Why PayPal is withdrawing from the Turkish market

Why PayPal is withdrawing from the Turkish market

Not long ago I wrote that Turkey wanted to eliminate physical currency as much as possible and this week PayPal was made to halt its operations in Turkey. What is behind this move by Turkish authorities is very mysterious, as you cannot pursue a cashless society and also kick PayPal out while aiming for the same strategic goals. 

It appears that two strategic directions of the Turkish government hurt one another in this case. The Turkish authorities want Turkey to go digital, but they want Turkey go digital with servers within Turkey in order to prevent possible attacks on the Turkish financial system if Turkey clashes with foreign countries. 

Customers will still be able to log in to their PayPal accounts and withdraw any balance on their accounts to a Turkish bank account,” a PayPal spokesperson said in a statement emailed to Fortune. “Supporting our customers is very important to PayPal. However, we have no choice but to suspend processing payments in Turkey as our application for a Turkish payments license has been denied by the local financial regulator and we have been instructed to suspend our Turkish business operations.”

A PayPal spokesperson was also quoted by TechCrunch saying that the Turkish Banking Regulation and Supervision Agency had refused to license PayPal because it wanted the payment services’ IT systems to be located in Turkey.

“PayPal utilizes a global payments platform that operates across more than 200 markets, rather than maintaining local payments platforms with dedicated technology infrastructure in any single country,” the spokesperson told TechCrunch.

Paymentwall CEO Honor Gunday shared this note on Facebook: “Paypal’s decision follows their strategy. they want to be a global payments company without going local. Paypal processes most global payments via Singapore not locally, it has always been this way. they process locally from Luxembourg in the EU and directly in the U.S. as well, pretty much it. this is why Paymentwall and local payment companies have an opportunity to prosper and grow because Paypal is lazy.

“Turkey is unfortunately not a big market - to validate a 5M lira capital investment , to bring your servers into the country, to hire a bunch of developers and sysadmins to maintain your servers and localized version of your system, to trust local hosting providers with your users’ data, and to trust the government that they will regulate a payments institution fairly when the government is taking over and shutting down banks haphazardly -- you need to have bigger returns in processing volumes of billions of dollars.. the ecommerce market in Turkey is only at 300m [million] dollars per year, and given the crisis that may hit Turkey, it just doesn’t make sense for a large company like PayPal.

“Turkey has become a country where the rule of law and logic no longer rules.

“the best business in Turkey right now is selling real estate to Middle Easterners, Russian Tourists, European tourists are no longer coming to the country, the local economy is still vibrant but for how long?” 

Gunday is absolutely right from an entrepreneurs’ point of view. I don’t think that anyone who signed the documents leading to PayPal’s decision has calculated the costs and gains of having an operation in Turkey. 

If Turkey wants to achieve both of its goals of being a cashless society and keeping the fin-tech services “national,” then it has to give some major incentives to any company that operates in Turkey. Otherwise, as Gunday wrote, no one will even think about having a fin-tech operation in Turkey.