Kaspi.kz: The Kazakh Super-App - [Business Breakdowns, EP.204]

28:39I think you have a pretty interesting value prop in the lockers that you guys use as well as your decision to go into our story. I'd love to kind of hear about how those aspects of the e -commerce business work and what motivated you to launch some of these more challenging aspects of consumer retail. Well, our business is not just only about the innovation, so we have incredible management team, which it has this incredible qualities of execution. So the grocery business is very large. So we're talking about 16, 17 billion sides of the market, which is largely fragmented. So we decided to go into grocery because the market is very attractive.

29:20The one thing which I have not mentioned, we never had the luxury to have abundance of money around. We always had access to limited financial resources. So therefore, everything we've done, we have always done with the final goal of exciting consumers, but also generating and building the profitable business. So we went into grocery because market is doing a large one of the sea verticals, which we haven't actually entered at that time. We focused on building the business, which has about 10 ,000 SKUs. So if you think about hypermarket, which is the largest force, usually they would have 20, 25 ,000.

29:56But all these data driven selection of SKUs, which we deliver We're for free most of our orders. We can deliver within three hours, so it's very fast delivery. And when we enter this business, we actually made it profitable within the first 12 months. So within the first 12 months, our net income margin on that business was about six, seven percent, which is by work standards, attractive net income margin. And this is in the environment where we're still growing two times, we're still investing into building the dark stores, which will operate the delivery. So we have become profitable at the moment, which we are still investing and we're still growing, which is very unusual.

30:36And the reason behind this is because we've built the business for weekly purchases. The average ticket size is about $30, which is basically a weekly purchase. It's not a quick commerce. And as you know, the larger is the size of the ticket, the better economics of any commerce business. And we have been able to achieve that within the 12 months, which is really testament to our management team. And now, Grocery is about 5 % of our total bucket plays, GMV, which becoming very meaningful for us and the fastest growing. And so the last pillar of your business being Fintech, in some ways, compliments the payments in E -commerce business and providing by now pay later services as well as other financing to small and medium -sized businesses.

31:18I'd love to hear how the Fintech business works with the other verticals and then the competitive advantages that you guys bring to market in providing those services. Competitive advantages that we have are, I think they're the same really across all our businesses, which means quality of the services has to be extraordinary high. So if the quality of the service is not of a required standard, we will kill that service. So the Fintech side of things we're developing products which are fully online and fully digital. For example, on our by now pay later products, we are making 99 .9 % of decisions in a second.

31:58On our cost of risk is less than 2%. To the listeners, understanding the feedback and the financial services, this is like word class cost of risk, which means basically that the decisions we're making, we're making them fast, but actually because it's a data driven, because it's fully mobile and online and digital, therefore we're making the right decision in terms of the amount, what type of product, how much money and what price when consumers can receive from us. And very importantly, consumers don't like bags, basically. In our case, we enjoy very high net promoter squirts, around 50, 60 on our financial products, but also that actually says that we are improving people's lives by providing the financial services which they can access fully digitally.

32:44The combination of market plays and the fintech, I think is incredibly powerful combination. Many other companies across the world are now using that combination as well, because you are by providing BMPL products. You are increasing the wallet size of your consumers, and therefore consumers can buy more. You have to make sure you're responsible in terms of managing the inductance of your consumers, and that has to be reflected in a cost of risk being low. But it actually fuels the growth of the marketplaces fuels G .M .V. This is why in recent years we could see like Apple experimented with by the now -pay later products.

33:24Mirkata Libre is running, it's starting as a third party than now, but now running its FinTech financing offering through its own platforms. And then if you extend the financial products from your consumers to your merchants, then you have this huge network effects. So, for example, you can provide the working capital to your merchants and working capital means your merchants can buy more items and they are selling more items with you. So, they are growing, their sales are growing, therefore your GFU is growing. So combined together from consumer side, you increase the size of the wallet, from the merchant side, you actually decrease their stock and inventory and then you can provide some other products along the way which basically drives their business sales and therefore or contribute to the market test growth.

