TIP829: Kaspi Stock ($KSPI): The Cheapest E-Commerce Monopoly in the World w/ Daniel Mahncke and Shawn O'Malley

**SPEAKER_1** (0:00)
You're listening to TIP.

**Shawn O'Malley** (0:03)
So I think you saw, but I was just so excited about this one. I pulled a Daniel last night, right? You saw me in the Google Docs till like 3 a.m. prepping for this episode.

**Daniel Mahncke** (0:12)
Usually that's my job, so I was a bit surprised seeing you in the document that early.

**Shawn O'Malley** (0:17)
Well, I never thought we would speak about a company based in Kazakhstan on this show. So that's part of the excitement.

**Daniel Mahncke** (0:25)
Well, I did have a hunch we might get there eventually, at least once I realized what covering one company week actually means in terms of looking at dozens and dozens of companies per year.

**Shawn O'Malley** (0:36)
It's a lot of companies. It's also a lot of fun. And yeah, I also remember back when we were in Montana last September, you mentioned something about Kaspi. So it's a company that's been loosely on my radar for a while.

**Daniel Mahncke** (0:49)
Yeah, I came across investors in Kaspi quite a lot actually over the last couple of years, but I never looked into the company myself. So I thought at some point, it's time and that time has come today.

**Shawn O'Malley** (1:00)
Time has come. Let's do it.

**SPEAKER_1** (1:05)
Since 2014, with more than 200 million downloads, we have interviewed the world's best investors, studied deeply the principles of value investing and uncovered many compelling investment opportunities. We focus on understanding businesses and intrinsic value, investing accordingly and sharing everything we learn with you.
This show is not investment advice. It's intended for informational and entertainment purposes only. All opinions expressed by hosts and guests are solely their own, and they may have investments in the securities discussed. Now for your hosts, Shawn O'Malley and Daniel Mahncke.

**Shawn O'Malley** (1:51)
All right, where do you want to start?

**Daniel Mahncke** (1:53)
I think we should start with the history today because it's actually quite interesting where this company came from. Today, we kind of know it as this super app and a major e-commerce company, but it actually used to be a normal tier two retail bank. So that was in the early 2000s, and the banking market was back then in Kazakhstan, dominated by the so-called Halik Bank, which is the old Soviet savings bank. And it's actually still the biggest bank in Kazakhstan today. And the one little thing that Kaspi had going for it was that it had a banking license. And as we also learned in the New Bank Episode, which is a company you covered a long time ago by now, it's also in our portfolio, a banking license in a developing financial market, and probably you could also say in a developed financial market, those licenses are not easy to get, and they can be quite valuable for pretty much every business because you don't necessarily need to be a bank, especially in today's tech world. There are so many things that you can do and kind of restructure your business. And that's also what Kaspi did.

**Shawn O'Malley** (2:52)
Yeah. We really learned in detail about what NewBank was able to accomplish in Brazil. And it's fitting because they're now a portfolio holding of ours. But that's a company that really truly defied the odds. They started with a credit card product, as you know, and they leveraged that massive popularity into getting a banking license. And then because they were an upstart bank in a more digital era, they actually had a huge cost structure advantage compared to legacy banks, where the older incumbents were basically running on outdated and very messy IT systems. Whereas Newbank's ability to really start from scratch, which is a simple mobile app, that helped boost its popularity and usability correspondingly pretty dramatically. And so, you know, in Kazakhstan, though, my question for you is, would you say that the setup was similar to Brazil, where Newbank basically managed to disrupt decades old incumbents that honestly had accumulated an outrageous degree of political pressure to try and ensure that new competition couldn't arise? Is that sort of what the competitive landscape looked like in Kazakhstan, or was it a more level playing field?

**Daniel Mahncke** (4:03)
Well, you did certainly have these rather slow moving oligopolies, and they were mostly serving the rich people in Kazakhstan, while the majority of the population similar to Brazil was mostly unbanked, and there was certainly a lot of political pressure to basically keep this oligopoly going, maybe even more than it was the case in Brazil. But Kaspi was not this newly established high tech bank like New Bank, which made it somewhat easier in this political environment, because you don't start from scratch. So what changed the game for Kaspi was a management transition in the early 2000s. And I'm certainly going to butcher the name. I actually kind of tried it a couple of times already. But the two guys taking over were Vyacheslav Kim, who was a well known Kazakh businessman with a retail background, and Mikhail Lomtatsy, who was a Georgian, who also had a Harvard MBA, so he actually studied in the States at some point. And he had been a partner at the so-called bank or PE fund bearing Vostok, which was one of the biggest private equity funds in that part of the world back then. And Mikhail was also the current CEO of the company. And I got to say, the more I watch from him, especially interviews, the more I'm convinced that he's not only a pretty smart guy, but that he was basically the one with the vision for the company. And I think if you take over a bank in Kazakhstan in the early 2000s, you have to have a vision for where that's supposed to go if you suddenly want to turn into a super app. So you basically had someone with local knowledge who saw the value in having this banking license and then an outsider who knew this could be much bigger than just a bank.