Category Archives: Fintech

Ininal’s public API

Ininal is a digital banking service where we’re investors. In a post from October 2016, I shared how Ininal launched its API for developers to build apps that leverage Ininal’s technical banking infrastructure. This includes the ability to create accounts and prepaid cards, deposit money, and perform money transfers.

At the time, several companies including Bitaksi and Sinemia from our portfolio began to leverage Ininal’s API. However, Ininal offered its API privately to developers working on specific projects on a case by case basis. It wasn’t public.

Now, Ininal has officially launched its public API. This means that Ininal’s API is now accessible to all developers. As a result, the pace at which we’re going to see new projects being built using Ininal’s banking infrastructure is going to increase. That means more financial services innovation, which is a great thing.

You can check out Ininal’s public API here.

Iyzico’s first investor presentation

Iyzico, a leading online payment service provider in Turkey, is one of the country’s most successful tech startups.

In April of this year, Iyzico raised a $15M Series C round of funding from both international and local investors. This is the largest fundraise completed by a Turkish tech startup so far this year.

But like all startups, Iyzico didn’t achieve its current success overnight. It comes from humble beginnings and after 5 years of hard work.

Here’s the investor presentation from 2012 that Iyzico used to secure its first round of funding. The company’s founder Barbaros Ozbugutu generously shared the presentation as part of a blog post which he wrote to inspire and guide the fundraising efforts of other entrepreneurs in Turkey.

The hype around initial coin offerings

There’s a new hype in cryptocurrency land these days. They’re called initial coin offerings (ICO’s) and they’re basically a way for aspiring services to raise money by issuing new digital tokens on the blockchain. If the services are successfully built and widely used, these tokens appreciate in value, thereby rewarding early investors.

People much more knowledgeable than I am on the topic have written about ICO’s at length elsewhere. I’m not going to repeat what they’ve said, but will point out one flaw in the arguments that ICO advocates are making.

In particular, advocates of ICO’s state that ICO’s are a great way to solve the chicken and egg problem when attempting to attract users to a new service with network effects.

A service with network effects is one which becomes more valuable for users as more other users use the service. This makes it difficult to attract users at the beginning, when there are few other users using the service. As a result, centralized service providers resort to offering incentives (financial and non-financial) for users to participate in the network. The discounts that car-hailing companies offer passengers and the bonuses that they offer drivers are great examples of this.

Since ICO’s offer investors the potential for appreciation in the value of the service’s underlying token, the argument is that they help solve the chicken and egg problem. They do this by giving early investors tokens which, since they will increase in value if the service is widely used, the investors are incentivized to use.

The problem with this argument is that, while centralized service providers traditionally give money to their users to use the service, services that perform ICO’s are requesting money from their users. In other words, the direction of money transfer is reversed. You will get a lot more people to use a service by giving away money than by requesting it. As a result, services built upon ICO’s appeal to a much smaller pool of potential initial users than services built by centralized providers. The solution which ICO’s offer to the chicken and egg problem is therefore not nearly as big as ICO advocates make it out to be.

In addition, if we think of the people which a service gives money to as its users, and the people which a service takes money from as its investors, services built upon ICO’s are currently claiming to create a new class of investor users. The problem with this is that the level of diligence required to be a user of a service is different than the level of diligence required to be an investor in the service. In the former, you’re consuming, and consuming is easy. In the latter, you’re producing or at least understanding how something is being produced, and that’s hard.

ICO’s are currently making people believe that it’s easy to do what’s hard.

This is an attractive value proposition. It explains why there’s so much interest in ICO’s, to the point where services are raising millions of dollars in minutes for a service which they often have yet to build.

The problem is that, in reality, doing what’s hard isn’t easy. As the services built upon ICO’s are built, or are not built, and are used, or are not used, reality will emerge.

Ininal’s e-money license

Ininal, a digital banking service where we’re investors, received its electronic money (e-money) license from the Banking Regulation and Supervision Agency (BDDK) of Turkey earlier this week.

What this means in practice is that Ininal’s existing digital wallet will be able to offer its users many new capabilities that it has so far been unable to offer due to regulatory requirements.

For example, Ininal wallet users will be able to make digital payments to individuals and institutions alike all from within the Ininal app. This effectively transforms Ininal into a digital bank which directly offers its users all banking services short of lending and investing. In the past, the Ininal app’s functionality was limited to creating new accounts, monitoring your balance, transferring money to other Ininal users, and seeing nearby top-up locations.

The e-money license also places Ininal on secure regulatory footing as it introduces new and innovative services to the market. The Ininal API is a great example of such a service.

Fintech companies bring new approaches to traditional services like banking and payments. However, like the traditional banks offering these services, they also deal with a sensitive asset like money. As such, it’s essential that they operate within existing regulatory frameworks while simultaneously working to adapt these regulations to accommodate the new services that their technologies make possible.

