Mikhail Lomtadze's Presentation + My 2 Cents

Kaspi CEO Mr. Lomtadze's Presentation at the PLUS Forum in Almaty

Mikhail Lomtadze – PLUS-Forum: FinTech Without Borders

Yesterday, Mr. Lomtadze (CEO of Kaspi.kz) presented at the PLUS Forum which saw business leaders from all over Eurasia come to Almaty (my home city) for the event. This is a transcript of what I see as the most crucial parts of his presentation. No sentence is made up – these are all Mr. Lomtadze’s words translated to the best of my ability.

I’ve added my own thoughts at the end for those who (maybe?) care to know what I think.

Here is the recording if you want to watch it first.

Introduction

I think Kazakhstan has the highest penetration rate of digital payment services out of all the countries represented here today, so we would like to share our story with all of you. I’d like to start with some of the feedback we’ve received from our clients, because everything we do – we do for our dear customers. 

[Lomtadze goes over customer reviews – audience laughs]

Kazakhstan has seen phenomenal growth over the past few years, which is first of all thanks to our dear customers who use our services, and our associates who are developing these digital offerings. Our mission is to build innovative products that improve the lives of the people of Kazakhstan. This mission is crucial to us because it is part of our DNA. When we develop a product – and we are first of all a consumer-oriented company – we focus on all the services that might improve the lives of our beloved customers. In this mission, you don’t see any limitations in terms of industry – by the way, we hate when people call us a bank, although some people continue calling us that – we don’t have limitations in terms of whether we introduce financial services or e-commerce or mobile payments. Any industry which we believe fits our mission of improving the lives of our beloved customers is one we are willing to enter.

We have two main products, which we believe to be very unique. The first one is Kaspi.kz – which is what we started with – a product for consumers. The term “Super App,” when we were first launching Kaspi, did not really exist. We were one of the first ones to begin using this term – a “Super App” is when several different services are combined together in one app, and the services can be very different. It is when a lot of people use a variety of services within a single, integrated application. 

We have an online marketplace with free delivery, Kaspi Travel, Kaspi QR – which is payments, a payments system that allows our beloved customers to make purchases using an app – Kaspi transfer, and “My Bank,” which is everything to do with credit loans and deposits. We have Government Services, which we launched in 2020. We had the idea of making Government Services as accessible as possible for our beloved customers and the people of Kazakhstan, so people don’t waste their time on receiving these services in-person. These are only some of the products we have – we also recently launched a service where people can sell various products to each other [C2C e-com].

On the other hand, we have another Super App which is a Super App for SMEs that we call Kaspi Pay. Here we have marketing services – where merchants that sell on our e-commerce marketplace can advertise their products – we have business credit where SMEs can obtain financing to grow and create jobs. We have QR, which is now on the side of the merchant where they can accept a payment through an app or a POS terminal. We have payments and budgeting, which SMEs can use to easily pay taxes, and we have online payments, where merchants can send an invoice to customers online to the customer’s Kaspi.kz app, and the consumer can then pay within seconds. Finally, we have Business Payments where you can pay your supplies and other stakeholders. All of the services actually don’t fit on the screen – we have many more services and we continuously expand on this product base. 

On one hand we have an app for SMEs, and on the other we have an app for consumers and individuals. These are two important Super Apps that we are developing. In our SME Super App, we currently have over 400,000 partners, which are predominantly small and medium businesses based in Kazakhstan that are growing and developing their business. Then, on the other side we have the consumer Super App, which today has 12 million users, and so we have created this business model that connects these SMEs to consumers. So these two share a payment system – with QR core being the core offering here – and we have an e-commerce platform, where merchants can sell on our marketplace and we will deliver the product for free to them. Or merchants can simply choose to connect to our Kaspi Pay offering which would allow their consumers to access Buy Now, Pay Later (BNPL) products through the Kaspi consumer app. 

Delivery – when we first started we didn’t have delivery so our merchants could only sell locally within their city. Now, we have established a delivery network across all of Kazakhstan so merchants can sell nationally. We are currently investing heavily in our Postomat network. Last year, there were no Postomats in Kazakhstan – this year there are 3,000 Postomats across the country, and there will be 4,000 Postomats by the end of the year.

