Kaspi.kz AO

NASDAQ:KSPI

Earnings Call Transcript 2023-Q3

[Operator]

Hello, everyone, and welcome to the Kaspi Third Quarter 2023 Financial Results Webinar. My name is Harry, and I'll be your operator today. [Operator Instructions]

And it's now my pleasure to turn the call over to David Ferguson from Kaspi to begin. David, please go ahead when you're ready.

[David Ferguson, executive]

Thanks, Harry. Hello, everyone. Welcome to Kaspi.kz's Third Quarter 2023 financial results. Usual format on the call, our Co-Founder and CEO, Mikheil Lomtadze; Deputy CEOs, Tengiz Mosidze; and Yuri Didenko; myself, David Ferguson. Mikheil will run you through the strategic update. I'll run you through the third quarter results, and then the team are available for Q&A at the end.

So on that note, I'll hand over to Mikheil. Mikheil, over to you.

[Mikheil Lomtadze, executive]

Thank you, David. Thank you, everyone. So we will be reporting our 3Q. So team have done a good job. So we're pleased to report our solid performance.

At the moment, what we are really doing as a company, I mean, strategically speaking, we are developing the innovative services that improve our customers' lives of our consumers and partners, and we operate these 2 super apps: the one Super App around the daily use of consumers and another Super App around regular needs of our partners or merchants. And consumer Super App has been used now by around 13.5 million users and the Kaspi Pay Super App we have about 600,000 active merchants.

And if you think in terms of the universe of the type of services we're really providing and we have innovated across many years, it's really deep around the daily needs, and you can do anything from managing your purchases and e-commerce and the travel and the grocery and the fintech financial products; classifieds, which we have entered; the government services, which is a source of the pride for many of our consumers and -- but also ourselves and the country as a whole, really stand out. You can have digital documents [ in a mobile app ]. You can move ownership of the car, you can pay taxes, you can register your business, you can issue your driver's license and things like that. So we're really excited about all those [ services ] we have done.

Just wanted to give you a very high-level overview, but those 2 apps is the core of our business. They interact with each other. They connect into each other. And again, they are developing this universe and the suite of the products for consumers and merchants, for the merchants to develop their business, for consumers to improve their lives.

And as the deep -- the services that we have and the wide range of those services, we are showing very strong engagement metrics, which I think are very unique and stand out. So we would be probably the second among the highest and -- among the highest compared to other sort of selected apps. So we're 65%, which is basically out of 100 people visiting our consumer app monthly, 65 would visit it daily. And on top of these engagement metrics, also the type of transactions which take place through our services, right, they've increased 18% year-over-year. Now our consumers have done 68 transactions a month. It's over 2 transactions a day, which is really impressive. And as we have those transactions and we have those engagement metrics, they really are flying -- fueling our financial performance and the growth.

Next slide. So as you can see, the results in terms of our financial performance are strong. So we have delivered both top line growth and the bottom line growth. And again, that's because of the Super App business model and it's because of network effects which are inherent to our business. So we have grown our revenue 51% year-over-year in the third Q and reached revenue of $1.1 billion equivalent in local currency, and also we have increased our net income 40% year-over-year to around $0.5 billion. So that really has been a very strong performance on our hand.

We are also quite unique compared to many technology companies across many other markets. So we are not only profitable, but we also do a buyback of our own shares and we distribute dividends. So our Board has recommended the dividend of KZT 850 per share per GDR. That's subject to shareholder approval. We also announced another GDR buyback program of up to $100 million again, and as of today, since April 2022 we have completed to $248 million repurchase buyback program.

This performance is fueled by our platform. So we have 3 platforms which we operate: Payments, Marketplace and the Fintech. And all of them are showing very strong growth. The Marketplace is showing even stronger standout performance. So this -- the Payments TPV has grown 42%; revenue 41%; and net income 47%, just because we have this operating leverage in the Payments business, and we have network effect across the board for all our services. Marketplace GMV has grown 50%, driven by e-commerce growth; 85% revenue growth; 64% net income growth. And then Fintech continues a very nice growth. TFV has accelerated 41%; revenue 39%; and the net growth of net income growth is 17% year-over-year.

And we're also becoming increasingly diversified business. So as you can see, almost 2/3 of our net income is now faster-growing Payments and Marketplace businesses.

Juma has been a very strong performer. We reported it last -- during our last quarterly call. Just to reinforce, it was really the biggest, the largest, more successful Juma that we had in July. So the growth has been 82% year-over-year. So this is our 3-day shopping festival, which is Kaspi -- created by Kaspi and led by Kaspi, with all the platform opportunities to sell for our partners and for consumers to buy. And we will have another Juma in November -- beginning of November, so we're now preparing for it. And again, we will be making sure that we execute so that our partners can happily increase their sales and consumers can reach all our partners and there goes to buy.

