Fintech is described by the Financial Stability Board (FSB) as "technology-enabled innovation in financial services that could result in new business models, applications, processes or products with an associated material effect on the provision of financial services". Fintech companies of all sort, have so far triggered a remarkable transformation in the provision of financial services. The impacts of this ongoing transformation on market structure is inevitable, as these companies are growing as new market players. The complementary and cooperative relationship between fintechs and traditional financial institutions is unstable, as fintech are starting to create competitive pressure instead of providing competitive edge to incumbents1. This trend is expected to continue and further accelerate as a result of; growing technology, progressive regulation, evolving consumer preferences, cooperation agreements and mergers (1) among fintechs with different or similar business models and (2) between fintechs and bigtechs.
Turkish fintech markets experienced a remarkable merger recently. Turkish local fintech company Iyzico was acquired by PayU, the global fintech company having operations in 17 countries. PayU is an international payment service platform and ultimately controlled by Naspers, an international undertaking having investments in technology, media and e-commerce. Two major operations of Naspers in Turkey are the activities of PayU and Letgo. Payu Turkey is a payment company licensed by Banking Regulation and Supervision Board and provides virtual POS services and card data storage services. Letgo is an online platform service that enables the purchase, rental and sale of products and services like real estate, cars, electronics, used clothes etc. On the other hand, Iyzico is a payment service and electronic money organization. Iyzico offers an easy and secure payment management platform for e-commerce companies operating in various sizes and different areas. Iyzico also operates in the virtual POS services and card data storage services markets in parallel with PayU.
The activities of the PayU and Iyzico overlap horizontally in two markets; virtual POS services and card data storage services markets horizontally. In addition, parties have a vertical relationship between virtual POS services and online platform services of Letgo as well.
Parties has already received approval from Turkish Competition Authority (TCA) and the reasoned decision2 of the Authority was published in the early November 2019. The following remarks can be noted from the TCA decision:
- The "virtual POS services market", where parties overlap, is a multiplayer market with a large number of banks and other virtual POS providers. Banks are direct competitors of PayU and Iyzico in this market. TCA determined that the competition in the market would not be adversely affected in the virtual POS services market as the market share of the merged entity will still be very low after the merger and the market is competitive with a large number of players. Moreover, there are competitors with a serious customer networks such as banks.
- "Card information storage services market'', the second horizontally overlapped market specific to this case, is considered as an independent market from payment services. This service can be supplied as a main or a subsidiary service by several undertakings as there is no entry barriers to the market such as licensing. In order to identify the market power of the undertakings which provide card data storage service as an independent and professional service, TCA focused on the "activities of non-bank undertakings" and selected "the number of cards stored" as the best indicator available to foresee market share. TCA concluded that the power of the merged undertaking will be limited and it will create competitive pressure on the current market leader.
- Regarding the vertical relationship between "online platform services market" and "virtual POS services market", TCA took into considerations the market share analysis done in the past Sahibinden.com case and update information obtained from the parties. Accordingly, Letgo's market power will be limited in all possible market definitions. In addition, no sale agreement regarding service/product between Letgo and PayU Payment and Iyzico exist in the current situation.
Based on these assessments, TCA approved the merger between these two fintech companies in the initial phase. The implications of this concentration on financial markets worth to be monitored.
1. "FinTech and market structure in financial services: Market developments and potential financial stability implications", Financial Stability Board, 14.2.2019, https://www.fsb.org/wp-content/uploads/P140219.pdf, accessed on 23.11.2019.
2. TCA Decision - 05.09.2019, 19-31/466-199
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