On July 15, Barbaros Ozbugutu and Tahsin Isin were celebrating in Istanbul.
After years of bureaucracy, their online payment company Iyzico had finally received a payment institution license and received five term sheets from investors who were waiting for the license to come through.
That evening, there were tanks in the city and a coup attempt was under way.
By nighttime “we were in front of the TV… and then we started to go out and get cash from bank machines and get some bread,” Ozbugutu says. So, he deadpans, “it was kind of a weird day”.
Did he still have five term sheets the Monday after the coup attempt? “No,” he tells Wamda. “Of course not. No. It went down to two, and of course, the valuation was different.”
Six months on and Ozbugutu says they see now the coup attempt hasn’t affected their business much. “Digitalization will still move forward, ecommerce will still move forward...it is what it is."
Although Turkey is still reeling politically, Iyzico might be proof that a winning concept can overcome almost anything - Thursday they announced the close of a $13 million Series C round. The team’s genius though wasn’t in originating the idea of online payments, it was pulling it off
Beating the bureaucracy
Check out a shop in Turkey and you’ll find up to six card readers at the register: one for each major bank with its own closed system. To get those readers, the merchant has to go to each bank’s physical branch, fill out a stack of forms, and wait up to two months for approval.
Instead, Iyzico created just one point of contact for merchants. Businesses sign up with a few forms and start selling to any card they want in 24 hours.
The German-Turkish cofounders left lucrative jobs in Europe to launch the business in 2013. Back then, Ozbugutu thought Iyzico’s paperwork would take three months. He says it took a year and a half to complete the 45 agreements needed.
In that time, Iyzico attracted 8,500 merchants, from local shoe stores to Inditex, Zara’s parent company. It also became a startup staple: Ozbugutu estimates 95 percent of startups funded in Turkey use the company for payments.
Their $13 million round has been led by Vostok Emerging Finance, (part of the Vostok New Ventures who are regular investors in the region). Other participants in the round are International Finance Corporation (IFC), and Turkey’s VC 212.
Now, there’s the rest of the region to conquer. Ozbugutu says his team had been eyeing Iran for expansion as soon as the nuclear agreement was concluded.
Iran has 231 million active debit cards, but without Visa or Mastercard in the country it relies on a card scheme called Shetab.
Ozbugutu says he received a letter. “A letter? Who’s writing letters in the world?” he says. It was from the Iranian online payment company PECCO. Inside was an invitation for partnership and a visit to Tehran.
Iyzico spent most of 2016 setting up its payment infrastructure and piloted its product with three Turkish companies in Iran. If Iyzico succeeds, it will open a digital channel between two countries that already do $10 billion in trade per year. For Turkey, a country that imports more than it exports, that can only be a good thing.
Next: the digitalization wave
At home, Ozbugutu thinks the ecommerce problem for Turkey has already been solved. The issue now is scaling, and it will take more than just Iyzico.
“We are waiting for the digitalization wave in Turkey,” he says.
Izyico has launched an accelerator program for startups.
“We are offering zero payments for first three months, mentoring, to help them grow their businesses, because we can only grow if our merchants grow.”
In some ways, Iyzico has benefited from the byzantine infrastructure.
The barrier to entry is so high that there’s no competition from international players - PayPal was the only major competitor and it pulled out of Turkey in mid-2016.
But Ozbugutu would actually like more competition. “In Turkey, the mindset is normally, there has to be one company that dominates the market, but then what you see is that the products are not good because they don’t have competition.”
He says he’s trying to bring some of Germany’s competitive mindset to his sector.
Unlike many startups, Ozbugutu says it wasn’t Iyzico’s goal to make the world a better place. “If I’m completely honest… it was more about the adventure to form our own company.” But, he says, from empowering small businesses to Iyzico’s own relaxed culture, “we’re changing a lot of things here…. This is a kind of an impact that we were not realizing, which is good on the one hand. On the other hand, it’s kind of a big responsibility we have to carry out.”