How Uzbek Fintech Market is Structured

In Uzbekistan 22 million folks use distant banking providers. That equates to greater than half of the nation’s inhabitants. Nonetheless, the Uzbek market has comparatively few startups, and those who do exist handle customers’ ache factors with out fixing the market’s
basic issues. Let’s discover why that is taking place, what niches can be found within the nation, and what fintech providers on the vanguard.

Development with a slowdown

Uzbekistan’s know-how sector has been experiencing an actual increase in 2022: in the previous few months alone,

a number of thousand IT specialists arrived within the nation, and main firms have begun to relocate their staff to Tashkent.
On the one hand, this can be a response to the disaster in neighboring areas. However, it’s a pure stage of growth. 

Again in 2019, The Economist journal named Uzbekistan because the world’s most improved nation of the 12 months. And in 2020, within the Doing Enterprise 2020 research, the World
Financial institution talked about the area as one of many high 20 economies the place enterprise climates improved essentially the most, noting the convenience of beginning and operating a enterprise. Different constructive developments embody
the launch of an IT park in 2019 with incentives for startups, in addition to a number of current fintech initiatives, such because the connection of recent cost
programs and creation of a digital Uzbek sum. 

Fintech providers have gotten extra out there, though at a slower tempo than in different Central Asian nations. Based on consultants, 22
million folks use distant cost providers in Uzbekistan. For comparability, the nation has 27.2 million Web customers. 

However Uzbekistan’s fintech market stays largely unsaturated. The nation has three or 4 cost providers in addition to a number of dozen banks with various levels of digitalization. And in accordance with our knowledge, there are a complete of 63 fintech startups primarily based in
Uzbekistan. For comparability, contemplate Saudi Arabia, a rustic with roughly the identical variety of folks, which has
two and a half occasions as many fintech firms. 

Why is that this the case in that case many Uzbeks are utilizing cost providers? Uzbeks have financial institution playing cards and know tips on how to use them, however they typically obtain their wage on a card, withdraw money, after which use money. Or they switch cash to family. Wanting on the statistics,
all the pieces is ok: the nation has loads of ATMs, payroll playing cards, and many transfers. However the market is hitting a lifeless finish. Although customers are steadily altering their habits due to the Click on, Oson and Payme wallets and the Uzcard and HUMO
cost providers, a small proportion of them purchase items on-line, subscribe to providers, earn cashback, and make investments. 

The issue can be associated to the truth that most Uzbek fintech providers nonetheless carry out a restricted highly-specific perform and are sometimes an auxiliary service for giant digital firms within the banking sector. For such firms, a fintech add-on is simply
a small cog in an enormous system, simply a further supply of earnings. Consequently, they continuously do not attempt to clear up the person’s basic issues and don’t invent one thing new.

An instance is Apelsin, a web based financial institution created from the native Kapitalbank. Constructing on its expertise and infrastructure, the massive financial institution provided one more cost service. However cash transfers are a low-level drawback that may be seen on the floor. Fixing
it solely requires giving a software to a mechanic. The basic issues are how to save cash, tips on how to earn cash from financial savings, and tips on how to get a mortgage on beneficial phrases. In America, Europe, Asia, Singapore, and China, startups already supply on-line brokerage
providers, cryptocurrency providers, and alternatives for extra earnings.

Many in style fintech providers in Uzbekistan are owned by firms and banks with overseas roots. For instance, Payme, a well-liked e-wallet service within the nation, belongs to the Georgian financial institution TBC. For overseas firms, a younger firm in a brand new market
is one other asset in a diversified portfolio. However they aren’t at all times within the growth of native fintech firms as an business.

In fact, the business is not standing nonetheless. Regulators have gotten one among its key drivers. For instance, the federal government just lately created a number of sandboxes to check new applied sciences, together with blockchain. Non-profit organizations are additionally showing, for
instance, the FinTech Affiliation of Uzbekistan (FTAU), which develops concepts for brand new providers, considering market realities and worldwide expertise. 

FTAU analysts be aware that one among fintech’s foremost issues in Uzbekistan is the low stage of digitalization. It is not simply concerning the digital divide and lack of web entry in some areas. The event
of cost providers has been hindered by the shortage of infrastructure, in addition to the shortage of an analytical framework — structured knowledge and well-developed behavioural fashions. The nation’s digital banking providers market is so younger that it’s troublesome to analyse
habits and predict traits. And if there isn’t a knowledge, then creating distinctive merchandise is more difficult. Moreover, in accordance with our observations, Uzbekistan would not have sufficient fintech builders, consultants, and “evangelists”. The regulatory framework can be
continuously altering, and whereas many legal guidelines account for startups’ pursuits, the fixed modifications decelerate progress and restrict alternatives. 

Discover the technological key

As a result of the Uzbek fintech market would not have any massive gamers who can declare a monopoly, and there aren’t so many startups, the entry threshold for newcomers is low. The area has many potential niches, however particular native traits matter right here.

The typical age of a resident of Uzbekistan is 29 years. By means of comparability, it’s 44 years in Germany, and 38 years in the US. Millennials
and zoomers, who are actually 20-35 years previous, are extra receptive to new digital providers: they adapt sooner and are selecting up new digital habits. This additionally applies to cost strategies: younger customers are extra doubtless to make use of cellular banking and cashless funds. What’s
extra, they’re able to put money into cryptocurrencies and use different non-standard funding strategies. 

