Kazakhstan, Kyrgyzstan, Uzbekistan, Tajikistan

Overview of Fintech Development in Central Asia

Bolat Mynbayev, Head of Strategy and Operations Konstantin Aushev, Head of IT and Digital Advisory — November, 2020 FinTech market in Central Asia In Central Asia, Kazakhstan is the most prominent FinTech destination. FinTech in the rest of the CA region remains underdeveloped.

FinTech institution E-commerce market size, mln USD Potential market, mln people

2 143.4 Kazakhstan

643.9 Uzbekistan 38.55 30

162.8 Kyrgyzstan Possible solution for the realization of fintech potential of Central Asia 54.7 Tajikistan Internet users Potential market

Factors accelerating FinTech development Factors delaying FinTech development

Financial inclusion Regulatory issues Internet penetration Average mobile in 2020 access Fintech anchors Innovations (e-wallets, KZ cards, etc.) Demand and supporting Volume of e-commerce 79% 60% infrastructure KG – 47% UZ – 55% Sources: iclg.com, KPMG analysis TJ – 26%

Financial Facilities for Private Equity and Venture Funds Number of fintech startups Regulatory support of crowdfunding and ICO 53 inclusion Tax incentives for effective capital raising E-commerce market volume Acceleration / Incubation programs 3.7% Newly emerged local VC firms and an increase of angel investor’s activity 82% Digital literacy

Drivers Fintech Lab programs 79% Internet penetration Eurasian Union Sandbox initiation Startup boom and increase of e-commerce penetration Mobile connections Pro-fintech government and regulations 136% Private E-currencies, crypto-exchanges, digital assets, Initial Coin Offerings (ICOs) Volume of retail trade via Internet, mln KZT NBK’s work on Open API standards creation

Prominent FinTech service providers (B2B / B2P / P2P / 206,254 P2B): +39% 144,606 106,918 78,501 Sources: Digital 2020 Kazakhstan, AIFC, Doing Business, World Bank, National Bank of Kazakhstan, KPMG analysis 41,263 50,920 © 2020 KPMG Tax and Advisory LLC, a company incorporated under the Laws of the Republic of Kazakhstan and a member firm of the KPMG 28,046 global organization of independent member firms affiliated with KPMG International Limited, a private English company limited by guarantee. All rights reserved. 2013 2014 2015 2016 2017 2018 2019 Successful case in Kazakhstan

Kaspi Bank’s transformation into the largest ecosystem of innovative services in KZ

- 2014 – Kaspi online-shop - 2016-2017 – Kaspi Red (payments by instalments), Kaspi Gold and Kaspi.kz App - 2019 – made 515 mln USD profit (369 mln USD by fintech platform) - 2020 – over 6 mln users of Kaspi.kz

96.6% Share of retail loan portfolio Kaspi's main figures showed steady growth after investments of Baring Vostok since 2006 1st Bank rating according to Capital (bn KZT) Assets (bn KZT) Profit (bn KZT) Forbes Kazakhstan +693% +754% +1,750%

st 214 1,700 111 1 In terms of retail loan portfolio 1,286 Mln customers in Kaspi App 6 134 составляет доля розничного портфеля Bn USD - Market capitalization after IPO. 6.5 Kaspi.kz shares are trading on LSE and AIX. 42 361 Kaspi.kz estimate was more than double the market 27 199 15 capitalization of the largest Kazakh bank – Halyk 6 2 Bank, which is $3.18 bn USD 2006 2010 2015 2018 2006 2010 2015 2018 2006 2010 2015 2018

© 2020 KPMG Tax and Advisory LLC, a company incorporated under the Laws of the Republic of Kazakhstan and a member firm of the KPMG global organization of independent member firms affiliated with KPMG International Limited, a private English company limited by guarantee. All rights reserved. Demand for Fintech development: Fintech market in Tajikistan Level of Fintech development: Basic Digital Readiness Rating: Very low Global Innovation Index: Regulation 109rd No regulatory sandbox Not technically ready for the implementation of new digital technologies. Tajikistan in the World Bank’s rank in Ease of Doing Business: Financial Putting effort into modernizing payment system’s laws and expanding financial inclusion with the assistance 106th of the World Bank and the United Nations Development Programme (UNDP). inclusion Key subsectors: payments, The country has made several attempts to employ blockchain in money transfer; accounting, lending, Introduction of e-money and agency banking; marketplaces Introduction of remote account opening and digital onboarding rules; Measures to promote e-governance; Support for creation of technological hubs. 53 Number of fintech startups There is one neobank Alif with following services (similar to Kaspi 26% Internet penetration Bank in Kazakhstan): - Alif Pay – online payments system Mobile connections - Alif Mobi – mobile e-wallet; 107% - Alif Shop - first online shop in Tajikistan; - Alif Tech – fintech company Number of payments cards in circulation, units, 2015-2019 +13% 2,483,861 2,640,799 Drivers No Fintech hubs / incubators / accelerators 1,817,458 1,446,138 1,620,334 1,694,157 Prominent FinTech service providers (B2B/B2P/ P2P/ P2B):

