is estimated to reach 5.5 trillion USD by the end of 2019. It is thought that the sector will reach an average annual compound growth rate of 23.5% in the next five years. In the lower segments of the market, companies that produce artificial intelligence solutions are the leaders and this trend is expected to continue until 2025.
• The global banking industry seeks to turn this threat into an opportunity through mergers and acquisitions to reduce costs, innovate and expand its customer base. In 2023, it is estimated that customer service robots will bring 7.3 billion USD to banks, and artificial intelligence applications will earn 1.3 billion USD to the insurance industry.
• According to the 2020 research results of Startup Genome, the global fintech ecosystem has five main centers. Silicon Valley and New York in the USA, London in Europe, Singapore and Beijing in Asia. Apart from these five, Shanghai, Boston, Hong-Kong, Paris, Chicago, Los Angeles and Toronto are also considered important centers.
• In this balance, Asia has taken the lead. In particular, China’s data and resources provide a unique habitat for new developments. This habitat is well suited for development as well as testing and high-volume operations. For example, Ant Group’s 2019 payment brokerage volume, which operates Chinese-based Alipay, is 24 times that of Paypal.

Turkey ranks 18th in Europe

• Turkey ranks 18th in Europe, after Poland, with a funding of 139 million USD in 2020. In the first three places of the list are the United Kingdom with 13.6 billion USD, France with 5.3 billion USD and Germany with 5.1 billion USD. When only Middle Eastern countries are taken into account, Turkey ranks third.
• Apart from financial technology investments, the gaming industry stands out. In the first four months of 2021, 17 game companies received an investment of 65 million USD. At this point, the three companies with a value exceeding 1 billion USD are Peak Games, Getir and Trendyol.
• As of April 2021, start-ups in Turkey attracted 523 million USD in capital investments with 78 deals. While the rapid increase in this volume was the funding provided by Getir, the amount of investment withdrawn excluding Getir is at the level of 95 million USD.
• When looking at start-ups in terms of fintech companies, 31 companies were established in 2020. Although this level is below the previous years, the capital inflows provided to these projects are at the highest level since the end of 2017.
• More than 80% of the 441 fintech companies existing in Turkey as of March 2021 continue to exist. Cryptocurrency companies that dominated the 2017-2019 period were replaced by companies that focused on banking transactions in 2020. Payment systems companies, on the other hand, are by far the leader in terms of quantity.
• The sectoral leadership of the USA is not expected to change in the near future. On the other hand, investments in Asia, especially in China, are expected to continue to increase rapidly and maintain their importance. The developments in countries such as China, Australia, Singapore, Bahrain, UAE in Asia, and Poland and Malta in Europe, especially the tension between countries regarding technology transfer and the steps taken should be closely monitored.
• Global investments in payment systems are expected to continue to grow in 2021. In addition, the share of supporting programs outside the core banking area (for example, insurance) in the system is expected to increase.
• Local consumer habits are the main determinant of the evolution of processes. Social dynamics such as risk habits, consumption and savings trends, spending trends and similar differences are the main issues that local investors should focus on. The localization process needs to be designed very well in order for new investments to take hold and achieve success quickly.
• Local banking dynamics will also accelerate the potential growth rate of investments. According to the data of the Banks Association of Turkey (TBB), 28 banks provide internet banking and 22 banks provide mobile banking services in Turkey. 68.5 million people are digital banking customers. The number of customers actively using internet banking is over 11 million. Although the usage volumes of banks’ digital channels are increasing, 68% of the transactions consist of money transfers. Investment transactions, on the other hand, take a 23% share of the pie.