We're also growing very nicely our e-Grocery business. So the growth has been very strong. So we've increased it 3.4x year-over-year, both on the GMV and the purchases side. So we have reached in the third Q 1.4 million purchases, which is very encouraging dynamics, and those purchases in GMV was delivered by 422,000 active consumers. So we're pleased with the business, with operating performance and the financial model. I want just to remind everyone, we are now focused on the 2 cities, which is Almaty and Astana, one of the largest cities in the country, and we are making sure that the business model continues the fast growth but also it's operationally excellent. And that's our priority, but it's still extremely exciting, 442,000 active consumers making 1.4 million purchases in the third Q.

We also are growing our last mile and building the last-mile delivery network. We're happy to report here that we have now exceeded 5,200 automated postal machines across the country. So it's 5,222 (sic) [ 5,223 ] to be precise. And that is now the -- probably the largest last-mile delivery network in the country, and it contributes 37% of our deliveries. And again, this is important for us just because that's something which our team is executing strongly because that's an important delivery channel for us, but also it's great for -- operationally because it's cheaper to operate, but also it's great for the country and citizens because it's greener to operate.

Instead of -- just to give you a basic equation -- instead of delivering 70 parcels to the door and traveling to all those destinations separately, you are delivering 70 parcels to 1 specific location, and then consumers can pick up them at the convenient times. And consumers love it because it's their choice when they want to pick it up. So that's a great functionality. We're pushing it, and we are aiming to have around 6,000 automated postal machines, or Kaspi Postomats as we call them, by the year-end.

Another business which we're also growing and really excited about it is the B2B. So B2B continues to show -- B2B Payments continues to show a very strong performance. We have grown our TPV 2.3x year-over-year for 9 months, and purchases 17.4 million. And that's basically for us, again, it's a sort of foundation for the further innovations for our merchant partners and their suppliers, just because we're really focused on making sure the transactions flow and the liquidity flows in the value chain. And yes, this business is growing really fast. We're excited about it. It's roughly about 4% of our TPV. Even though the Payments business is growing across the board, that business is just the start of the innovation for the merchant products and their suppliers.

We have completed -- I'm happy to report that we have completed the transaction of acquiring Kolesa.kz Group from a private equity shareholder. This is a great business in terms of the addition to our services and an extension of our value towards consumers around real estate and around the cars that Kolesa really has the #1 brand recognition. It's almost 13x more recognized than the nearest brand in the cars vertical, and it's #1 as well, almost 5x, in the real estate. And those are the 2 most important decisions that the household would make -- one of the most important, either you buy a car or you buy an apartment, and all of that really is a very good addition to -- or an extension for our business, because we know that we can improve our consumers' lives by helping them to make those decisions smoother. So really excited about that opportunity that we have in front of us.

Through the acquisition of the both, you know that we also operate the largest classified businesses in Azerbaijan, both in -- leading businesses in Azerbaijan, both in cars, real estate, but also in the general classifieds. And if you would actually pull everything together, now we have a good platform across 3 countries with more than 10 million monthly active users, and now we have classifieds in Kazakhstan, Azerbaijan and Uzbekistan. And this gives us another opportunity, both for additional consumer insights but also for continuing innovating and delivering services to our consumers and partners actually, whether it's merchants, it's individuals selling their used items or everything else, cars and so on, on the -- on our platforms now.

So David, the platforms?

[David Ferguson, executive]

Yes. Thanks, Mikheil. So I'll run you all through the financials for the 3 respective divisions, starting with the Payments division.

Mikheil talked earlier about the importance of growing transactions. In Payments, that is a function of new merchants and product development, giving customers more opportunities to transact. In the quarter, you see transactions were up 34% year-on-year, up 41% year-on-year for the 9 months. That is a good result. Payments platform is also our main customer acquisition tool. A large and diverse merchant base drives new consumers. And here too, you see the growth was robust, up 15% year-on-year for the 9 months, and that's consistent with the trends that we've reported over the first and second quarter.

As merchants shift more of their volumes to us, that drives TPV. So just to be clear here, TPV is what we previously described as RTPV. So there's a change in definition. It refers to transactions that are monetized. It excludes nonmonetized transactions. TPV growth was up 42% year-on-year in the third quarter, 49% year-on-year for the 9 months. And all key Payments platform products are contributing to this result: growth in Kaspi Pay merchants and transactions; rapid adoption of B2P, which is expected to remain additive to TPV; and the ongoing popularity of bill payments.