With its e-money license, this is exactly what Ininal is doing.

E-commerce and international transactions using Turkish bank cards

I recently read that the Banking Regulation and Supervision Agency (BDDK) of Turkey is closing all debit and credit cards issued in the country to e-commerce and international transactions beginning on August 17, 2017. I confirmed the accuracy of this news with several entrepreneurs and unfortunately it’s accurate.

The new regulation will apply to both existing debit and credit cards which will be closed to e-commerce and international transactions on August 17, as well as to new cards issued after this date. Card owners will be able to open their cards to e-commerce and international transactions by requesting that their banks do so. So this isn’t an outright ban on e-commerce and international card transactions but a change in the default state of card owners.

It’s a switch from a default state of free use which you need to take action to opt out of to a default state of restricted use where you need to opt in to gain the right of free use. And unfortunately defaults influence user behavior.

If this regulation is applied, existing e-commerce and international purchasers will purchase less, and new e-commerce and international purchasers will be less likely to emerge. So e-commerce and international transactions will take both a short-term hit and a likely even bigger long-term hit.

Proponents of the regulation claim that it will lower card fraud. However, there’s a problem with this claim. Specifically, rather than address the root cause of the problem, the regulation addresses an innocent bystander. Rather than attempt to lower the incidence of fraud through a combination of technology to identify and penalties to punish those perpetrating the fraud, the regulation punishes innocent card owners, e-commerce sites, and international merchants. Two wrongs don’t make a right.

In fact, if it accomplishes anything at all, this regulation shifts the burden of responsibility in the event of card fraud from the perpetrators of the fraud to its victims. This will further motivate fraudsters and may even increase the incidence of fraud.

Fortunately, there remain about 5 months for this misguided regulation to come into effect. If you’re an e-commerce site or an international merchant, that’s plenty of time to let the regulatory agency behind the proposed change, the BDDK, know of its harmful effects and unintended consequences.

If enough people speak up, the BDDK just might correct its course. And if not, you’ll have supported a just cause.

Sinemia’s Facebook Messenger bot

Sinemia, a monthly movie membership club and content site where we’re investors, recently launched its Facebook Messenger bot.

If you go to the Facebook Messenger app and search for Sinemia, you can chat with Sinemia’s bot to discover movie theaters close to you, browse movie screening times, and read articles about the movies.

Equally important, if you can’t find what you’re looking for by interacting with Sinemia’s bot, you can also request to be handed off to a human agent. This is a very important feature for bots which are in their early development stages to ensure that they’re able to respond to the full needs of the humans that they’re interacting with.

As a Sinemia member and regular user, I find the Sinemia app to be a more convenient way to reach the same information as that available through Sinemia’s Messenger bot. However, for people who don’t use the Sinemia app or who do but are looking for a different channel to reach the same information, Sinemia’s Messenger bot provides a great alternative.

QR codes and other consumer tech trends in China

Over the last 13 years, I’ve lived in Turkey and the US. And I haven’t actively used QR codes in either of these geographies.

As a result, I was always intrigued when I heard that QR codes are widely used in China. Now I have at least a partial answer for why this is the case.

In this Andreessen Horowitz video presentation on consumer tech trends in China, Connie Chan shares that there are about 1.7 credit cards per person in the US. This is in contrast to around 0.3 credit cards per person in China. The same figure for Turkey is around 1.9.

Payments is one of the primary use cases for QR codes in China. Since credit card penetration in the country is low, and since consumers want an alternative to cash, QR codes linked to the digital money on your smartphone help fill the gap. Since credit card penetration rates are much higher in Turkey and the US, there isn’t as big of a need for an alternative.

For QR codes to take off in countries with high credit card penetration rates, they’re likely going to need to address a high frequency use case outside of payments.

You can watch the full 24 minute video presentation, which includes an overview of consumer tech trends in China other than QR codes, here.

Sinemia’s new round

Sinemia, a movie membership and loyalty club that also operates movie content sites, recently completed its Series A funding round.

500 Startups was the first to participate in this round last November, and this was followed by Revo Capital who led the roughly $1.5M total round this month.

This investment makes us happy for two reasons.

First, it will help Sinemia establish new partnerships to grow in Turkey while also giving it the fuel to test the US market.

Second, this marks our first co-investment with Revo. We welcome the Revo team to the company.

Sinemia and 500 Startups

Sinemia, a monthly movie membership club where we’re investors, completed its second funding round in August of this year.

Immediately following the round, 500 Startups expressed its interest to invest in Sinemia. Given Sinemia’s plans to grow abroad with an initial focus on the US market, a global fund with a US presence like 500 Startups has the potential to be a great partner for the company.

Sinemia therefore decided to bring 500 Startups onboard and the small strategic round was announced yesterday. We welcome 500 Startups to the company.

Sinemia’s US expansion is up next.