34:11And so you have a business that's still growing very quickly, but you kind of face the economic reality that of the 20 million people in Kazakhstan, 15 or so, a coach in 15, he's the app on a monthly basis, 20 billion, or 80 billion dollars plus is moving through your payments network. And so penetration is increasingly high. Where are the opportunities to grow, I guess within Kazakhstan first, and then how do you kind of evaluate opportunities to expand beyond the borders of your host country. You should think about us as a number of users or a number of merchants. It's almost like the foundation of our growth.

34:50Over 14 million users and over 7000 merchants that we have, this is actually our asset. It's not the limitation of our growth. This is why we're growing very fast. Our revenue, for example, of our marketplace, we're guiding to grow 65 % this year. We have 14 million happy consumers. We have merchants which are happy with our services and now we are Innovating on back of this we're going after Services and the retail so the services retail is when you can deliver items to your consumers So it's basically retail industry and then the services it's the travel or Barber shops, you can go as small as plumbers and electricians So the service industry and retail industry are those two big industries, which is our target.

35:39Then we're just going vertical after vertical. We've started from electronics, expanded into different verticals. We went into travel, went to grocery, and now we're going into other verticals, cheaper. The bull are forecasted to grow about 14 % annually during the next five years. And with our technology and with our brand, I believe we'll be growing faster than the industries growing themselves. Those industries are under penetrated, so therefore they will grow at 14 % annually for the next five years and will grow higher than that. So that's our whole market strategy and we'll just continue going vertical by vertical and pushing forget by the way to talk about the government services because this is really cool and I think Kazakhstan is stand out on that.

36:23The international side of things about the month ago we have announced that we've signed agreement to buy 65 % from the founders of one of the largest marketplaces in Turkey. Turkey is 85 million plus country. There is a lot of similarities between Kazakhstan and Turkey. We're very excited just to take our market to 100 million people through that acquisition and Hepsi's great company for us which has fit both culturally just because they're driving their focus on the quality of the services, but also the fact that they know e -commerce, but also have aspirations to launch other services that Cospi can bring to a lot of expertise.

37:01You bring up a great point in government services in that providing things that in much of the developed world are actually still done manually, whether it's getting a marriage license or reapplying for a motor vehicle license, you guys have figured out a way to accelerate the digitization of those services further venturing yourself in your core customer base, I bought to learn more about how that came to be. Well, I mean, when you're driven by the mission of improving people's lives, you're really looking for what you can do better, what you can improve in the consumer's. And I think that was something which roughly about three years ago, on the one hand, President took on communicating the digital agenda and strong belief that technology improves people's lives and at the same time the government agencies and the departments that were basically very keen to distribute as many of the government services as possible to the citizens.

37:58And then in our case, we've started working together with the different government agencies, digitalizing, launching the services, access to the services throughout the mobile application. And today, this is just mind blowing, really. I mean, I think this is very unique to Kazakhstan and Kazakhstan doesn't get enough credit for what has been done You can register car ownership. You can issue driving license Fully online in the mobile app you take your photo straight from the screen of the mobile app Usually hate your first photo. You usually hate your signature. So you take it as many times as you want and then basically it's since online for validation approval to the government agencies and then you will get your driving glasses basically in the mobile app.

38:42You have also digital documents. You can get married, the birth certificates, you get a file text reports, you can actually pay taxes, you can register your business. So there's wide range of the government services which is now accessed. We don't have any the exclusivity around those services. So we work together with the CalMAD agencies, but the services can be launched actually through other mobile applications as well. It's just the way that our design, user experience works. So convenient that most of the people use Galvan services through our mobile application. I know you speak a lot about the importance of your company's culture.

39:20I thought it'd be nice to learn about how you created that culture that you're so proud of and something that maybe embodies it and makes the team so excited to you know shop or cast being continue to iterate and come up with new products and drive them forward what is it like to work at caspy the important piece of our success and i think the way that you can develop in the company what we're doing is extreme simplification for example want to launch the product if we want to launch a product But the beginning we know that this product needs to have like four features. Some companies what they would do is they would launch the product with those four features from day one.