Interest-free balances were up 22% in the third quarter, which was consistent with the previous quarter and indicative of a broadly healthy consumer environment. Take rate for the quarter was stable at 1.2%, and indeed, take rate has been stable for a longer period of time.

The company's [ sharing ] of fast TPV growth and stable take rates translates into similar revenue growth, up 41% year-on-year in the third quarter, 49% for the 9 months. From a profitability perspective, during the quarter, Payments platform delivered a record level of profitability. The drivers remain the same. That's the elimination of third-party costs, proprietary networks, inherent gearing and just tight cost control, which is a theme across the business.

Overall, Payments platform is well positioned to keep growing. As customers' incomes grow, we'll keep adding opportunities to transact across retail and services, particularly services, which is underpenetrated in Kazakhstan. B2B is additive in terms of addressable market, and we'll remain disciplined on costs to ensure Payments platforms gearing remains intact.

Moving on to Marketplace. So all platforms contributed during the third quarter, but if there was a standout performance, it was from Marketplace. On a transaction basis, you see transactions up 31% year-on-year in the quarter, up 43% year-on-year for the 9 months. That's a good result and just illustrative of the depth of Marketplace's proposition across m-Commerce, e-Commerce, travel, e-Commerce 1P, grocery and the other value-added services like Postomats that we continue to add.

Overall, that drives the attractiveness of the proposition, drives transactions. It also drives new consumers, up 20% year-on-year to 6.9 million. If you contrast that with Payments platform at 12.6 million, you can still see that there is some way to go in that regard.

When I talked about standout performance, transactions translated into fast GMV growth. And then subsequently, you'll see the higher take rate translated into faster revenue growth. From a GMV perspective, 50% year-on-year in the third quarter. That is a material acceleration from the second quarter. GMV was up 39% in the second quarter. Why? That's a reflection of the success of Juma, again, just the breadth and depth of the proposition with all of the key components playing their part.

In addition to that, we saw take rate expansion, 70 basis points in the third quarter, 90 basis points for the 9 months. And that reflects product mix, promo and Juma -- all those things are connected -- delivery, and to a lesser extent advertising.

Within Marketplace, if there was a standout performance, it was e-Commerce. e-Commerce delivered 56% GMV growth during the quarter. That's an acceleration from 39% in the second quarter. And it's a mix of promo, i.e., Juma, e-Grocery, for playing their part in this. In terms of purchases, up 120% versus GMV up 56%, so purchases growing at a faster rate, reflecting, number one, the addition of grocery, and number two, just an ongoing effort we've talked about before to expand the depth and breadth of SKUs across all areas of e-Commerce to make the platform more relevant. What you should see happen in time is that growth in SKUs moderates and orders and GMV converge together.

Take rate expansion in e-Commerce, 10.8% from 9.6%. So this relates to the 3P part of the business, primarily driven by merchant seller fees, which means higher fees on the back of promo and Juma, advertising and deliveries.

m-Commerce delivered -- sorry, on e-Commerce. This is just reiterating the point around adding SKUs. You can see there's been a material expansion in e-Commerce SKUs over the last 12 months. We're expanding the depth and breadth of the proposition, making it more relevant to everyday life, driving -- with the aim of driving transaction frequency.

On m-Commerce, m-Commerce has consistently delivered good results, this quarter was no exception. GMV up 47%, an acceleration from 35% in the second quarter; take rate moving up by around 50 bps to 8.8% from 8.3% previously. So another good result from m-Commerce.

And actually, another good result from Travel. GMV growth of 45%. Here, take rate expansion driven by faster growth from rail, which has higher take rate versus flights. We've talked about previously, we expect international holidays, package holidays to be additive to both growth and take rate going forward.

So overall, the combination of good GMV growth and take rate expansion translated into materially faster and accelerating revenue growth, up 85% year-on-year in the third quarter, up 90% year-on-year for the 9 months. The timing of promotional events can vary from quarter to quarter, but Juma is scheduled to take place again next month, and we're excited about that event. Net income grows at 64% year-on-year in the third quarter, 72% year-on-year for the 9 months, which is a slower rate than revenue and it reflects investment in e-Grocery, which is growing fast but still early stage, still in investment mode.

Finally, moving on to the Fintech platform. We've continued to prioritize growth in deposit customers, up 30% year-on-year for the 9-month period. Why? When rates move down, we think deposit customers will stay with us and that their money will drive future transactions and also give us more funding to drive TFV, to drive lending origination in the business. You can see that that strategy is paying out with another -- paying off with another quarter of good deposit growth expansion, faster than growth in loan customers, although growth in loan customers of 12% is solid and consistent with trends you've seen in previous quarters.

