Everything You Need to Know about Selling in Turkey

With one foot in Europe and the other in Asia, Turkey is at the crossroads of the world and has historically been a beacon of commerce. That fact now extends into e-commerce, with young people in Turkey today being the first generation to grow up primarily in cities and with regular access to computers and mobile devices.

As the Turkish population grows and becomes more technologically literate, the e-commerce sector is expected to grow by 107 percent and smartphone penetration by 124.4 percent by 2017. For those of you thinking about taking part in this growth, we’re going to take a closer look at e-commerce in Turkey and how you can benefit from it.

 

Turkey

In the Everything You Need to Know series, we take a look at a specific e-commerce market to help you decide whether you should expand online sales across borders. As a provider of comprehensive payment processing services, we at DalPay specialise in cross-border commerce and have first-hand experience facilitating business in over one hundred markets worldwide.

Unless otherwise noted, figures in this article are sourced from:

Turkey has always been one of the great trading centres of the world. At the boundary between Europe and Asia, Turkey’s largest city, Istanbul, has historically been revered as a global centre of commerce. It’s interesting to note that, of the two primary sources for this article, one (The Paypers) categorises Turkey in Asia/Pacific and the other (Ecommerce News) considers it a part of Europe – the reality being that both are true.

Today, Turkey has one of the fastest growing e-commerce sectors in the world. There are three main factors encouraging this growth: the high credit and debit card penetration, the popularity of social networks (Turkey has the fourth-largest Facebook population in the world) and the maturity of the country’s infrastructure, particularly in comparison to its neighbours in Eastern Europe and MENA.

Quick Figures

  • Total population: 75.5 million
  • Internet penetration: 48.9% (37 million)
  • Mobile penetration: 93%
  • Online shoppers: 10 million (18% of population over 14)
  • E-commerce sales: TRY 35 billion (EUR 12.5 billion)
  • M-commerce sales: TRY 2.1 billion (6% of total online sales)
  • E-commerce annual growth rate: 31.5%

While e-commerce in Turkey remains in its infancy, currently only accounting for 0.8 percent of retail sales and still dominated by domestic merchants, there are some promising local conditions which make it an attractive market for international investment. With a low returns rate, high payment card penetration and strong physical infrastructure, the value of cross-border transactions surpassed EUR 1 billion in 2013 and continues to grow by a third year-over-year as international merchants begin to see the growth potential of selling in Turkey.

What You Need to Know

The effects of internet penetration

Turkey’s e-commerce market has grown in proportion with its internet penetration level. As of 2013, just shy of half of the population was online, placing Turkey among the top 20 countries by total internet users, making it one of the emerging markets with the highest e-commerce potential. With an e-commerce penetration of 15% and internet penetration growing rapidly, there is still a wide gap to be filled by new market entrants in online retail.

Much of the growth in online shopping can be credited to the high level of mobile penetration. In Turkey’s payment landscape, mobile is seen as a major channel for online retail and customer interaction and, according to a report from ING, Turkey is the leading European country in terms of mobile banking adoption, with 49% of internet users doing their banking on their phones.

Top e-commerce categories

According to the Turkish Statistical Institute, 24.8% of all internet users aged 16-74 in Turkey bought goods and services online, with almost half of those people having purchased clothes and sporting goods. In terms of total sales, Turkey’s e-commerce market is still dominated by items whose quality and content are easy to determine, such as books and media products. Other leading product categories include consumer electronics and houseware, and home furnishings.

Among the top e-commerce companies in Turkey are Markafoni.com and Trendyol.com, both of which represent the growing popularity of the new trend of private shopping. Investors, both local and foreign, have taken a strong interest in this new local shopping habit, where consumers purchase a membership for an e-commerce site which gives them exclusive access to that store.

Preferred payment methods

In the majority of countries, credit cards remain the most popular method of online payment, but this is doubly true in Turkey where they account for 90% of all e-commerce transactions, with the small remainder shared by cash-on-delivery, e-wallets and bank transfers. Therefore it’s crucial for merchants looking to expand their online business into Turkey to be able to accept credit card payments from local shoppers.

Merchants also need to be prepared to provide rapid delivery, as Turkish consumers have a low tolerance for shipping times, in many cases expecting their packages to arrive within 4 days of purchase, faster than the European average of 6-7 days.

Legality

International merchants planning to expand their e-commerce operations into Turkey will have to familiarise themselves with local legislation. For example, a special license is required to import mobile phones into Turkey, and certain cosmetic products, including perfumes, powders and toiletries, are on the Turkish no-import list.

Additionally, as of May 2015, e-commerce in Turkey falls under the Law on Electronic Commerce or ECL, which aims to both protect consumers and encourage the acceptance of e-commerce. Many of the provisions should be taken into account when deciding whether to do business in Turkey, such as the consumer’s right to withdraw from any electronic transaction without a face-to-face component within 14 days, with no penalty and no reason necessary.