2015 2016 2017 2018 2019 2Q2020

Number of transactions, th. units, 2015-2019

+36% 54,464 Sources: Digital 2020 Tajikistan, AIFC, Doing Business, World Bank, National Bank of Tajikistan, KPMG analysis 21,096 © 2020 KPMG Tax and Advisory LLC, a company incorporated under the Laws of the Republic of Kazakhstan and a member firm of the KPMG 15,695 16,778 17,644 global organization of independent member firms affiliated with KPMG International Limited, a private English company limited by guarantee. All rights reserved.

2015 2016 2017 2018 2019 Demand for Fintech development: Fintech market in Kyrgyzstan Level of Fintech development: Basic Digital Readiness Rating: Low Global Innovation Index: Regulation 94th National Bank Published on 4 Feb, 2020: “The Concept for the Development of Regulatory Sandbox Digital Payment Technologies in the Kyrgyz Republic for 2020-2022” Kyrgyzstan in the World Bank’s rank in Ease of Doing Business: 80th Financial Number of e-wallets, th. units, 2015-2019 Volume of transactions w/ e-wallets, bn som, 2018-2019 inclusion +53% Key subsectors: e-wallets, 1,960.3 44.9 Replenishment of transfers +63% E-wallet 29.4 45.0% 1,209.0 Cashing E-money 683.0 45.9% Payment for Number of fintech startups 31.6% goods / services N/A 276.6 374.0 31.0% 13.1% 14.6% Money transfer 8.5% 10.2% 40% Banking penetration 2015 2016 2017 2018 2019 2018 2019 86% Mobile penetration Drivers Major FinTech hubs/ incubators/ accelerators: 47% Internet penetration

Prominent FinTech service providers (B2B / B2P / P2P / 150% Mobile connections P2B): Other supporting policies: Remote account opening; Promotion of e-signature usage; Measures to promote e-governance (TUNDUK); Digital transformation of banking services; Rules on use of QR codes; Common standards for data exchange Sources: Digital 2020 Kyrgyzstan, AIFC, Doing Business, World Bank, National Bank of Kyrgyzstan, KPMG analysis (Application Programming Interface); © 2020 KPMG Tax and Advisory LLC, a company incorporated under the Laws of the Republic of Kazakhstan and a member firm of the KPMG Licensing mechanisms and regulating activities global organization of independent member firms affiliated with KPMG International Limited, a private English company limited by guarantee. All rights reserved. related to the circulation of digital (virtual) assets (cryptocurrencies). Demand for Fintech development: Fintech market in Uzbekistan Level of Fintech development: Basic Digital Readiness Rating: Very low Global Innovation Index: rd Regulation Regulatory sandbox is Enabled the creation of: 93 on formation stage 1) National Mining Pool Uzbekistan in the World Bank’s 2) Regulatory sandbox “Uzbekistan Blockchain rank in Ease of Doing Business: Valley” with National Agency of Project 69th Management

Financial Fintech ecosystem of Uzbekistan is represented by: Key subsectors: transfers, - 2 payment processing services, Humo & Uzcard; payments, micro-lending inclusion - More than 10 payment companies (2 owned by telecom companies); - More than 28 mobile banking applications; 45 Number of fintech startups - 1 digital bank. The key players are Uzcard and Humo as card providers, and E-commerce market volume CLICK, Payme and PAYNET among non-banking payment 0.7% providers. 96% Mobile penetration Drivers Major FinTech hubs / incubators / accelerators: FinTech lab 55% Internet penetration Prominent FinTech service providers (B2B / B2P / P2P / P2B: 76% Mobile connections

Number of remote banking users, mln people, 2016-2019

+71% 10,153,458 7,959,107

Sources: Digital 2020 Uzbekistan, AIFC, Doing Business, World Bank, Central Bank of Uzbekistan, KPMG analysis 4,453,240

© 2020 KPMG Tax and Advisory LLC, a company incorporated under the Laws of the Republic of Kazakhstan and a member firm of the KPMG 2,042,111 global organization of independent member firms affiliated with KPMG International Limited, a private English company limited by guarantee. All rights reserved. 2016 2017 2018 2019 Successful case in Uzbekistan

- Nationwide Financial Platform with more than 5.5 mln users

- Started operations with its USSD payment interface and created Click Uzbekistan mobile application (with option of 2011-2016 tracking expenses)

- Launched CLICKUZ BOT for Telegram, which offers all services from mobile app, including peer-to-peer transfers 2017 in the chat

- New products: mobile application Click Evolution, terminal for merchants to accept cashless payments Click Pass, and first in 2019 Uzbekistan e-wallet – Click E-wallet.

