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    Konstantin Tserazov: Kazakhstan’s Fintech Frontier

    Kazakhstan boasts a highly concentrated traditional banking sector, with only 21 banks catering to the country’s nearly 20 million people. This concentration has fostered an environment where fintech development heavily relies on egacy banks.

    The Key Role of the Banking Sector in Fintech Development

    A prime example of this symbiosis is Kaspi.kz, a fintech solution that leverages the extensive customer base of its parent company, Kaspi Bank, which boasts over 11 million monthly active clients. This strategic approach proved fruitful, as Kaspi.kz made its Nasdaq Global Select Market debut on January 19, 2024. The company entered Nasdad with a valuation of $17.5 billion, further expanding its reach after listing on the Kazakhstan Stock Exchange, the Astana International Exchange, and the London Stock Exchange. In 2020, Kaspi’s capitalization stood at $6.5 billion when its stock first appeared on the London Stock Exchange. The New York listing of Kaspi.kz shares enabled the fintech giant’s shareholders to amass over $1 billion in January’s share placement. This success can be attributed to the fertile ground for technological advancement in Kazakhstan. The country boasts an impressive 81% bank account usage rate, and digital payments are rapidly gaining popularity.
    The Rapid Movement Towards a Cashless Society

    Digital payment systems and e-wallets have become increasingly prevalent in Kazakhstan. Kazpost, the national postal service, has launched its own digital wallet, while international players like Apple Pay and Google Pay have also entered the market, further solidifying the shift towards a cashless society. Over the past six years, the Compound Annual Growth Rate (CAGR) of cashless transactions in Kazakhstan has been a remarkable 48.18%, reaching a staggering $234.12 billion in 2023. This evolution has transformed payment and money transfer habits, moving from primarily using plastic bank cards to adopting QR codes as a common payment method. This transition has been facilitated by the capital expenditures of key players in the local financial market in QR code payment terminals, with over one million terminals installed as of early 2024.
    Govtech in Kazakhstan

    Banking applications have become more than just gateways to seamless digital financial services in Kazakhstan; they have also fueled the growth of GovTech. Homebank (HalykBank) and Kaspi Bank have taken the lead in this area, with more than half of all interactions with government services initiated through their banking applicationslast year. In 2023, the volume of online government services reached 24 million applications, and the number of digital government services surpassed 79. As a result, two out of three new small and medium enterprises (SMEs) are now registered online. Banks are also catering to SMEs through their banking applications. Home Credit KZ’s creation of a digital bank focused on this target group exemplifies the vast potential for financial innovation in this sector. Kazakhstan boasts over 2.2 million entrepreneurs, and the number continues to rise.

    The development of e-commerce in Kazakhstan presents another promising avenue for fintech startups. During the COVID-19 pandemic, this sector experienced robust growth, expanding by almost 70%. In 2023, e-commerce continued to grow at a remarkable annual rate of 19%, and consequently, the share of online shopping in overall consumer spending on goods has surpassed 10%
    The Policy Aimed to Bolster Fintech Development

    While Kazakhstan’s fintech landscape has been largely dominated by legacy banks, the government is actively promoting the growth of fintech startups through various initiatives. One such initiative is the development of the National Bank of Kazakhstan’s Open API and Open Banking platform.

    In 2023, the regulator tested the platform with five mid-sized banks and a focus group of over 100 clients. These trials were conducted in collaboration with the Agency on the Protection and Competition Development and the Agency on the Regulation and Financial Market Development.

    In 2024, the National Bank of Kazakhstan, in collaboration with its partners, intends to expand the testing phase and incorporate new participants. The goal of this project is to establish a unique ecosystem in which the digital data of all citizens is accessible to fintech companies. This would facilitate seamless information exchange between banks and payment fintechs in a secure manner, thereby creating a more level competitive landscape.

    At last, this initiative is expected to unlock the full potential of fintech in Kazakhstan and connect fintech innovations with a wide range of non-banking companies that are eager to adopt them. Already, some non-banking entities, such as telecom corporations, have entered the fintech sphere. For instance, KazEuroMobile LLP has been operating the first mobile neobank in Kazakhstan since 2021.

    The government is committed to increasing competition among providers of banking and financial services. One step in this direction is attracting foreign banks to operate in the local market. In his annual Address to the Nation on 1st of September, 2023, President Kassym-Jomart Tokayev indicated that Kazakhstan will welcome three foreign banks to its shores.