Looking to origination, up 41% year-on-year. So that is a pretty healthy level of origination. Origination has been running at a normalized level since really the second half of last year, and again, this is illustrative of a supportive consumer environment. Origination now drives revenue growth going forward.

In terms of mix, the drivers are low-risk, short duration BNPL, which is our most important Fintech product. Merchant financing is our fastest-growing Fintech product and Merchant SME lending is an underpenetrated opportunity in Kazakhstan with significant growth potential ahead. Loan conversion, a measure of how quickly people borrow and repay, stable and consistent with long-run trends at 2.2x for 9 months 2023, again, supportive of the consumer environment.

From a balance sheet perspective, that translated into a 35% loan portfolio growth and 42% growth in deposits. So again, you see the deposits growing at a faster rate than loan growth. As a result of that, the loan-to-deposit ratio continues to move down to 79%. We have a good, strong financial position.

In terms of yield, just to point to a note on this slide, this number is either for the quarter or for 9 months. It isn't an annualized number. Previously -- in previous updates, you will see that we've always talked in annualized terms, but you'll see that that is consistent. If you annualize those numbers, you will see that it's consistent with what we've talked about previously, i.e., BNPL and SME lending are lower-yielding products. As they grow in share, that results in the blended yields moving down slightly, and the trend we report in the [ third and fourth ] quarter, again, is consistent with that.

Looking at the various risk metrics, whether it be default rates, delinquency rates, loss rates or collections, the overall message here is that in terms of risk, you see strong and stable trends, actually trends that have been consistent now over a long period of time. That points to a low-risk product, low-risk environment and predictable environment.

Ultimately, that translates into cost of risk for the 9-month period of 1.5%. So again, that is not an annualized number, although it is consistent with the annualized numbers we've talked about previously. And again, it is exactly where we would want it to be. Similarly, on NPLs, NPL is moving down over the course of the year. There is always an element of seasonality when you're looking at NPLs on a quarterly basis, but this trend is exactly what we've talked about on previous calls.

So where does this leave us? Fintech revenue growth decent in the quarter, up 39% year-on-year on the back of normalized origination over the last 6 to 9 months and even taking account of slightly lower yield. On the net income side of things, up 17% year-on-year. That is decent growth but is impacted by higher funding costs and the larger deposit base which we previously talked about. When rates start to move down, we think the impact on net income profitability will be you'll see accelerating growth, the decline in profitability being cyclical rather than structural.

So overall, Fintech is well positioned, as evidenced by good organic growth in loan and deposit customers, the structural growth opportunity in BNPL and SME, combined with [ our own ] tight control of risks and tight control of costs.

So that wraps up the platform summaries. At this point, we would usually turn to guidance. I'll simply just draw your attention to the press release. We noted in the press release the final quarter of the year has gotten off to a strong start. We noted in the press release Juma is scheduled for November, and we're excited about that. And more generally, we observe a healthy and predictable merchant and consumer environment. However, in light of the SEC registration process, we're not providing our usual guidance at this point. It's our intention to return to that practice when it is permissible and appropriate to do so.

So on that note, we will open the call up to Q&A. Harry, over to you.

[Operator]

[Operator Instructions] And our first question today is from the line of Gabor Kemeny.

[Gabor Kemeny, analyst]

A few questions from me, please. First one is on the Marketplace, where growth has been trending pretty strongly, I believe. Maybe more strongly than you anticipated some time ago. I mean its 53% GMV growth, I guess, compared with -- I think you've at 40-plus earlier. I understand you won't be able to provide a guidance now, but maybe you can just give us a sense of why the underlying growth has been stronger than you had expected? I guess Juma was [ known ] when we last spoke.

The other question I have is on the news flow and proposals around the interest rate caps. Would you be able to comment on the odds and what impact would it have on Kaspi if the rate caps, indeed, the consumer rate caps indeed drop to 44%? I believe that was a previous proposal.

And just finally, maybe you can give us an update on the U.S. IPO progress, please?

[David Ferguson, executive]

All right. Gabor, thanks for your questions. I'll pass the regulatory question over to Mikheil, but just to sort of address the U.S. listing question. I guess it's around timing. It's a perfectly reasonable question, but at this point we're unable to add any detail beyond what we've said publicly, namely that we filed with the SEC. But beyond that, we can't talk about timing or anything else related to this event. So just ask you to bear with us in that regard.

