Turkey, the 18th largest economy in the world, has been growing steadily, attracting both foreign and local investors while boosting national consumption and wealth. During the last 15 years, the strong GDP growth has been coupled with foreign exchange volatility and slow growth in equity markets. Important wealth gains have been observed, especially through diversification of the business interests of ultra-high-net-worth individuals (UHNWIs),¹ controlling almost 10% of the total wealth in the country. UHNWIs’ wealth grew by 18% between 2006 and 2016, while the UHNWI population grew by 2% during the same period. UHNWIs represent 0.002% of Turkey’s population, while multi-millionaires make up 0.004% and millionaires 0.07% of the population. Almost half of their wealth is inherited, and increases through business interests. The income inequality in Turkey is represented by its Gini coefficient of 0.4, the highest ratio (biggest gap) in Europe. The political risks and upheaval in 2015/2016 slashed wealth by 20% in 2016, due mainly to devaluation of the Turkish lira.²

According to surveys, financial literacy in Turkey is close to the lowest score among European countries, indicating a low level of financial knowledge, behaviour and attitude. Turkey, the fourth largest gold-buying country globally, has an estimated 2200 tonnes of gold “kept under the pillow”, worth US$100 billion, equal to 13% of Turkey’s economic output in 2015.

The Turkish financial sector and banking system have led innovation in products, services and the use of technology worldwide. The level of deployment of technology and innovation in the Turkish banking system is higher than in many Western countries. The accelerated progress in financial technologies has created both opportunities and hurdles for FinTechs to rise in Turkey. The tech-savvy and young population is keen to absorb more technology in their interaction with the financial world, and many banks offer sophisticated digitized services, chatbots and digital payment means to their customers. There’s a lot of potential in areas banks cannot reach or cannot service in a profitable way. New models are needed to shift the traditional way of doing business. Innovative financial products can now touch a broader customer pool via technology platforms created by entrepreneurs with problem-solving skill sets.

The wealth which is kept “under the pillow” is usually injected into the economy during a period of crisis. Turkey has gone through a rollercoaster economy during the last few decades, due mainly to social and political turmoil. Now, Turkey is at the crossroads of both political and economic crises once again. The population needs to be reconnected and contributing to the country’s wealth, as well as to their own future, instead of being limited by individual protectionism. The financial inclusion and democratization of a broader portion of the Turkish population can be a revolutionary breakthrough during the turmoil. Engaging more people to invest consciously and responsibly will improve financial literacy, boost financial inclusion, energize wealth kept out of the economy and create self-esteem for a larger portion of the population, which can also create wealth. Investors shall be more aware of the risk they bear, and FinTechs are building their business models around this increased investor consciousness. The good news is that the government is willing to enhance financial inclusion and help FinTechs when they approach the regulatory bodies with robust business ideas and transparent models.

To unlock WealthTech, FinTechs and financial institutions need to tap into the intrinsic potential of three customer segments: family-run businesses (“family firms”), high-net-worth individuals (HNWIs) and a broader group of individuals who do not recognize their wealth.

In Turkey, family firms constitute 95% of all businesses. A few family offices, private banks and corporate entities take on the role of managing the wealth of family firms based on their trusted relationships and network. Recently, independent family offices started developing services to manage mostly the savings accounts of their clients. In midterm, we expect that these offices will manage a broader range of wealth – including funds, shares, real estate, art collections and taxation. However, there is a bright white space where technology and new business models can meet to enable wealthy families to prepare better for the future of their second and third generations. The burgeoning family offices and consulting companies try to meet the expectations of their customers by building bridges of trust, leveraging their networks and experience, but not necessarily by demonstrating the measurable outcomes of their financial advice, efficiencies and customer experience. The “cost of services” does not seem to be the primary concern of clients in choosing the right advisor; they are merely biased by the “packaging of the offer”. Many family offices and private banks in Turkey fail to define and manage risk, as their vision of global markets and trends remains limited or they do not want to simplify and revamp their product range.

Turkish HNWIs manage their wealth through family offices and private banking services, where the penetration of technology and innovative products is also rare. Due to the political and economic turmoil in Turkey, HNWIs have been looking to diversify their wealth geographically and distribute their assets across borders. As a result, their wealth management costs and efforts increased. They are now more exposed to global markets and risks. Many Turkish HNWIs prefer to move their families abroad for security reasons and better education, but keep the core of their business in Turkey. This reallocation of families and businesses creates both opportunities and challenges in managing wealth; they are chasing for new products, new services and trusted partners to ease their day-to-day financial operations while travelling across regions and time zones.

Since early 2010, the Turkish economy has benefitted from foreign direct investments (FDIs). FDIs are now outflowing, mainly due to the recovery in mature markets and political risk in the region. This trend will shuffle the way to manage wealth too. The biggest opportunity lies under cover of the “unrecognized wealth” of wealthy individuals (WIs). The line between HNWIs and WIs is blurring, as the definition of wealth is widening. Individuals are willing to value gold, real estate, art collections, pension funds and their retirement, and diversify into new streams of investing with the excess of their income or accrued assets. There are around 30 portfolio management entities in Turkey, around 30% of these being independent and the remaining majority part of banks and financial institutions. The portfolio management firms manage around US$15 billion and the independent firms constitute only 2% of this market. The regulatory bodies aim to boost the market to reach US$45 billion by 2020, and to increase the share of independent portfolio management firms. The financial institutions have to deal with their clumsy legacy systems and heavy human capital, as they are tied to personal interactions between customers and their financial advisors. However, the independent firms, in order to tap into the lion’s share of the growth market, need to come up with innovative business models and technology to leverage new ways to recognize and reach WIs.

WealthTech firms will reshape this space. First, wealth management firms shall bring simplified products to match the evolving needs of customers. More and more affluent clients are looking for uncomplicated products and simplified user interfaces to have better visibility over their portfolio and the risk involved with it. Customers are willing to invest their wealth, plan for unfortunate occasions, but also spend wisely. The simplification is not only around the product, but also how the product is delivered. The greater level of service has to be achieved through the speed of access to data, optionality and a better view on risks and returns. Affluent customers are looking for more intuitive and forward-looking experiences in receiving support and services in their decision-making.

The user experience part is to be built on experience and technology, innovation and creativity. Customers are willing to contact their advisors and check their status anytime and anywhere. With the current breakthrough technologies such as big data analytics, machine learning and robo-advisory, a higher quality of service can be achieved at lower cost.

In addition, wealth management firms need to be connected to the global networks and advise at the global scale. These capabilities have to be built on the backbone of digital technologies, data analytics and genuine interfaces. The customers’ needs are more global than ever, and serving these evolving needs can be achieved efficiently through technology networks rather than physical ones.

Finally, companies in the wealth management space have to establish trust and continuity of their business through transparency and sharing of knowledge. Lower-cost services such as digitized customer interfaces and robo-advisory will help especially the WealthTechs to demystify the most sophisticated products in the eyes of their customers, and shine a light on the risks and rewards (and fees and taxation).

In Turkey, the WealthTech space is ready to flourish. Companies will aim to satisfy their customers in investing, valuing, planning and spending with a genuine value-add. As the Turkish economy needs to maintain the growth trend, it is now time to uplift the future onto more prosperous grounds.