TURKEY S NEW EMERGING MARKET: E-COMMERCE

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1 TURKEY S NEW EMERGING MARKET: E-COMMERCE With the developments in technology and increase in number of internet users, the global e- commerce volume continues to expand rapidly. The steady rise of e-commerce is triggered by changes in consumers habits and shopping trends. According to data provided by the research company emarketer, the global B2C (i.e. Business to Consumer) e-commerce volume is expected to reach USD 1.5 trillion in Turkey s recent economic growth provides a convenient environment for sectors to evolve, parallel with sector-based improvements around the globe. Approximately 12,000 e- commerce websites operate in Turkey 1. Three main e-commerce players dominate the Turkish e-commerce market: (i) pure players aiming to create their own brands; (ii) private shopping clubs providing discounts or promotions and enabling their consumers to reach designed products; and (iii) platforms putting up products or services for sale with special discounts from time to time. Four main advantages enable the Turkish e-commerce market to emerge: (i) use of credit cards; (ii) sound logistics infrastructure; (iii) high use of mobile internet; and (iv) social media million credit cards and million bank cards are being used in Turkey, which carries Turkey to 2 nd tier in Europe in the number of credit cards and to 1 st tier in bank cards 2. According to research conducted by the Turkish Interbank Card Center 3 (BKM), online payments by credit cards exceeded TRY 34.6 billion in In addition, convenient and rapid logistics services increase the consumers interest. Another instrument that supports the Turkish e-commerce market is the use of mobile devices. According to Soner Canko, general director of BKM, 6% of online shoppers used their mobile devices for online shopping in 2014, which takes Turkey to 3 rd place in use of mobile devices. Increase in use of social media is another factor enabling Turkish e-commerce market to grow. Turkey ranked 7 th among countries with the highest number of registered users on Facebook and 10 th on Twitter 4. According to BKM, the e-commerce volume of transactions by card have been increasing every year, as shown below. However, these figures do not reflect wire transfers or cash payments at the door. 1 Global and Turkish E-Commerce Market, Türkiye İş Bankası, April Digital Bosphorus: The State of Turkish E-Commerce, Sina Afra, Digital Bosphorus: The State of Turkish E-Commerce, Sina Afra, 2013.

2 The potential in Turkey s e-commerce market has also attracted both foreign and local investors. The below table shows some of the investments made in e-commerce companies in recent years 5 : Investor Investee Share (%) General Atlantic (USA) Yemeksepeti N/A Perform Group (England) Mackolik.com 51.0 Topbaş Ailesi E-bebek.com 50.4 KPCB; Tiger Global Management (USA) Trendyol.com 4.5 Ru Net Holdings (Russia) Lidyana.com N/A VİP İndirim Hizmetleri (Markofoni) En-Moda 75.0 Doğan Online Evmanya 100 Tiger Global Management (ABD) Sporcum.com Capital Partners Hazinem.com N/A 212 Capital Partners Balerin.com N/A Etohum Yatırım Biacayip.com N/A Ilab Venture Unnado.com N/A 212 Capital Partners Butigo.com N/A 212 Capital Partners Hemenkiralık.com N/A Galata İş Melekleri Joyfoodz N/A BIC Angel Investments Telefonkilifim.com N/A Although e-commerce sector grew tremendously in the recent years, its share in the total retail sector is below average in Turkey, as compared to its share in the European markets. 5 Deloitte, Annual Turkish M&A Review 2012,

3 E-commerce Share of Retail Sales(Non-Travel) 12,0% 10,0% 8,0% 6,0% 4,0% 2,0% 0,0% With its growing population and increasing number of internet users, Turkey offers retailers and entrepreneurs a promising future in the e-commerce sector. I. THE EFFECT OF TURKEY S INTERNET PENETRATION VOLUME TO THE E-COMMERCE SECTOR S FUTURE The Turkish e-commerce market has been growing in proportion with the increase of Turkey s internet penetration. As of 2013, the ratio of Turkey s internet penetration reached 49%, with 37.5 million internet users. In 2012, Turkey ranked 11 th among 20 countries with the highest number of internet users 6. This increase in the number of internet users carried Turkey to 9 th tier in the list of countries with the highest potential in e-commerce, in emerging markets 7. The rapid increase of internet penetration in Turkey makes the market conditions more favorable for internet based businesses. According to the latest reports published by BKM and data shared by the World Bank, internet penetration of Turkey is at 50% while e- commerce penetration in Turkey is at 15%. This gap provides a great opportunity for e- commerce players, as the market is under-penetrated and still requires improvement. 6 Internet Word Stats, Usage and Population Statistics, 7 Hana Ben-Shabat, Parvaneh Nilforoushan, Mike Moriarty, AT Kearney, E-Commerce Is the Next Frontier in Global Expansion,