On Marketplace, again, from my side, I'd just -- without trying to be unhelpful -- reiterate there's a limit to what we can say in terms of forward-looking comments. I'd reiterate the comments that we've made previously. You're right, Marketplace delivered a standout performance, number one. Number two, it was led by e-commerce. So that's an important point to be aware of, although all platforms delivered. In terms of e-commerce, there's a culmination of lots of things coming together. We talked about Juma being one, we talked about expansion in the depth and breadth of the proposition, SKUs, number two, and that's both 3P and 1P. We talked about value-added services, Postomats, for example, promotion and advertising. So if you -- it's hard to identify any one factor, but if you put all of these things together, they've contributed to a good result, and e-commerce remains structurally underpenetrated in Kazakhstan.

I will pass the floor over to Mikheil.

[Mikheil Lomtadze, executive]

Thank you, David. Thank you, Gabor, for the questions. And regarding the regulation, this is a general question which we regularly discuss on a pretty much regular basis on most of the calls.

So there is nothing specific to report. So I mean it has been communication back and forth and the discussion about it in the broader context and different events. So yes, I mean, there's nothing really specific that I can add to what I've said before about this.

[Gabor Kemeny, analyst]

Okay. Maybe if I can just follow up on the -- on this point because that proposal of rate caps possibly coming down I think was -- was quite specific. Can you remind me what's your message, what's your commentary on rate caps coming down to 44% potentially?

[Mikheil Lomtadze, executive]

Well, my commentary in general that we are very sort of diversified business with a really broad value chain. So from that perspective, our business model itself is quite resilient to any kind of changes on the pricing of different products. And that's pretty much what I have said before.

[Operator]

Our next question today is from the line of Catherine O'Neill.

[Catherine O'Neill, analyst]

I had a couple of questions, if that's OK. One is, could you talk a bit more about the opportunity in services in relation to payments -- I think you referenced services being more the driver of payments as we go forward -- and how you think about that mix?

And secondly, now Kolesa is closed. I think in the release, you talked about used car sales, leveraging technology, car financing payment tools. Should we expect an acceleration in car financing? And how could that, if at all, change the risk profile and maturity?

[David Ferguson, executive]

Okay, Catherine. So maybe I'll just start on services, then pass both over to Mikheil. So the simple point I would make is if you just look at macro data for Kazakhstan, the share of spending on services is low relative to many emerging markets and developed countries. Typically, as incomes grow, services become a larger part of the economy. So we see services as structurally underpenetrated, a driver of long-term growth in terms of transaction activity. And if you think about all of our products, whether that be m-Commerce, whether that be Kaspi Pay or BNPL, they're all beneficiaries of growth in any transaction activity, whether it becomes from goods or whether it comes from services.

But maybe I'll just pass the rest over to Mikheil.

[Mikheil Lomtadze, executive]

Catherine, thank you for your questions. In terms of the classifieds, I mean, if you look back at the -- in general, at the pace of innovations that we're able to implement leveraging the technology, the consumer insight, but also delivering the high-quality consumer experience, I think we're excited about these new verticals that now we're getting into the Kaspi sort of business.

Regarding the car financing specifically, yes, we are having the online car product -- car finance product which is becoming, and is, very popular. And as you know, on the Fintech side of things, one of the things which really we know what to do is how to evaluate and measure risk or give the right amount to the right consumer at the right time for the right purchase -- actually consumer and the merchant. So as a result, you could -- we've mentioned this in a previous call as well that that would be the strategy for us, to enter those markets around the cars. And yes, and that's quite -- yes, that's an exciting opportunity for us.

[Catherine O'Neill, analyst]

Okay. I just wanted to clarify. So when you say you're sort of entering the market on the car side a bit more, does that mean you might take on some of the inventory risk as well? Or will you purely be focused on sort of financing and ancillary services side?

[Mikheil Lomtadze, executive]

Both. Car financing but also helping the consumers to buy the cars at the right prices. And considering the reach of the platform that we have, that's a good opportunity that we have in front of us, where again, we're just limited on some of the forward-looking statements, as you can appreciate. But there's one thing that -- to be known about Kaspi team is our ability to execute and deliver the results.

[Operator]

Our next question today is from the line of [ Indira Iqbal Siddiqui ].

[Unknown Analyst]

Apologies and congratulations on another great set of results. My first question is on e-commerce. What upside to take rates do you see from advertising and delivery over a 2- to 3-year time horizon?

Secondly, I just wanted to explore a bit more on the e-Grocery dark store rollout, the speed at which you're seeing profitability of the new dark stores that are being rolled out? And how are you thinking about the growth of the e-Grocery segment distribution network beyond the dark store rollout that's planned right now?

And then just finally on international growth. Is that kind of on the agenda at the moment? And if so, which countries or regions are you exploring?