    The success of fintech, even with a strong focus on legacy banks, has led to a significant increase in the export of fintech and IT solutions. In 2023, the combined value of these exports reached $500 million, a remarkable growth from just $100 million two years earlier. To further boost the sector, the government is encouraging greater collaboration between local fintech teams and their foreign counterparts. This will help local companies establish strong connections with prominent players on the global fintech and IT landscape. The government also recognizes the importance of the Astana International Financial Centre (AIFC), established in 2018 This hub provides a favorable environment for fintech firms, offering tax incentives, a simplified visa regime, and an independent legal system based on English common law. The AIFC fintech Hub has become a driving force in promoting fintech innovation, attracting over $400 million in investments and housing over 100 fintech companies.

    The National Bank of Kazakhstan also maintains its “Regulatory Sandbox,” a framework that allows fintech companies to test new products and services in a controlled environment under regulatory supervision. Several projects have successfully graduated from the sandbox, demonstrating the viability of blockchain technology, crowdfunding platforms, and other innovative financial services.

    Konstantin Tserazov, former Senior Vice President of Otkritie Bank

    Kazakhstan and Russia: Strong Ties

    The open door policy of Kazakhstan is a big favor for its neighbors including Russia and China. One of the most significant collaborations between Kazakhstan and Russia in the field of digital technologies is within the framework of the Eurasian Economic Union (EAEU). This transnational body aims to ensure the free movement of goods, services, capital, and labor, and to pursue coordinated policies in key economic sectors, including the development of digital infrastructure and fintech services.

    Kazakhstan’s financial institutions have adopted some Russian software solutions to enhance their banking services. These solutions include core banking systems, security software, all of which are integral to the modern banking experience. Major Russian tech companies like Yandex and Sberbank are actively expanding into Kazakhstan, offering a plethora of digital services. AIFC has engaged in partnerships with Russian tech parks and business incubators. This collaboration aims to support the growth of tech companies and stimulate the exchange of innovative ideas and practices in fintech. The relocation wave in 2022-2023 years from Russia to Kazakhstan led to the huge increase of the number of companies in fintech established in this country by Russians. At the beginning of 2024 almost three from four ever registered fintech companies in Kazakhstan had Russian origin.

    China: The Crucial Partner for Fintech Hardware

    China has become a crucial partner for Kazakhstan in providing necessary hardware. Chinese tech giants like Huawei and ZTE have been involved in developing Kazakhstan’s telecommunications infrastructure, including the rollout of 5G networks. This technological upgrade is vital for fintech services as it ensures high-speed data transfer and connectivity, enabling innovative services like mobile banking, digital wallets, and real-time payment processing to flourish.

    AIFC has signed agreements with Chinese companies to develop financial services in the region. The collaboration includes joint development of cross-border payment systems and blockchain technologies, aiming to make the financial operations between Kazakhstan and China more efficient and transparent. In 2023, Chinese investments in Kazakhstan’s IT and fintech sector topped $1 billion. Bilateral trade in digital products reached $8 billion the same year. Chinese cloud computing platforms are steadily gaining traction in Kazakhstan, with Huawei Cloud capturing a significant market share.
    The Impact of Collaboration with the USA

    Kazakhstan is actively seeking collaboration with the U.S. in areas like cybersecurity, AI, and fintech. The U.S. Kazakhstan Partnership for Innovation, launched in 2022, aims to foster joint ventures and knowledge exchange in these critical fields. In 2023, the US Export-Import Bank (EXIM) extended a $500 million loan to Kazakhstan’s Development Bank to support the growth of small and medium-sized enterprises (SMEs) in the fintech sector.

    In 2023, Visa and Mastercard partnered with Kazakh banks to develop the country’s first digital wallets using U.S. technology. American tech giants like Amazon Web Services and Microsoft Azure are increasingly offering cloud services in Kazakhstan, providing local businesses with alternative options.
    Cryptocurrency Regulation and Development

    The cryptocurrency landscape in Kazakhstan is noteworthy, particularly given the widespread internet usage of over 90% that supports the growth of fintech, including alternative finance. The government has taken a balanced stance towards cryptocurrencies, acknowledging their potential while addressing concerns related to financial stability and security. Crypto mining has experienced significant growth due to Kazakhstan’s low energy costs

    In 2022, the National Bank of Kazakhstan and the People’s Bank of China signed an agreement to examine the development of a cross-border digital currency (CBDC) for trade settlement. This initiative aims to streamline and enhance the efficiency of cross-border transactions between the two countries, promoting trade and economic cooperation. In the same year, the National Bank of Kazakhstan launched a project to develop the national cryptocurrency, the digital tenge.

    As of April 1, 2023, a law on digital assets has been implemented in Kazakhstan, legalizing crypto mining and enabling miners to obtain licenses. Starting in 2024, miners will be required to sell at least 75% of all cryptocurrency mined, and this sale must be conducted through regulated trading platforms, either Kazakhstani or foreign

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