4 Internet Users/E-commerce Users as a Percentage of Population 60% 40% 20% 0% Internet Users E-commerce Users According to data of year 2013, of the 36 million, 10 million internet users also use e- commerce websites. This change in the commercial trends has resulted in a noticeable growth in Turkey s e-commerce market. According to Focus of Digital Market: E-Commerce (Dijital Pazarın Odak Noktası: E-Ticaret) 8, published by the Turkish Industry and Business Association (TÜSİAD), the Turkish e-commerce market grew by 35.5% since 2008 and the market volume reached approximately TRY 14 billion in If Turkey manages to preserve this continuing rise, the e-commerce market is expected to grow by 15.8% at the end of II. E-COMMERCE MODELS IN TURKEY The most commonly used models in the e-commerce market are B2C and C2C (i.e. Consumer to Consumer). According to the Global and Turkish E-Commerce Market Report 10, 70% of the total domestic internet economy is based on consumption. E-commerce websites such as Markafoni, Morhipo and Trendyol have particularly contributed to the increase of female online shoppers. Turkish internet users are the youngest in Europe and this young group of internet users interest in e-commerce results in a growth for B2C commerce. In 2012, the total disbursements in B2C model e-commerce operations reached TRY 15.3 billion, corresponding to 51% of the total online disbursements. Travelling and plane ticket purchases constitute 25% of total online shopping disbursements. This is followed by insurance, consumer products, telecommunication and direct marketing 11. In 2013, sales in the B2C model increased by 40% 12. According to a survey conducted by the Turkish Statistics Institute 13, the product group with the highest volume in online sales in 2012 was clothing and sports equipment, with a ratio of 44.4%. This group of products was followed by electronic devices, with a ratio of 25.5% and furniture with a ratio of 21.2%. 8 Sina Afra, TÜSİAD, June Focus of Digital Market: E-Commerce, Sina Afra, TÜSİAD, June Türkiye İş Bankası, April Digital Bosphorus: The State of Turkish E-Commerce, Sina Afra, Turkish Statistics Institute,

5 According to the report 14 published by TÜSİAD, the B2B (i.e. Business to Business) model is not as commonly used in the Turkish e-commerce market as the C2C model. Although well-known companies, such as Migros and Hepsiburada are currently using the B2B model, the use of e-commerce is not common among small and medium sized enterprises. According to the report, the lack of (i) trust in e-commerce; (ii) labor force; (iii) financial resources; (iv) technical infrastructure; (v) know-how and (vi) high application expenses prevent B2B e-commerce from becoming widespread among small and medium sized enterprises. Although progress in the B2B market is slower than expected, according to the data provided by IDC Corporate 15, the market grew by 28% within the last four years. LEGAL BASIS In order to create a legally sound environment, the Law on Electronic Commerce was finally published on 5 November 2014 in the Official Gazette (the ECL ). Under the ECL, electronic commerce is defined as commercial activities conducted through electronic environment without parties coming face-to-face. The ECL aims to protect consumers and to encourage them to use e-commerce more frequently. The ECL will enter into force on 1 May The ECL governs (i) commercial relations; (ii) liabilities of online service providers; (iii) agreements to be executed through electronic devices; (iv) obligation to provide information; and (v) sanctions. Under the ECL, online service providers must provide (i) identical information; (ii) technical information for execution of the agreement; (iii) information on whether or not the agreement will be kept by the service provider and whether it will be accessible; (iv) information on technical instruments for correction of faults that may occur during data submission; and (v) information on confidentiality and alternative dispute resolution, if any, prior to execution of the agreement. One of the most significant provisions of the ECL governs commercial electronic messages. In practice, electronic messages sent by service providers to purchasers cause problems. The ECL provides options to purchasers such as opt-in, negative opt-in and double opt-in. Under the ECL, commercial messages can only be sent with prior consents of purchasers. In this regard, service providers applications to send commercial electronic messages through automatic mail or short message service (SMS) will no longer be applicable. In addition, purchasers are entitled to renounce from delivery of commercial electronic messages at any time and without showing any reason. The ECL also regulates the content of the message to be sent to purchasers. It is worth emphasizing that, these provisions will not be applicable to messages that do not include any commercial purpose. Following the enactment of the ECL, two regulations are expected to be published by the Ministry of Customs and Trade, regulating the application of the law in general and rights and liabilities of intermediary service providers. Publication of these two regulations within a reasonable time period is crucial for the proper application of the law and for overcoming any potential problems through application process. Another legislation that applies to e-commerce transactions is the Consumer Protection Law 16 (the CPL ). There is also the Distance Sale Agreements Regulation 17 ( Regulation ), 14 Sina Afra, TÜSİAD, Published in the Official Gazette dated 7 November Published in the Official Gazette dated 27 November

6 which was prepared in accordance with the CPL and will enter into force on 27 February Under the CPL, in distance sale agreements, consumers have the right to withdraw from the agreement within 14 days, without presenting any reason and/or paying any penalty. Moreover, under the CPL, the seller or the provider must perform its duties agreed under an electronic agreement, within 30 days following receipt of the order. These consumer protections that the CPL and the Regulation bring along are expected to promote e- commerce in Turkey. III. CONCLUSION Statistics demonstrate that, with the legislative developments expected in the upcoming years (e.g. enactment of the Draft Law on Data Protection), Turkey s potential in e- commerce will keep increasing and Turkey will have a more sustainable environment for e- commerce investments. With more conscious e-commerce users, supportive market instruments, investments and regulations, Turkey will be able to maintain the increase in the domestic e-commerce sector and may become a noteworthy player in the global market. Kolcuoğlu Demirkan Koçaklı Attorneys at Law & Inveon