75,7% Share in market of money transfers from card to card (P2P)

1.5 Bn USD – sum of payments through Click

50% Of payments was made in 2019

1 Mln and more installations of Click mobile applications in the app stores

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Tele- — Service for search of proven solutions that gives large communications, corporations access to the database of ~6000 proven media, technology KPMG experts from technology start-ups (FinTech, Oil, InsurTech, RegTech, etc.) agriculture

— Platform to support innovation in organizations. The service Innovation provides: 1) Crowdsourced ideas/knowledge; 2) Managing Energy the portfolio of innovative projects; 3) Support collaboration Construction, Factory Real estate of teams of innovative projects (community).

— Structured expertise: constantly updated comparative Atlas analysis of business trends and innovation by corporate values, mediation of know-how and online seminar formats Sectors Innovation Maturity — A full-scale diagnostic study that uses a detailed set of questions to evaluate innovation maturity in 8 areas Assessment (ISO) according to standards of innovation management (ISO 56xxx), resulting in a digital transformation plan Services (Legal, — Customer journey software that allows you to create target Consulting, Banking, Spectrum profiles of your customers as well as their user experience HR) insurance and in using your products/services investments Retail, — A ready-made trend research platform that helps customers FMCG Sensory Advantage identify the firm's strategic solutions, including investments in new services and technology Insights Platform Transport, logistics

KPMG Digital Village is an ecosystem that connects corporations with the country's best innovation solutions

Corporations Innovative solutions — Innovative workshops and trainings — Access to corporate clients — Access to innovative solutions — Access to world markets — Exchange of knowledge and ideas 01 02 — Fund raising — KPMG Global Experience — Mentoring — Innovative tools and methodology — Operational support — Digital strategy KPMG Digital Village — Co-innovations Investors Central Asia Government — Branch experience — Research and R&D Projects — Startup deal flow — Trainings — Syndication of the transaction — Internships — Access to corporations 03 04 — Hackathons and Challenges

Participants of the innovation ecosystem

Each country lacks accurate statistics on digitalization and online transactions

Challenges for FinTech development: Challenges for FinTech development: • Unfavorable government policy • Low internet penetration • Lack of foreign investments • Small market with low maturity and low Major risks arising from FinTech: competition • Financial consumer protection risks • Unstructured government and arising from new products and business • regulatory strategy on digital financial models services • Cybersecurity risks • Lack of targeted and effective promotion of • Currency risks digital channels by financial institutions • Data protection risks Major risks arising from FinTech: • Same as in Kazakhstan Central Asia Challenges for FinTech development: Challenges for FinTech development: • Low mobile phone and internet • Poor infrastructure, monopoly of state owned penetration telecom providers • Lack of a clear FinTech development • Uncertain business environment for new strategy and broader institutional support players in the FinTech space for FinTech • Small market with low maturity • Limited access to finance and investments • Limited access to finance and investments Major risks arising from FinTech: Major risks arising from FinTech: • Cybersecurity risks • Cybersecurity risks • Currency risks • Currency risks

Sources: World Bank: “Fintech in Europe and Central Asia: Maximizing Benefits and Managing Risks” from February 2020

FinTech development

InsurTech RegTech SupTech InvestTech N/A N/A N/A

Expectations and key drivers

Kazakhstan Kyrgyzstan Uzbekistan Tajikistan

Liberalization of new electronic Increase of internet penetration Increase of internet penetration Increase of internet penetration features Increase of mobile penetration Increase of mobile penetration Development of regulatory laws Development of regulatory laws on digital infrastructure on digital infrastructure Introduction of laws on digital Introduction of laws on digital Expansion of state support Expansion of state support development development programs programs Creation of regulatory sandbox Creation of regulatory sandbox Introduction of new digital Introduction of digital literacy platforms programs Expansion of state support Expansion of state support programs programs Development in the field of Attraction of investors from insurance, regulatory and abroad Introduction of digital literacy Introduction of digital literacy investment technologies programs programs Execute statistical reports Execute statistical reports Execute statistical reports Execute statistical reports

Bolat Mynbayev Head of Strategy & Operations

T: +7 771 800 4552 E: [email protected]

Konstantin Aushev Head of IT and Digital Advisory

T: +7 776 215 1673 E: [email protected]

Anastassiya Kazakhstan Sembina Consultant, Strategy & Nur-Sultan Operations Sauran, 48 T: +7 775 115 2112 Тel: +7 7172 59 14 15 E: [email protected] Fax: +7 7172 59 14 17 E: [email protected]

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