Turkish E-Commerce in Brief

Pros:

  • Among the fastest-growing e-commerce markets in the world
  • Very high credit card penetration
  • Large social media population
  • Mature physical infrastructure

Cons:

  • Cross-border e-commerce represents a small fraction of the whole
  • Low alternative payments penetration
  • Low tolerance for lengthy delivery times

Turkey is both the bridge between the eastern and western worlds and a powerful commercial hub of its own. Particularly compared to its nearest neighbours in Eastern Europe and MENA, Turkey has a vastly more developed foundation for a strong e-commerce market on which to build, with its high internet and mobile penetration, widespread acceptance of credit cards and mature physical infrastructure.

It can also act as a key launching point into the smaller, more fragmented e-commerce markets in the surrounding areas, as legislative and logistical partnerships can be used to your advantage. Both for the sheer size and growth potential of the market and for the strategic advantage of establishing operations there, Turkey has earned its reputation as a wise investment and one of the most promising emerging e-commerce markets in the world.

Expanding into a new international market is a risky venture but a very rewarding one if done right. For the latest information about how you can build and maintain a strong e-commerce enterprise and keep it compatible with legislation and buying habits at home and abroad, subscribe to the DalPay Blog and follow us on Facebook and Twitter for the latest industry news.

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How Interchange Fee Caps Will Affect Business in Europe

Interchange fees

In March, the European Parliament voted in favour of a bill, introduced last year, to cap credit and debit card interchange fees at 0.3% and 0.2% respectively for both domestic and international transaction. The caps, which come into force on December 9th 2015, will limit the fees charged by cardholders’ banks to merchants’ banks on every transaction.

The regulation is intended to remove hidden fees for consumers and offer retailers more fair choice in their payment methods and providers, but at the time of writing, the EU ruling has pushed credit card interest rates to an all-time high of 20.6% APR and has seen card issuers reducing or cancelling their cash back and reward schemes.

With these effects already being felt by the consumer just two months after the passing of the bill, this could be a bad sign for the European economy. While it’s too soon to say whether the new rules will be a benefit or detriment to business in Europe in the long term, small businesses and emerging payment technologies are already feeling the pinch.

The Fine Print

Still recovering from recent economic turmoil, the European Union has been hard at work formalising the Single Euro Payments Area (SEPA) and introducing widespread regulations designed to stabilise the payments space.

The interchange fee cap bill was introduced by the EU last year and approved by the European Parliament in March. When the rules come into effect, interchange fees in Europe will be capped at 0.3% on credit card transactions and 0.2% on debit card transactions, a significant reduction in fees which currently range from 0.5% in France to 1.8% in Germany.

According to Commissioner Margrethe Vestager of the European Commission, “It is good for consumers, good for business and good for innovation and growth in Europe. As cards are the most widely used means of online payment, this Regulation is also an important building block to complete the European Digital Single Market.”

Many interested parties doubt the validity of that statement however, citing examples in other countries such as the U.S. where, in response to caps introduced on debit card transactions, none of the merchants’ savings were passed on to the consumer and, what’s worse, consumers actually ended up spending more because issuing banks cancelled debit card incentive programs and increased usage fees to make up for the lost revenues.

Now it seems that the worst predictions are coming true. Before the ruling, the European Commission estimated a saving of EUR 6 billion annually for consumers resulting from the reduction of hidden fees. However, on May 26th, MoneyFacts reported a loss of EUR 3.36 billion for card issuers as a result of the rule change, which is now being passed on to the consumer – a difference of over EUR 9 billion!

ApplePay and Emerging Payments Technologies

The consequences don’t end there. The new rules limit the amount of revenue a bank can receive from a card transaction, and therefore limit the bank’s freedom to partner with other financial organisations and providers of emerging payment technologies such as mPOS, since there’s simply not enough money to go around.

For example, ApplePay launched as a U.S.-only service on October 20, 2014, and international expansion was expected by April 2015. So what is holding up ApplePay’s launch in Europe? It all comes down to money and who gets a share of the revenue from the card payment (the interchange fee).

In the US, Apple’s cut is between 0.15% and 0.25% of this revenue. The difference is that in Europe, the total revenue from a card payment is now capped, so the banks are less willing to share their slimmer profit margins with payment technology providers such as ApplePay.

Apple also has less incentive to take the deal, since 0.25% of a 0.3% interchange fee is not much of a profit. Compare this to the interchange fee in neighbouring Canada, which was set to 1.5% by Visa and MasterCard in April, five times that of the EU, and you can see why Europe is looking a lot less attractive for the emerging payments industry.

The Consequences

  • Banks’ revenue from interchange fee is vastly reduced.
  • Consumers pay more as banks increase their account fees and interest rates to make up for the lost revenue.
  • Emerging payment technology providers lose revenue as banks have less incentive to support them.

What is clear is that the regulations have disrupted the revenue streams of financial institutions. What isn’t is how this reduction in revenue will affect the state of business and innovation across Europe. As long as banks are in control of the payments space and act as the gatekeepers for new, innovative payment technologies, emerging competitors operating at a high level of efficiency and productivity will have to seek out markets that are able to accommodate them. At this time, it’s looking like Europe is not one of those markets.

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