[David Ferguson, executive]

[Indira], we mentioned sort of earlier that we're relatively limited in terms of forward -- both guidance but generally forward-looking statements. So when you're asking for sort of the view on how advertising and delivery can evolve in terms of take rate on a 2- to 3-year view, if we can't give guidance for the fourth quarter, we can't comment on that specifically, other than a generic comment that these products are very early stage for us. And given that they are early stage underpenetrated markets, the opportunity ahead is interesting.

Similarly for your other questions around the economics of dark stores, again, without trying to appear unhelpful, we report Marketplace -- [ we'd not ] report profitability at a Marketplace level, not at a 1P level. So there's not really much we can add in that regard.

And so I'll just leave it there. I don't know if Mikheil can add more generic comments.

[Mikheil Lomtadze, executive]

Well, I would, again, just go to the point of really understanding how Kaspi team operates and executes, and -- and that's basically, I think, apart from technology -- proprietary technology we have developed, this really is probably the extremely important factor in any future plans for us. If you put together the advertising and delivery revenue, it's 1.8% of our GMV on a 9-month basis so on e-Commerce side. So you can see that we have -- we have been really executing, sometimes behind the scenes, before we sort of get really confident that this business is performing. So from that perspective, I can just reiterate what David is saying, and our role is really just to put our heads down and execute, which I think that Kaspi management team has proven many times that we are all about execution.

[David Ferguson, executive]

And Mikheil, [ Indira ] also asked about international.

[Mikheil Lomtadze, executive]

On international, I would say it probably goes around the same kind of comments that you have mentioned in terms of limitations on our forward-looking statements in general. I would say that we, as a company, have technology which is scalable, management team which is extremely experienced across different industries by now and also different countries. So from that perspective, our sort of plans haven't really changed from what we said in the previous call.

[Operator]

Our next question is from the line of Sergey Dubin.

[Sergey Dubin, analyst]

Congratulations on outstanding results. I just have one factual question. I understand you cannot comment on forward-looking issues, but relating to the concern that I think a [ comrade before me ] [Technical Difficulty] regarding rate caps, I mean, I read that your Fintech yield was 19% annualized, for 9 months. Obviously it's way below 44%. So perhaps the question is, like, can you comment on what percentage of your book -- and obviously, that 19% of average across many borrowers, I mean, is there a large portion of the book that's pushing 44%, maybe just to allay that concern? If that -- if you can provide that color, that would be helpful.

[David Ferguson, executive]

Mikheil, do you want to have a go at that?

[Mikheil Lomtadze, executive]

Yes. The most -- the question that is winning the prize for being asked so many times on every call. I mean you just need -- just -- I wouldn't really speculate about this; I think you guys see all our numbers and you can definitely make the judgment. And again, the one thing which I would just simply reinforce that Fintech part of the business is only what is a bit over than 1/3 of our bottom line now and reducing really fast. So from that perspective, the Marketplace and Payments businesses are the ones which are growing. And in our case, we are just -- I think the best -- we have impressive -- I even need to choose the words when we're discussing with you at this stage, so instead of saying best, I could say that we are probably really strong in the risk management, and having cost of risk which is below sort of 2% just tells you that I think that's the most important factor in any financing business.

And yes, I mean my personal view is that in general, if the caps are going down, the competition is reducing, which is very unfortunate. And when the competition is reducing, this is bad overall. But actually, the strong brands which perform operationally excellent are winning in this type of environment. So their arguments can stretch all sorts of different angles, but I think that for the strong brands and operationally managing excellent companies, these type of changes, should they happen at any point in the future, unfortunately are reducing competition, but making the brands and the companies like that winners. Because it's not only about interest rates, right? It's also about the type of products and the consumer access to those products.

[Operator]

Our next question today is from the line of [ David Shapiro ].

[Unknown Analyst]

Just a quick thank you on behalf of the shareholders for the judicious way you guys continue to run the company. It is very much appreciated. Just moving on to 2 quick questions.

Is there any concern from a competitive standpoint, or are you guys seeing anything more specifically on the ground that would lead you to believe, that people are trying home delivery models versus the Postomats? Obviously, you guys have created a very economic and efficient way of delivery, there's -- there's no doubt about that. So I'm wondering if there's a lot of free flowing capital where people are trying to go to the home more aggressively? So that's one question.

Second question would be around your very powerful business model, which continues to get more powerful given the tangential lines of service you're moving into. Are there any tangible benefits that perhaps you can talk about on this call or that you're showing the government, in particular, which is benefiting the consumer? Is there any plans to further reduce payment take rates, for instance? Just anything where you can show how the scale and the size and the increase in volume may actually drive down the pricing, so as to allay any government concerns about Kaspi's very strong business model.

[David Ferguson, executive]

All right [Technical Difficulty] Mikheil.