39:59In case of Caspi, that's different. Extremes simplification means we'll really work really hard to understand which out of those four features is the most important feature. And then we will launch the product with this feature which is important, but it's also simple and it's a minimal. And then, during the next, let's say three or four quarters, we will add the new feature of every quarter. So in actual 12 months, you do have a product with those four features. But we start from extremely simple product. And what this gives to us is very simple, positive defects. Number one, simple product means less people needed to launch the product.

40:41Simple product means that your support functions, people that actually operate those products and run the operations, they also can start from a simple feature, therefore they need less people. On the consumer side, consumer gets the one feature, therefore they have easier time understanding. The product, engaging into the product, using this product, they have fewer questions and we also need fewer education for the consumers. because again, everything around digital mobile, online, is still requires educating the consumers. As a result, we start with a fewer people, and our team becomes more experienced over the course of the 12 months, consumers become educated over the course of 12 months, and we continue being a lean organization.

41:30As a result, this also generates profitability because you need less people to serve, operate those products. So if you think about the product teams, we would have about 50 plus minus the 50 product teams across the company. We've built this product by product, featured by features sort of team by team. From today's perspective, you have this 50 products. And if they are launching at least one feature of the quarter, you have this 50 new features from the product teams, which basically shows you and a very high speed of the innovation. but actually we started many years ago from first product and the first teaching.

42:10But now the 50 teams they innovate at such a rate that it's really becoming a very strong competitive advantageous speed of innovation. Some of the services we launched, we started from financial services, but then we launched the payments and then we launched the commerce, then we launched treble, we launched government services, now we launched the grocery, be and all those services individually cost of the innovate, just take a travel. So when we launched the travel, we have no experience in travel whatsoever zero and we launched during the COVID. So everybody was pulling out of the travel and we said, this is a great time for us to invest and build up the capabilities.

42:52And the travel we started with airline tickets, then we added train tickets a bit over a year we added vacation packages and now we have pipeline of the new ideas around the travel. So it just gives an example of how simplicity actually drives the efficiency, profitability, and customer satisfaction. You have these network effects and effectively a flywheel in place with your home country. You produce an excess of a $2 billion in that income, which gives you the opportunity to redecloit capital. You have a modest balance sheet, so that means that you guys have a privilege to then either acquire or buy.

43:34As you noted, you made the decision recently to enter into Turkey, giving some of the complimentary nature of their economy and the opportunity there. I love to learn more how you guys kind of evaluate that decision, build versus buy, and how you think about capital allocation broadly. We have been looking for acquisition for the opportunities to grow outside of Kazakhstan for quite some time. Yeah, we looked at the numerous alternatives and opportunities and then we are really happy and excited about the opportunity to acquire Pepsi -Burata. The company has a lot of similarities with Caspi. It's found they're led focused on the quality of the products, actually EBITDA -PASTIF which which is very unusual.

44:20So it's one of the largest e -commerce companies, but also it's not burning the money. So they're mindful of how they grow. They want to grow sustainably. It's a single brand company, which basically helps to brought the main brand. They care deeply about the merchants and about consumers and about their brand themselves. And then Turkey itself is a very exciting market because 85 million people and we believe that we can take helps to brought it to another level and we can introduce the services for merchants and for consumers in Turkey, which will be that innovative, but also create a lot of value.

44:55You guys have made the recent decision to move your listing from London to NASDAQ. I'm curious the motivation for that. And then also how you build your relationship with an investor base in the US or maybe in North America that perhaps doesn't have the ability to use the product, but understands the strength of the business model. And I'd love to learn more about that decision and the value that it's created for your business. We were listed on the London Stock Exchange in 2020 and then we decided to list on NASDAQ in 2024, January and then we delisted from London Stock Exchange. What we went for is really the liquidity.

