The Digital Divide and Super Apps: How Uzbek Fintech Market is Structured (Vlad Dobrynin)

In Uzbekistan 22 million people use remote banking services. That equates to more than half of the country’s population. However, the Uzbek market has relatively few startups, and those that do exist address users’ pain points without solving the market’s
fundamental problems. Let’s explore why this is happening, what niches are available in the country, and what fintech services at the vanguard.

Growth with a slowdown

Uzbekistan’s technology sector has been experiencing a real boom in 2022: in the last few months alone,

several thousand IT specialists arrived in the country, and major companies have begun to relocate their employees to Tashkent.
On the one hand, this is a reaction to the crisis in neighboring regions. On the other hand, it is a natural stage of development. 

Back in 2019, The Economist magazine named Uzbekistan as the world’s most improved country of the year. And in 2020, in the Doing Business 2020 study, the World
Bank mentioned the region as one of the top 20 economies where business climates improved the most, noting the ease of starting and running a business. Other positive developments include
the launch of an IT park in 2019 with incentives for startups, as well as several recent fintech initiatives, such as the connection of new payment
systems and creation of a digital Uzbek sum. 

Fintech services are becoming more available, although at a slower pace than in other Central Asian countries. According to experts, 22
million people use remote payment services in Uzbekistan. For comparison, the country has 27.2 million Internet users. 

But Uzbekistan’s fintech market remains largely unsaturated. The country has three or four payment services as well as several dozen banks with varying degrees of digitalization. And according to our data, there are a total of 63 fintech startups based in
Uzbekistan. For comparison, consider Saudi Arabia, a country with approximately the same number of people, which has
two and a half times as many fintech companies. 

Why is this the case if so many Uzbeks are using payment services? Uzbeks have bank cards and know how to use them, but they often receive their salary on a card, withdraw cash, and then use cash. Or they transfer money to relatives. Looking at the statistics,
everything is fine: the country has plenty of ATMs, payroll cards, and lots of transfers. But the market is hitting a dead end. Despite the fact that users are gradually changing their habits thanks to the Click, Oson and Payme wallets and the Uzcard and HUMO
payment services, a small proportion of them buy goods online, subscribe to services, earn cashback, and invest. 

The problem is also related to the fact that most Uzbek fintech services still perform a limited highly-specific function and are often an auxiliary service for large digital companies in the banking sector. For such corporations, a fintech add-on is just
a small cog in a huge system, just an additional source of income. As a result, they frequently don’t try to solve the user’s fundamental problems and do not invent something new.

An example is Apelsin, an online bank created from the local Kapitalbank. Building on its experience and infrastructure, the large bank offered yet another payment service. But money transfers are a low-level problem that can be seen on the surface. Solving
it only requires giving a tool to a mechanic. The fundamental problems are how to save money, how to earn money from savings, and how to get a loan on favourable terms. In America, Europe, Asia, Singapore, and China, startups already offer online brokerage
services, cryptocurrency services, and opportunities for additional income.

Many popular fintech services in Uzbekistan are owned by corporations and banks with foreign roots. For example, Payme, a popular e-wallet service in the country, belongs to the Georgian bank TBC. For foreign corporations, a young company in a new market
is another asset in a diversified portfolio. But they are not always interested in the development of local fintech companies as an industry.

Of course, the industry isn’t standing still. Regulators are becoming one of its key drivers. For example, the government recently created several sandboxes to test new technologies, including blockchain. Non-profit organizations are also appearing, for
example, the FinTech Association of Uzbekistan (FTAU), which develops ideas for new services, taking into account market realities and international experience. 

FTAU analysts note that one of fintech’s main problems in Uzbekistan is the low level of digitalization. It’s not just about the digital divide and lack of internet access in some regions. The development
of payment services has been hindered by the lack of infrastructure, as well as the lack of an analytical framework — structured data and well-developed behavioural models. The country’s digital banking services market is so young that it is difficult to analyse
habits and predict trends. And if there is no data, then creating unique products is more challenging. Additionally, according to our observations, Uzbekistan doesn’t have enough fintech developers, experts, and “evangelists”. The regulatory framework is also
constantly changing, and while many laws account for startups’ interests, the constant changes slow down growth and limit opportunities. 

Find the technological key

Because the Uzbek fintech market doesn’t have any large players who can claim a monopoly, and there are not so many startups, the entry threshold for newcomers is low. The region has many potential niches, but specific local characteristics matter here.

The average age of a resident of Uzbekistan is 29 years. By way of comparison, it is 44 years in Germany, and 38 years in the United States. Millennials
and zoomers, who are now 20-35 years old, are more receptive to new digital services: they adapt faster and are picking up new digital habits. This also applies to payment methods: young users are more likely to use mobile banking and cashless payments. What’s
more, they are ready to invest in cryptocurrencies and use other non-standard investment methods. 