[Mikheil Lomtadze, executive]

I can pick it up there, David. In terms of the delivery for us, the main key for this business model on the automated parcel machines, Kaspi Postomats, is really the user experience which is developed, which is very seamless from purchase to actually getting your items picked up. So -- and that's what excites both consumers and merchants and us operationally, just because we as a company like having the transactions which are repetitive, and when the transactions are repetitive means that you have a locker in a specific location and you deliver to it constantly. That means your repetitive operation to process, transaction, whatever can become better, faster and cheaper, more convenient with our technology over time it's used.

So that's basically why we're excited about the Postomats and really showing us the results. And it's consumer's choice at the end of the day, it's consumers that are the ones deciding, and through our growth and adoption of the service you can actually see that consumers really prefer and love the convenience of picking up items when they want it and when it's convenient for them, rather than them waiting for courier and any inconvenience of dropping off stuff at the door. So that's basically about the Postomats, and we're just really focused on execution and the growth is a good evidence of that.

In terms of the working on other benefits of the consumers and merchants, again, our mission is to improve people's lives and the partners' lives with our innovative services, and the things which we have been and are working together with the government are, for example, the tax reports, which have been -- tax payments by both individuals and the merchants. And as you can see, while we are developing the services, that we are contributing to overall transparency of the retail trade. And I think that's appreciated really by everyone, and we just continue streamlining those services.

And what is absolutely sort of encouraging and interesting is that individuals and the merchants are -- they actually are not against the paying taxes. And as soon as the service is there, as soon as it is seamless, as soon as they have the confidence there is no sort of a mistake in that service, they are actually engaged and using it, and there are significant benefits across the board, and all the services that we're doing on the government side of things are done basically just to help make the government services accessible by the wide range of the population. And it has been widely publicized in the press and the media or the social networks that this is really a standout source of the pride for our consumers and citizens in Kazakhstan. So that really helps us to continue innovating in this regard, but also employ our front-end technology to help the state and the government to distribute services to the wider range of population, so the result is a win and win relationship in this.

[Unknown Analyst]

Thank you very much. And again, a big thanks to the entire Kaspi team for the hard work you guys are doing.

[Mikheil Lomtadze, executive]

Thank you very much.

[Operator]

Our next question today is from the line of Ronak Gadhia of EFG Hermes.

[Ronak Gadhia, analyst]

I hope you can hear me all. A couple of questions. Firstly, just wanted to -- if you could share what the take rate is on your B2B payments? I think your overall take rate for the payments business has remained steady at 1.2%, but just wanted to see if you could give a breakdown between P2P and B2B payments?

And second question, maybe just a follow-up on some of the questions earlier. On your Fintech business, I see 45% is now Buy Now Pay Later. What proportion of your Buy Now Pay Later loans have a duration of less than 3 months and therefore not bearing any interest? And if you could share what the effective yield on the rest of the Buy Now Pay Later products are, that are will be helpful?

[David Ferguson, executive]

Ronak, thanks a lot for your questions. Limited again in what we can answer there. So on B2B take rate, it's not disclosed in this update. All I can point you to is you see the take rate for payments platform as a whole has been remarkably stable over the last couple of years, and that includes the period of time from which we launched B2B to where it is today, our fastest-growing payment product. That would be the answer there.

And then in terms of your other question, I don't know if Mikheil wants to talk generally about that, but in terms of specific numbers, again, that's not just something we're not disclosing at Q3, we've never talked about that in the past. But Mikheil, anything?

[Mikheil Lomtadze, executive]

David, I think that the conversion rate would be just a useful indicator for the maturity, right? I think we do disclose the conversion rate in our Fintech numbers. So it was about 2.2x, if I'm not mistaken. So that is...

So that basically just tells you that the loans are the short maturity and they are -- just to keep in mind about our financing products, our financing products, there are no fees to originate. There are no fees or penalties to prepay. So we're really motivating our consumers and merchants, they can prepay any time, they can take any time, and they can actually take any amount pretty much for their needs. So that's a feature of our products. And as a result, we are constantly reducing in general the duration. So duration has been very short. Over time as we build out the products that are like car finance or business finance for merchants, those would be a bit of a longer-term maturity, as everywhere else. But so far, the profile hasn't really changed. So we are a short-term maturity, frequency, technology-driven finance products which give maximum flexibility and the convenience to our consumers and merchants. That's why we have cost of risk of around 2%, and that's why our products are so popular.

[Operator]

Our next question is from the line of Mikhail Butkov of Goldman Sachs.

