BUSINESS FOR BUSINESS

Fintech companies appeared in Azerbaijan only a few years ago. But they have been able to actively penetrate the financial services market and diversify it with new products and innovative solutions. In most cases, they start as start-ups, attracting investments from venture funds and aiming to transform into a full-fledged business unit. However, because of the novelty of the business and the more cautious approach of both investors and potential customers not all, even the interesting ideas, stay on the market.

Zeynal Kerimzade, head of Epoint Inc, one of the most successful fintech companies in Azerbaijan, shared his successful experience with us.  

"What is the core of your project? What makes it different in the market?"

"In general, fintechs are relatively new financial instruments globally. In fact, they started to emerge at a time when classical banking was too conservative and the younger generation of people began to demand technological and remote services in banks. Fintechs combine the basic banking tools with added technological capabilities, more pleasant interfaces for users, thereby revitalising the financial sector around the world. Azerbaijan is not an exception in this process, although globally we are a relatively small market for this kind of projects. Active development  of fintechs in Azerbaijan began 5-7 years ago, and after the pandemic the market has grown significantly, with new tools available.

"Epoint Inc. became active just after the pandemic, when the demand for online payments skyrocketed and the infrastructure of many banks and customer connectivity processes were not fully fine-tuned. Therefore, we created a service for customers (mostly SMEs) where they can connect to online payments within 3 minutes with a digital signature and then accept payments and receive funds into any bank accounts 24x7. These major innovations were revolutionary in our market. We were able to reduce the period required to connect the customers from 20 days to 3 minutes; we removed the dependence of entrepreneurs on specific banks, giving them a chance to choose the banks they want, and we reduced the time of receiving funds from several days to a few seconds at any time of the day, including weekends and holidays. After these innovations our project began to actively gain popularity and enter the top rankings of the country's most popular technology startups."

"Is it not difficult to attract investment? Do local investors show any interest?"

"Making investment is quite difficult all over the world. Without any visible tools, one cannot ask people for money and make them simply believe in your idea. We have always been consistent and careful about the image of the company, so that we can qualify for more serious investments in the future.

"The first capital was invested by me. Then we recruited a team and started developing the product. After nine months of hard work we were able to launch the MVP. After another five months we implemented the full version of the product with changes and after three months we were able to attract our first venture capital investment in the local market. Then there were foreign investments, accelerators and other programmes that helped us to grow and reach a market capitalisation of $5 million. This is the figure currently confirmed by our venture capitalists. We are in the process of attracting $500,000 in investment from them now. Currently, the headquarters of Epoint Inc. is in the US, while the local company that kicked off the business is a branch of this American company in Azerbaijan.

"In general, there are many people in Azerbaijan who have money and want to invest it in business. Unfortunately, there are difficulties in identifying and understanding tech businesses and getting used to the culture of not earning here and now but waiting a few years and earning much more when the company is resold or in the next investment round.

"We are also trying to educate investors and show examples of successful companies and deals. I very much hope that in the next few years this culture will fully develop and investors themselves will be looking for projects to invest in."

"For many Azerbaijanis, a startup is kind of a small business. But any business must develop to be profitable. How do you see the future of your project? Are you ready to expand and grow?"

"Startup is a very abstract name and understanding of business. There are billion dollar companies that are still called startups. As a rule, startups are technology companies that make big changes in the market and change the rules of the game. They can have large turnovers, increase their growth and market capitalisation, but still be called startups. There is a boom in the creation of various startups in Azerbaijan now. There are interesting ideas and projects, but they mostly are copying Western analogues with an attempt to adapt them to the local market. The team leading the creation of the company is very important in this case. If there are no experienced guys among the founders who have worked in other companies in this field, then, as a rule, these projects have little chance of survival.

"In our case, I began this business with my previous 14 years of experience in the banking sector, including a management position responsible for bank cards, acquisitions and internet banking. That helped us to create the right product and to communicate it correctly to our clients and investors. Our project will be successful. But to guarantee full effect, we need the market to mature, become sanitised and accept the need for such endeavours."

"How would you assess the level of development and support for startups in Azerbaijan? What problems did your company have along the day?"

"Azerbaijan has very good conditions for creating startups. There are many different incubation and accelerator programmes to prepare project creators for adulthood and teach them how to work systematically. In addition, there are many government programmes that help startups in their early stages. For example, the Small and Medium Business Development Agency (KOBIA) has a startup certificate programme that exempts startups from income and profit tax for the next three years. The same agency has a programme of grant distribution to promising projects (up to ₼20K). There is the Technopark Residency Programme created by the Agency for Innovation and Digital Development under the Ministry of Digital Development and Transport, which provides many benefits for a period of up to ten years.

"The biggest problem for startups is the small number of organisations and individuals willing to financially help and invest in early stage startups. In general, venture investments are high-risk investments. We hope that in the coming years new programmes will be developed to finance startups at their early stages of development."

"Do you think the situation with fintechs in Azerbaijan will improve after the adoption of the law on payment services and systems?"

"Innovation laws always have two contradictory sides. On the one hand, they try to reduce risks, create an ecosystem for safe operations and prevent the emergence of unsustainable business models. On the other hand, the same law imposes restrictions on innovation and prevents it from realising its full potential.

"In general, the financial sector is very sensitive all over the world. Therefore, it should be regulated by certain laws and guidelines. I firmly believe that the adopted law will be successfully implemented and will create new opportunities for fintechs. I know the text of the law well and strongly believe that it will benefit the financial and technological sectors of the country. It will ensure that the activities of companies become licensable and fintechs be able to create digital products themselves without the involvement of banks, which will give them new competitive advantages in the market."