45:36So the thesis before was more theoretical in a sense that before us there was no example of this being done. But from our data now from today's perspective, you can see that this decision was right and successful So the liquidity of our stock increased almost 20 times The on Nasda compared to the London Stock Exchange and we were actually the only company which were on the both Flanders Stock Exchange and Nasdaq so you could almost see the difference which now can be factual not just theoretical Before we actually did it The US is a very exciting market because the companies which are similar to us and our business model, most of them are really listed in the US.

46:18Take Mircatha -Liber, for example, and Kupa and others, they are listed in the US just and investor base, I think, is right for our business model. We still need to educate the investors and tell about our business field home because it's quite unique. I think that a very few companies, if you combine together PayPal, Amazon, Affirm, whatever cloud, square, block, and it's in a single mobile application. So we're still educating the investor base, but we do have a long -term strategy, so we're not going to hard it. So now that you've had the opportunity to interact with more North American investors, now you're under the magnifying glass of a U .S.

46:59listing, have there been any lessons learned or things that have surprised you? I mean, I wouldn't say it's lessons, but I think we are working on the two fronts. So on the one hand, we tell about our company and we tell our story and the business model and make sure we execute and deliver and create the value for shareholder. So that's something which is very important, but also actually equally important for us is that we're telling story of Kazakhstan. And because we are the company which was developed in Kazakhstan, we are promoting the country and investment climate and how dynamic is the country and its development and we're working basically for both ends.

47:38That's very, very important. In terms of risks, what does competition look like for your business? Are there lots of local competitors that are looking at your guys' markets in different ways? Are there global competitors with the success of businesses like WeChat, who may be encroaching upon your territory, you're going into new territories and facing new competition. It seems like obviously you guys started attacking an adjustable market that was super rich and there was a ton of opportunity and I wonder, given your success, if it's attracted competition to your business. Every business we have launched, there were competitors.

48:16When we started to build up our financial services, for example, I mean, there were 30 -plus backs. Everybody had the same exit going. every brand had the consumer alone, everybody had a prepaid card and the wire trusser businesses. So we just do the products with the focus note on the financial metrics, but actually the one thing which I should have said our product guys don't have financial metrics. They don't have financial KPI's and most of the people in the company don't have financial KPI's like profit or revenue. The most important KPI is the quality of the product and this is what makes us send out.

48:52So when When we launched financial services, the word Ferry Plus Becks, when we launched the payment network, there was a visa in Mastercard. When we launched e -commerce, we had bunch of e -commerce players. We had only Express, so if Alibaba for example, or we had regional players. Today we successfully compete with Chinese marketplaces like TEMO as well. So every business we launched, there was a competition. because we are focused so much on the quality of the product, we're having building blocks. The speed of innovation is mind -blowing. When you are the company with such innovation pace, what is your most important competitive advantage?

49:35The reason why you succeed is because you have consumers that love your product. So if you have your first product, which consumers love and you have a large scale, reasonable scale of the consumer engagement. Then every new product you launch, consumers will use it because they already are really happy with your existing product. And every time we launch our services, we have incredible adoption grades. It took us two years to become the largest travel ages on the market. Now, the same is happening with the grocery, where the biggest grocery on the market in a city where we started and we started just about a bit over a year ago.

50:18E -commerce is the same. Our consumers are doing job for us. So they're doing the marketing for us. They're telling to each other about the products. And this is the most important competitive advantage. We are the company which is in the 20 million people market. We have in excess of 14 million monthly users. Two -thirds of those users visit our mobile application daily. So this basic would tell us you that we have the services which drive consumer engagement. The reason why we drive consumer engagement because they have very high quality. In a 20 million people market for your business to achieve the scale of Caspi, wouldn't be able to achieve it if we would have 1 million consumers which don't like our products.

50:59Simply would not be able to be where we are. We care about every consumer, we care about every merchant, but now our dedication to quality is the number one priority and the strategic focus for the company. Our concluding question is generally one about lessons learned in building your own business and then lessons that can be applied to other businesses or prospective investments. But I thought we'd do this one a little bit differently, just given we have the privilege of having a co -founder and CEO of a large and rapidly growing business. I guess my question for you is from new investors to the story that are just learning about Caspi, despite the fact that it's been almost 20 -year -old and I had success in the making, what is it that you want them to take away?

