Kyrgyzstan’s nascent fintech is getting a boost as the government begins setting the foundations for further development, launching reform plans and key initiatives to bolster digital payments adoption and banking innovation.
Over the past few years, the Kyrgyz government has started looking into the potential of fintech and banking innovation to improve financial inclusion. National strategies like the Main Directions for Digital Transformation of Banking Service for 2020-2021, and the Concept for Development of Digital Payment Technologies in the Kyrgyz Republic for 2020-2022, have been developed and adopted to increase digital payment usage and fintech development.
Policies and measures including the introduction of remote account opening and digital onboarding rules, the promotion of e-signatures, and the introduction of rules on use of QR codes to ensure payments and intersystem integration of various payment systems providing payers with a single payment platform, have been launched to encourage digital banking and mobile payments.
Since 2015, e-wallet adoption has grown steadily, rising 63% from 276,600 accounts in 2015 to more than 1.9 million accounts in 2019, according to KPMG. Between 2018 and 2019, volume of transactions with e-wallets grew 53% from 29.4 billion Kyrgyzstani som (KGS) (US$346 million) to 44.9 billion KGS (US$529 million), the report says, indicating openness to these new technologies.
An underdeveloped fintech ecosystem
Kyrgyzstan’s fintech industry is still relatively small and underdeveloped with most of the innovation being initiated by either incumbent banks themselves or telcos. Out of the 10 prominent fintech services providers named by KPMG, three are commercial banks (Dos Credobank, Kyrgyz Investment and Credit Bank (KICB) and Kompanion Bank), one is a microfinance institution (Finca Kyrgyzstan), and two are telcos (MegaCom and Beeline).
Other fintech providers include Pay24, a paytech startup providing digital payment capabilities, payment terminals, and more, and Svetofor, an e-commerce platform.
A February 2020 fintech note by the World Bank notes several challenges hampering the growth of the Kyrgyz fintech industry. These include low Internet penetration compared to regional benchmark, and an underdeveloped information and communications technology (ICT) infrastructure.
An uncertain business environment for innovative products offered by non-traditional players, and an unclear and unstructured government and regulatory strategy on digital financial services as instrument for inclusion has established an unfavorable environment for fintech development.
In addition, the small size of the market with low maturity and a lack of a “digital mindset” in the population have proven to be a challenge for adoption.
Fintech development and adoption differ widely across Central Asia. In the region, Kazakhstan is the most prominent fintech destination, seeking to become a leading fintech hub with fintech innovation and investment being a primary focus-area for the Asthana International Finance Centre, a government-supported financial hub.
Kazakhstan is home to more than 50 fintech startups, with key segments that include payments, accounting, lending and marketplaces, according to KPMG. The country has the region’s highest Internet penetration rate – 79% in 2020 – and the largest e-commerce market.