Thanks to the efforts of our associates and colleagues, Kazakhstan is showing great results in digital payments. Digital payments have grown 5.4x over the last 3 years, totaling 72 trillion tenge by the end of 2021. 

Payments Growth

If we look at the first quarter of 2018, 26% of all payments were made digitally. In Q4 of 2021, 80% of all payments were made digitally. For me personally [laughing] I only take out cash from my wallet when I am outside of Kazakhstan – I don’t use any cash at all when I’m in Kazakhstan. All of us use a QR code or other payment methods that our colleagues have developed. This is one of the highest penetration rates [for digital payments] in the world and it’s still growing. By the end of this year (2022) I expect the share of digital payments to be roughly 90% to 95%, more or less. 

E-commerce

Our e-commerce platform is also developing nicely. The e-commerce market in Kazakhstan has grown 3.2x over the last three years (2021) with the total market size last year exceeding 1 trillion tenge. E-commerce is the engine of SME growth. Over the last 3 years Kaspi has invested around 150 billion tenge into e-commerce. We constantly invest in e-commerce and then give SMEs a chance to connect to these platforms – no commerce company in Kazakhstan can afford to make the investments we do, so we develop these technologies for the small businesses and then open the platform to all SMEs in Kazakhstan. 

Government Services

We launched GS in 2020. The most popular products right now are around tax payments, social security / insurance contributions, digital documents, vehicle registration, and replacement of your driver’s license, which we launched around September / August.

The key to developing this kind of service is making it high quality, so people not only use it but so that users come back. If a company truly wants to become an innovative company, it is crucial that current users are incredibly happy. The worst case is when you continuously launch these services but people don’t enjoy using them, and they don’t use the services not because you have launched a poor service, but because all the former services haven’t worked properly and people didn’t feel good using them. Hopefully, your clients are happy with your products overall across all services, and in this case they will continue coming back and continue using newly introduced services. 

Currently, 8.5 million users use the GS product, here we are talking about monthly users. There have been 371,000 cars registered through our app – all of the figures we are talking about are over the last 8 months by the way – and there has been a total of 561 billion tenge paid in taxes. 4.5 million users used accessed digital documents through the app, 153,000 entrepreneurs have registered with us, and 22,000 citizens have replaced their driving license, even though we have added this service to the app only recently.

Today, every other car is registered using Kaspi (50% of all cars). It’s not just that people register through Kaspi – these people don’t have to go and physically hand in all of their documents – everything is digital. As our beloved customers explain, “we can re-register the car while we are having dinner.” So, you can pay the fee, choose the license number, and then you get a notification that the process is over and that you have to get your license plate. 

Our current number of registered businesses – 153,000 – is 40% of all sole proprietor registrations. 4 out of 10 businesses registering in Kazakhstan are registering through Kaspi. You pick the type of organization / entity, you pick the type of applicable taxes, you fill in your data and – boom – your business is registered. We have heard from our clients that it is now easy to open a business – but what about closing it? A lot of entrepreneurs are asking us to make a service for closing down a business, so we’ll likely be working on that soon. We are always talking to our clients – so this is an example of the feedback we have received.

22,000 drivers have received their license through Kaspi, which is roughly 30% of the total – so every third driver who needs to change / receive their driver’s license. You just take a photo and after that you make a signature. I don’t know about you but I always hated one thing – I don’t know if it's the same for you – but you look at your passport or your license and you realize that you hate your signature and your photo. You want to do something about it but you can’t – you already have your passport and your license! So, we have this nice service where you can change your photo and signature on your documents, and you can do it as many times as you want until you like it. And BOOM – you instantly get your license and passport in your Digital Documents section of our app. The only thing you have to do is if you want the actual plastic, you’ll have to go and actually get it. 

All of these GS services are made in collaboration with the government. We play our role in a) improving the customer experience – because we are a consumer-oriented business and we know how to do it well. Our team is just – I mean it’s crazy, really. I gain so much pleasure everyday from the fact that I get to work with our members. And the second is that we use our technologies to help scale the service. It’s one thing if you develop a service and announce it and only 2 people use it, it’s another if you develop it and millions of people use it. For millions to use it, you need completely different technological capabilities – this is where we help. 