51:46What do you want people to kind of dig deeper on? and what is the message for both the investor and operator universe in learning more about the CASB story? The most important ingredients of CASB's business model that way we sort of operate is actually our focus on the quality of our products. When we say that we are operating in 20 million people country and 14 million use our product, and every product will launch is growing, we have a track record of innovations, so we will continue innovating. we have a strong pipeline of new ideas, but the foundation of our business is that we are Incredibly focused on the consumer experience and the quality of the products And I think that's the biggest asset and actually the biggest competitive advantage that we have and another Important point is the super that business model.

52:35Yeah, I wouldn't say it's undervalued But I think it has so much potential. I am blown away when I'm talking to different and companies and leaders from different markets. And when I'm explaining the way that Super App operates, we are a leading example of how you can have everything in a one mobile application. People will order eggs, throw our grocery in the same application, as well as they open the savings account on the paid taxes. They get consumer loan, car loan, and they make the payments for their electricity to the utility bill. So the Super App itself is a very powerful business model.

53:10and I'm sure in the future there'll be more and more realization that actually single applications with a multiple services if executed correctly with a focus on customer service will deliver a lot of value to both shareholders but most importantly consumers and users. And just to ask one follow up on that, I guess I'm curious if you kind of look across the world, there are obviously examples of companies like yours that have been successful in trying to build the super app, but there also have been a lot of markets that have been more difficult for the super app model to take hold. What do you think it is that's unique about Kazakhstan and your current situation that has allowed the business to effectively introduce such a powerful business model into the economy?

53:53Again, is the focus of the quality of the services? Again, if you think about super app, the network effects are very important. the one service promotes another, but actually they are also working the opposite way. So if your product quality is bad, you will continue losing consumers. Consumers are not going to use your product. So I think what has been in other markets where the super apps or the multiple services in an application have not been successful, have not been profitable is because there is no foundational products which consumers love. And if consumers don't love your products, in 20 million people country, if one of One million consumers are not happy with our shortness.

54:35That's it. We're dead. People are not going to use our next one. We're just dead in 20 million. We had no other choice, but we had to produce the world class high quality products which our consumers love. And this is why it's in our DNA. And this is why we're focusing the quality so much because it was life a death question. But when you are in a bigger market, let's say you have 300 million people in front of you. who's showing this growth of the users, you can lose one million here, you can use one million there, but you're showing the growth. But at some point when the growth stops, continue losing your users, and you will be wasting your money on the marketing because if you lose consumer, it's 10 times more expensive to bring him back.

55:16And this is why in our case quality of the service results in the value and results in the profitability and healthy growth, and we cannot afford to have unhappy consumers in a 20 million people country. This is how we have succeeded. But in the bigger markets, people substitute basically, they just mask with a high growth, mask equality of the products. I think that's the biggest difference why we were successful and now we would like to help to bring this type of culture and combine it together with Hepsuburata in Turkey. But in other markets, this way the companies were unsuccessful. I think people talk about quality of the services, but they don't follow the metrics.

55:57They are in love with their products. They're losing consumers. They're spending marketing dollars to bring those consumers back. And at some point, when the growth stops on the consumer acquisition, all the negatives of this type of negative network effects, what I call them, you start seeing them as soon as the growth stops. Thank you so much for joining us to tell the story of Casby. Where we have the opportunity to do an interview of a co -founder and CEO of a large and growing and successful business and we look forward to watching the success of the next 15, 20 years and fold. Hopefully just like the last 15 to 20 have.

56:33Well thank you Zach for having me and we're super excited about our business and if anyone wants to learn even more about Harvard Business School, brought two cases about us which I think really talk about our current development and corporate culture. Thank you for having me. To find more episodes of breakdowns ranging from Costco to Visa to Moderna or to sign up for our weekly summary, check out JoinColosses .com. That's J -O -I -N -C -O -L -O -S -S -U -S .com.