But young consumers lack the product exposure and experience accumulated by multiple generations. In the US, the model for credit and loans has existed for more than a decade. All startups need to do is adapt it to new realities, for example, by offering
a new user interface or business model. But credit and banking services appeared not so long ago in Uzbekistan, and financial habits are still being formed. 

Although the share of Internet users in the region is growing
by 25–30% per year, 10 million of the country’s residents do not have permanent network access, and only half of Uzbeks own smartphones.
The obstacle is the high cost: in Uzbekistan, both telecom services and mobile phones are more expensive than in neighbouring countries. On average, a Uzbek citizen spends
83% of his or her salary when buying a new smartphone. The average salary in the country is $278, and a budget smartphone costs an average of $230.

Accordingly, residents of the regions are less likely to use digital services, including online banking. Our statistics indicate that there are three times more bank cards per customer in Tashkent than in the regions. That means that services in the capital
are already competing for customers’ attention, while in remote cities, on the contrary, demand exceeds supply. 

One option for solving the problem of digital inequality is BNPL (Buy Now, Pay Later) services, which let customers buy goods on an instalment plan without interest. Demand for these services is
growing everywhere, and Central Asian countries are no exception. The BNPL model will make smartphones, together with digital services, more accessible. This concept is already being explored
by Uzbek startup Iman, which offers halal investment services, but the mechanism is also attracting large banks. Some emerging services also allow employees to receive wages not once or twice a month, but in small instalments on demand. This model is called
earned wage access (EWA). As an example, the Bukhta platform in Kazakhstan and Uzbekistan offers this service. 

To find a niche, try to identify an unsolved problem for which you can find a “technological key”. For example, suppose you know that there is a digital divide in a region and, what’s more, infrastructure is lacking, e.g. inadequate technology, databases,
and innovations. And this is the source of an obvious problem: fintech services are buggy, and customers are having trouble adapting to them. One possible solution is remote services, such as instant messaging apps, which help companies maintain constant contact
with users and shorten the path to the consumer. For example, banks inside messaging apps (Zelf, for example) are already in demand in many countries. These banks can perform every operation — from opening an account to transferring money — in Telegram or
WhatsApp.

Startups can also create services that bridge the gap between online and offline, a problem that is still relevant in Uzbekistan. For example, a mobile wallet that lets you transfer money to friends who don’t have a smartphone or mobile app. This is how
the Kenya-based M-Pesa service works: you can receive and cash out funds even using a push-button phone — a telecoms operator executes all the transactions. Uzbekistan has similar cases. For example, the Upay payment service, which
we recently purchased. This servicel even allows offline payments to be made when no Internet connection is available.

Services that change user habits and increase financial literacy will also enjoy popularity: investment apps that make it possible to invest even small amounts of money, budgeting applications, cashback services — anything that helps people spend and save
wisely will be in demand.

Super apps are the future

Launching a focused service in a specific niche has a significant drawback: the product will be difficult to scale up and bring to other markets, especially if it is tailored to specific local characteristics. Fintech startups should think about this from
the outset: if an idea cannot be scaled up and freely transferred from one context to another, then it will be difficult to build it into a really large business.

Models involving ecosystems and super apps are gaining popularity in emerging economies. Entrepreneurs find an unmet need, which leads a second and a third along a chain, and later they offer a comprehensive solution. If desired, a product can be extended
and adapted to the realities of any market by adding a couple of extra add-ons. This is exactly the path taken by Kazakhstan’s Kaspi, which gradually penetrated most areas of the user’s life. At present, Uzbekistan doesn’t have any large-scale ecosystems and
super apps (multi-purpose apps with fintech services) comparable to Kaspi, but such models are precisely the future of the country’s fintech scene.

Super-app services must coexist organically and permeate the user’s life. So, if you go to a region with a young population, a mobile connection is a good way to start an ecosystem. By connecting customers to the mobile network, you can give them access
to a vast digital ecosystem. In this case, banking can be an add-on, one of many. 

At Humans, this is exactly the path we took: we first entered the Uzbek market as a mobile operator, and then we started to offer add-ons, e.g. fintech and a marketplace. Now when customers register in our ecosystem they
get an unlimited mobile connection and Internet services, as well as a unified account linked to a Humans VISA card. We are gradually adding new modules. For example, in April 2022, we noticed the flow of migrants and opened access to our telecom services
to CIS residents in the country.

We understand that despite the fact that there are currently no large-scale ecosystem products in Uzbekistan and there is little competition, large banks and telecom companies are already looking in this direction. Super apps are an opportunity for them to
scale up. That means that sooner or later we (as well as anyone else who decides to build a fintech ecosystem in the country) will have to compete with them — not only in terms of ideas, but also at the level of budgets. That said, new projects have the advantage
of greater mobility compared to corporations as well as the ability to more quickly test new products in local realities.