[Mikhail Butkov, analyst]

Congratulations on strong results. Being mindful of that you can provide limited information on guidance, a few questions from my side. Firstly, on the SME lending, this part of your portfolio becomes quite sizable. And in one of your results, you disclosed that approximately 21% of merchants use SME lending with Kaspi. So to the extent that you can provide some color, do you see the demand from the other 80% of those SMEs with who you work? And what is the risk profile of SME clients compared to the rest of your book, maybe in terms of asset -- sorry, cost of risk or some other metrics which -- on which you can share the color?

And the second question is on e-Grocery. Previously, you were providing some color on how profitability is evolving in that segment. Can you provide any color on how that was in the third quarter or maybe any promotion strategy which you have in this segment currently? So that are the 2 questions from me.

[David Ferguson, executive]

All right. Thanks, Mikhail, for your questions. On e-Grocery, no, but you can look at what we said at the H1 stage in July. You can see that growth has been very rapid since. So usually as businesses scale, there are benefits for economics as a result of that, that would be my general comment, but I'll pass the rest over to Mikheil.

[Mikheil Lomtadze, executive]

Yes. On the e-Grocery, the one thing which I would say, that the nature of this business -- and that's why we like it -- is the highly repetitive business, which goes both ways. If you don't get the product right, you actually lose the consumers, but if you get the product right, I mean, the whole user experience, right, so then the consumers continue using it. And Kaspi historically, I think, has been known for developing this high-quality user experience. And as consumers are building up by using these services repetitively, that translates into the profitability, into efficient marketing, and the fact that you are not losing the customer. That's just a general knowledge about the similar business models. And as you can see, the growth rate of e-Grocery is very strong, and we're just in only 2 cities. And as David said, Mikhail, you can go back to our comments that were made just very recently in our 6-month numbers.

In terms of the SME, SME is actually an exciting business opportunity, because it's not just only they lack high-quality products on the market, they are also our merchants or the partners with whom we work. And again, we are working on making sure that the user experience and the quality of relationship is of a very high standard. And as a result, the growth and penetration of the merchant business and the microfinance business is actually a reflection of it. Can't really give you any forward-looking statements, unfortunately, on this call. But the one thing we can say that, yes, there is -- the merchants' interest is significant.

And when you take the step back and think about the merchant relationship overall, the way we're developing around them, it's almost like 360 degrees around the merchants, right? You can accept payments, you can get the working capital finance in order to grow their sales, you can work in Kaspi Juma and your sales are growing, working capital is supporting that growth. And we give you the other invoicing tools and instruments, we give you an advertising services now. Now you can connect to Kaspi delivery, so we can get your goods delivered across the country efficiently and smoothly.

And on top of the fact that it's a merchant product, the consumers, they are happy with the end the product, because eventually consumers are the ones that are paying to the merchants for their business. So we are very excited about this 2-sided business model and SME financing is an important priority for us, and it's a good product with -- with a risk profile which is acceptable for us. I mean, that's as much as I can tell you on this call.

[Mikhail Butkov, analyst]

And if I could squeeze one more question on B2B payments actually. This is also the area which you highlighted as a growth opportunity. What is the current profile of a client which you see in that segment, if I may ask this?

[Mikheil Lomtadze, executive]

Well, I mean this business is -- I think we explained it on a couple of calls. The nature of this business is we're helping the brands, the suppliers, wholesalers, distributors, to actually deliver the items and their orders to the convenience stores. And at the moment of those goods being delivered, for example, to the convenience store, the convenience store instantly settles the invoice with that distributor or the wholesaler or the [ brand ]. So the convenience here is actually quite similar to what we have done with the consumers. So we help the consumers to drive transactions seamlessly instantly and the same knowledge and expertise and actually the technology in a certain extent. We have extended this to the B2B market. And now convenience stores are and the distributors are using this product very actively. For every retail business, the #1 priority is to streamline your working capital.

So if you can settle the invoices instantly, that means you have -- you need less working capital. That means you don't have large receivables. That means you have less operations inside because the things are -- the orders are settled against the invoices. There is less cash, so you have no expenses related to the cash flow. There are so many benefits for the parties in this product that -- and for the country, because then the trade becomes transparent, that we're excited and even everybody is -- we're working -- this is just the beginning of actually our innovations in this area, and B2B payments is an exciting opportunity for us, as we said before.

[Operator]

Thank you. And that brings us to the end of our Q&A session today. So I'd like to hand back to Mikheil and David for any closing remarks.

[David Ferguson, executive]

Okay. So thanks, Harry. Thank you, everyone, for participating in today's call. If you have any questions, please feel free to reach out to us directly.

But thank you, everyone, for your time. Well, that's it. Goodbye.

[Mikheil Lomtadze, executive]

Thank you. Bye-bye.

[Operator]

Ladies and gentlemen, this concludes today's webinar. You may now disconnect from the call.