However younger customers lack the product publicity and expertise collected by a number of generations. Within the US, the mannequin for credit score and loans has existed for greater than a decade. All startups have to do is adapt it to new realities, for instance, by providing
a brand new person interface or enterprise mannequin. However credit score and banking providers appeared not so way back in Uzbekistan, and monetary habits are nonetheless being shaped. 

Though the share of Web customers within the area is rising
by 25–30% per 12 months, 10 million of the nation’s residents wouldn’t have everlasting community entry, and solely half of Uzbeks personal smartphones.
The impediment is the excessive value: in Uzbekistan, each telecom providers and cellphones are costlier than in neighbouring nations. On common, a Uzbek citizen spends
83% of his or her wage when shopping for a brand new smartphone. The typical wage within the nation is $278, and a funds smartphone prices a mean of $230.

Accordingly, residents of the areas are much less doubtless to make use of digital providers, together with on-line banking. Our statistics point out that there are 3 times extra financial institution playing cards per buyer in Tashkent than within the areas. That implies that providers within the capital
are already competing for patrons’ consideration, whereas in distant cities, quite the opposite, demand exceeds provide. 

One choice for fixing the issue of digital inequality is BNPL (Purchase Now, Pay Later) providers, which let clients purchase items on an instalment plan with out curiosity. Demand for these providers is
rising in every single place, and Central Asian nations aren’t any exception. The BNPL mannequin will make smartphones, along with digital providers, extra accessible. This idea is already being explored
by Uzbek startup Iman, which provides halal funding providers, however the mechanism can be attracting massive banks. Some rising providers additionally enable staff to obtain wages not a few times a month, however in small instalments on demand. This mannequin is named
earned wage entry (EWA). For instance, the Bukhta platform in Kazakhstan and Uzbekistan provides this service. 

To discover a area of interest, attempt to establish an unsolved drawback for which you could find a “technological key”. For instance, suppose that there’s a digital divide in a area and, what’s extra, infrastructure is missing, e.g. insufficient know-how, databases,
and improvements. And that is the supply of an apparent drawback: fintech providers are buggy, and clients are having hassle adapting to them. One attainable resolution is distant providers, equivalent to instantaneous messaging apps, which assist firms preserve fixed contact
with customers and shorten the trail to the buyer. For instance, banks inside messaging apps (Zelf, for instance) are already in demand in lots of nations. These banks can carry out each operation — from opening an account to transferring cash — in Telegram or
WhatsApp.

Startups may also create providers that bridge the hole between on-line and offline, an issue that’s nonetheless related in Uzbekistan. For instance, a cellular pockets that permits you to switch cash to pals who haven’t got a smartphone or cellular app. That is how
the Kenya-based M-Pesa service works: you’ll be able to obtain and money out funds even utilizing a push-button telephone — a telecoms operator executes all of the transactions. Uzbekistan has related circumstances. For instance, the Upay cost service, which
we just lately bought. This servicel even permits offline funds to be made when no Web connection is accessible.

Providers that change person habits and improve monetary literacy may even get pleasure from reputation: funding apps that make it attainable to take a position even small quantities of cash, budgeting purposes, cashback providers — something that helps folks spend and save
properly shall be in demand.

Tremendous apps are the long run

Launching a targeted service in a selected area of interest has a big disadvantage: the product shall be troublesome to scale up and convey to different markets, particularly whether it is tailor-made to particular native traits. Fintech startups ought to take into consideration this from
the outset: if an thought can’t be scaled up and freely transferred from one context to a different, then it is going to be troublesome to construct it into a extremely massive enterprise.

Fashions involving ecosystems and tremendous apps are gaining reputation in rising economies. Entrepreneurs discover an unmet want, which leads a second and a 3rd alongside a series, and later they provide a complete resolution. If desired, a product might be prolonged
and tailored to the realities of any market by including a few additional add-ons. That is precisely the trail taken by Kazakhstan’s Kaspi, which steadily penetrated most areas of the person’s life. At current, Uzbekistan would not have any large-scale ecosystems and
tremendous apps (multi-purpose apps with fintech providers) akin to Kaspi, however such fashions are exactly the way forward for the nation’s fintech scene.

Tremendous-app providers should coexist organically and permeate the person’s life. So, when you go to a area with a younger inhabitants, a cellular connection is an effective strategy to begin an ecosystem. By connecting clients to the cellular community, you may give them entry
to an enormous digital ecosystem. On this case, banking might be an add-on, one among many. 

At People, that is precisely the trail we took: we first entered the Uzbek market as a cellular operator, after which we began to supply add-ons, e.g. fintech and a market. Now when clients register in our ecosystem they
get a vast cellular connection and Web providers, in addition to a unified account linked to a People VISA card. We’re steadily including new modules. For instance, in April 2022, we seen the circulation of migrants and opened entry to our telecom providers
to CIS residents within the nation.

We perceive that even if there are at present no large-scale ecosystem merchandise in Uzbekistan and there’s little competitors, massive banks and telecom firms are already wanting on this path. Tremendous apps are a possibility for them to
scale up. That implies that ultimately we (in addition to anybody else who decides to construct a fintech ecosystem within the nation) should compete with them — not solely by way of concepts, but in addition on the stage of budgets. That mentioned, new initiatives have the benefit
of higher mobility in comparison with firms in addition to the power to extra shortly check new merchandise in native realities.