[Lomtadze lists all government entities Kaspi works with]

I can really keep on listing them – because we are honestly incredibly grateful to them. I was presenting at one event and there I didn’t get a chance to list all of them – here I want to list all of them [finishes listing entities]. These guys, along with us, launch these services. We work as a single team to simplify and optimize these services and then we scale them. We constantly exchange knowledge and information with these guys – our team members learned a lot from them and we hope that we, likewise, gave them some of our insights and experience. 

Kaspi Labs

At the same time, we are constantly investing into our own guys. For example, one of our initiatives is our corporate institute Kaspi Labs where we focus on Big Data, UX,  and UX Analysis and Development. Kaspi Labs received 12,000 applications in 2022, and this year roughly 200 students graduated – 50 of which are now working at Kaspi, and everyone else is working elsewhere. We strongly believe that technology improves our lives, and improves the wellbeing of every person, and we think that the more people are involved in developing this technology the the faster our lives will become better. We really believe in this and this is why we invest in the development of our own talent, and the talent of others.

Thank you for listening – Kaspi.kz is made in Kazakhstan! [End of presentation]

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First off, it might seem like I am trying to promote Kaspi — I promise you I’m not. In fact, I’d rather have the price fall back down a bit.

If I was a shareholder of a business, I would love to hear what my CEO says in a presentation like this. Being a global investor means facing these language barriers. My hope is simply that this transcript helped those that don’t speak Russian better understand the business. If — for some reason — anyone at Kaspi’s IR is reading this, I think it would really help to post these types of videos with English captions or a transcript of the presentation!

To those that do own Kaspi — I’d like to emphasize this segment of Lomtadze’s presentation:

Our team is just – I mean it’s crazy, really. I gain so much pleasure everyday from the fact that I get to work with our members.

And then I would like to direct your attention to the amount of times Mr. Lomtadze mentions “our beloved customers” and how he talks about Kaspi’s mission and values.

This, in my opinion, is what Kaspi’s genuine advantage is. Yes, Kaspi has all these powerful flywheels working in its favor, but it is the culture and the people behind these services that “create” all of these formidable competitive advantages. The reason Kaspi is likely to continue doing well is not because it has today’s services (although they certainly help), but because it has built a culture than allows it to continuously produce superb, customer-focused services one after the other.

I just finished reading Arthur Blank’s Good Company, in which he states, “we always knew our rival was copying us, but it never worried us too much because we knew that they couldn’t copy our secret to success: our culture.”

Halyk, Freedom, Choco, Yandex can all attempt to attack Kaspi — yet all of these entrants largely lack Kaspi’s culture of customer-obsession and product innovation. They lack the leadership and vision that managers like Lomtadze provide, and they lack the share-of-mind and customer connection Kaspi has formed with what is now the majority of Kazakhstan’s population.

Another quote I really liked from Mr. Blank’s book (I highly recommend reading it) is the following:

“Any company, by definition, is made up of relationships – between coworkers, associates, and customers, clients, vendors, partners, and so on.”

I’ve found myself drifting towards the idea that the culture of a company is one of the most important factors a business owner should look at. Who are the people I’m partnering with? What guides the decision making of these people? Are they truly “values-based” — or is it all investor marketing?

Culture is a very vague term, and there’s no framework for analyzing it (at least for now). My current thinking is that, like with Kaspi, you’ll know it’s there when you see it. If I look at the businesses that have performed the best so far for me (Kaspi and Alimentation Couche-Tard), both have unique cultures with managers that are obsessed in maintaining these values internally and communicating them to their investors externally.

In the end, no company is “born” with a moat. Rather, these advantages are carefully crafted thanks to efforts at every level of the company. For an investor that seeks to genuinely own businesses, I think looking at the inputs (i.e. the people) behind the competitive advantage is key.

My thinking has radically changed throughout this year. But this thinking — the importance of cultures — is one I strongly believe in. Just look at Kaspi and ATD.

Anyway, that’s it for my thoughts. I hope at least a handful of readers found the transcript helpful!