Turkish consumers will no longer be able to pay with PayPal after Monday (June 6) and Turkish businesses will no longer be able to accept payments made with PayPal.
The decision to shut off access to a method of payment used to support cross-border commerce for the people and businesses of Turkey seems to come at a critical juncture for Turkey’s economy.
On the one hand, eCommerce and cross-border commerce growth in the country is expanding rapidly, as access to the Internet and massive penetration of smartphones moves commerce online for everyone, including the people of Turkey. Research and Markets reports that Turkey’s eCommerce market is the second largest in Eastern Europe and among its fastest growing.
Today, more than half of the Turkish population has access to the Internet – and more than 90 percent of its citizens own a mobile phone. According to a PayPal survey conducted in 2014, 53 percent of smartphone users made purchases using their mobile devices. That same survey reported that 49 percent of smartphone users used PayPal to make purchases using those mobile phones.
At the same time, the country has been hit with massive declines in tourism revenue as tourists fear travel to the country after the well-publicized wave of terrorist attacks. Tourism is said to have accounted for 12 percent of Turkey’s GDP in 2014 and its 37 million tourists that year made it second only to Italy as a favorite global tourist destination. Turkey’s 2016 tourism revenue is expected to be down by more than $11 billion, and some are calling it “the lost year of tourism” for the country.
This decision also follows a very recent change in the political environment in Turkey which bestows more power on President Recep Tayyip Erdogan, including, news reports say, control over procurement programs and other commerce-related decisions. An unnamed analyst was quoted yesterday as saying that President Erdogan will be the “sole decision-maker” and will “decide which systems to buy, from which supplier to buy and under what terms.”
The small businesses that rely on tourists and cross-border shoppers to sell their merchandise are likely to feel the brunt of the Turkish regulator’s decision, the nuts and bolts of which are by now rather well-known.
New legislation passed in 2014 stipulated that any entity that wished to operate as an eMoney or payments provider needed to meet “designated requirements” and then apply to the Central Bank or The Turkish Banking Regulation and Supervision Agency (BRSA) to obtain a license. PayPal applied and was rejected. More precisely, in order for PayPal’s application to be approved, PayPal would have had to agree with the Turkish regulator’s terms: domicile all of the systems and operations needed to serve PayPal’s client base in Turkey.
These terms take to an extreme the data localization requirement that has begun to emerge in other European capitals, requiring instead that the infrastructure necessary to operate the PayPal business – a global digital money platform – be located in Turkey. That is obviously a non-starter for any global commerce platform – not just PayPal’s – that must operate at a global scale to provide services to the people and businesses located in 200 countries around the world.
The upshot is that PayPal customers living in Turkey will not be able to send or receive money from their PayPal accounts after June 6. Customers will still be able to login to their accounts to see their balances or to transfer money to a Turkish bank account.
“We want to indicate that PayPal’s priority has always been customers. We did however receive the local regulatory agencies rejection of our license applications and we have to apply the relevant institutions in accordance with the instruction to stop our activities in Turkey, we regret because of this decision,” PayPal wrote in the notice (translated from Turkish).
For now, any user who’d like to continue using the service must open a new account in another country.
At the crossroads of Eastern Europe, Asia and the Middle East, Turkey has been an important plank in PayPal’s digital cross-border payments platform in its effort to expand commerce for anyone to anyone, anywhere in the world, and ignite cross-border commerce for the people and businesses of this developing economy. This is notwithstanding its very modest contribution to PayPal’s overall revenue (roughly $22 million on $9 billion in revenue).
PayPal has said that it will continue to engage with the regulator and remains hopeful that they will win approval to operate in Turkey at some point in the future on terms that make sense for their business.
“Our efforts in obtaining the necessary permissions to provide services to our customers again in the future, Turkey will continue,” their blog post said.
We’re always on the lookout for opportunities to partner with innovators and disruptors.
Learn More