The Turkish startup ecosystem continues to attract fresh capital despite the headwinds, including a global slowdown in funding that is threatening the industry's prospects.

Like it has been the case in gaming, the ventures engaged in financial technology (fintech) have managed to attract a record amount of funding so far in 2022, a report showed, with still two months to go before year-end.

Prepared by the industry monitor startups.watch and supported by the Presidency’s Finance Office, the report said around $88 million (TL 1.6 billion) poured into 30 Turkish financial technologies startups from January through Oct. 26.

In contrast, some $68 million in funding was raised by 40 startups throughout the whole of 2021.

This year, most of the capital went to ventures engaged in payment technologies, banking, blockchain, and cryptocurrencies. The inflow stems from last year's digital banking regulations, which have boosted interest in the Turkish fintech industry.

The number of new startups rose rapidly in 2021, building on payment systems companies that were founded by businesses operating in multiple industries, from telecommunications to energy. This prompted a growing interest in the Turkish startup ecosystem.

Regulations impact

The emergence of different players in digital banking and payment systems in Türkiye has made it easier for consumers to find different alternatives. The regulations are expected to pave the way for more financial technology initiatives.

"Fintech investments in Türkiye reached $88 million with the latest investment received by Arf and thus reached an all-time high," said startups.watch founder Serkan Ünsal.

A cross-border settlement banking platform, Arf this week announced it had raised $13 million in a seed funding round.

"Five or six years ago, the entire venture ecosystem was receiving that much investment per year, and the fact that the fintech vertical alone has now reached this amount in just 10 months is the biggest proof of how mobile the fintech ecosystem in Türkiye is," Ünsal said.

Global champion

There are about 602 active financial technologies ventures in Türkiye at the moment, he noted.

"With the recent regulatory developments, this number will increase even more, especially in the field of banking technologies," Ünsal said.

"If you ask me what is missing in the fintech ecosystem, we do not have regional or global champions. Most startups are growing in the local market. If we can achieve this, the fintech can become a vertical that receives $500 million of investment alone every year and produces many global champions."

Arf raises $13 million

While the regulations on banking have led to the establishment of a new generation of banking and payment technology companies, they have also paved the way for financial technology initiatives.

Arf marks the latest example, as the Financial Services Standard Association-regulated global settlement banking platform using Web3 technologies raised $13 million in equity and debt financing in a seed round this week.

The round was joined by Circle Ventures, the Stellar Development Foundation (SDF), United Overseas Bank (UOB) Venture Management, Signum Capital, Hard Yaka, NGC Ventures, Blockchain Founders Fund, and 500 Emerging Europe.

Co-founded by Berhan Kongel, Ali Erhat Nalbant, Kazım Rıfat Özyılmaz and Ahmet Özcan, Arf offers digital asset-based working capital and settlement services with native on-ramp and off-ramp capabilities to licensed money service businesses and financial institutions.

The firm said it looks to use the capital to further develop its blockchain-based technology to provide global treasury management and working capital credit lines for financial institutions and licensed money service businesses alike operating in the cross-border payments industry.