Hi, everyone who has joined us during the live webinar and those who will watch it as a recording later. It is our pleasure to welcome you to INDEXO investor webinar. Today we are hosted by INDEXO Co-Founder and Chairman of the Management Board, Valdis Siksnis, and INDEXO Co-Founder and Member of the Management Board, Henriks Karmo. We will start with a presentation on INDEXO business update and most recent financial results, and then continue with a live Q&A session. If you'd like to join the discussion or ask your question to the company, please use the Q&A window underneath the presentation. Valdis, I'm now handing it over to you.
Yeah. Thank you, Ieva, good afternoon, everybody. Welcome to our 2022 result webinar. Yeah, let me start. I think growth is the best word to describe our development so far. We have impressive growth record for five years and during the presentation today, we will try to explain you or show you, demonstrate you that our growth is also continuing. I've been using this or similar slide a lot before, but I think it's still important to explain our regions and explain our mission. INDEXO was established more than five years ago in response to very high fees and low returns in Latvian second pillar pension management market.
We entered the market by designing, creating a product we were ourselves happy to use, and exactly this, our approach at looking at the things from a customer perspective actually have been very instrumental for our success, and that has helped us to become fastest-growing pension manager in Latvia. That has helped us to introduce innovative products in a third pillar market, and that has helped also last year successfully to close complete IPO and raise EUR 7.5 million for our bank development project.
Talking about the banking, it's a, it's a perfect timing to enter the bank market, and it's not only because that interest rates are high now or have increased, but banking market very much resembles the situation what we observed in a pension management market six, seven years ago. We see low competition, we see high fees, we see high interest rates, we see very little innovation, and we see a lot of uncovered ground where we can enter this market. Before discussing our results and our achievements last year, I'd like to say a couple of words what we have, what we have done for our customers.
When we entered the market and introduced our low-cost, passive management pension funds, pension product, competition was criticizing us. They said it's not a very good idea, actually their high fee, expensive products can serve customers better than we will be able. Now we have been more than five years in a market, we can convincingly demonstrate that our approach works and we deliver good returns to our customers. We have the best performance, even the ones who from competition, who criticized us initially have silently introduced their own passively managed funds and only those have been able to somewhat compete or demonstrate similar returns.
The problem is unfortunately that they are not selling those products actively. They are actively promoting their more expensive products, which are actually also delivering lower returns. Only 12%, approximately 12% of Latvian pension savings is invested with passively managed funds, so we still have a lot to do. One of the things, fighting for a, for a better environment, financial environment in Latvia, we have tried to improve transparency when we talk about the total fees for the customer. Increased competition and legislation changes have pushed down direct fees, the pension managers are charging from their customers.
The situation, or transparency regarding the total costs, needs to be still improved, and we've been trying to do that by being ourselves very, very transparent, very clearly communicating what are our total costs or OCF, ongoing cost figure. And not only communicating about that, but we've been trying constantly to push it down, and we have been very demanding towards our service providers. And also last year, we have managed to decrease OCF for all three our second pillar pension pension funds, pension products.
So, we keep, we'll keep on doing that, so we still can achieve further improvements, and we will also try to convince regulator that actually similar disclosure such or similar should be required basically from all the market participants, and that would enable customers to make better, well-informed decisions. Yeah, here I'd like to hand over to my colleague, Henriks, to tell more about our achievements last year. Henriks, floor is yours then.
Yeah. Hi. Welcome everyone who has joined us. Thank you for giving us your time and hearing what we have to say about INDEXO. Just as an introduction, I also want to say that we are very proud at INDEXO that by now already over 100,000 customers in Latvia have trusted us with a savings. As Valdis mentioned, we try to do the best job possible to manage those savings. It's a long-term relationship, we are very well aware of that. That thus we are constantly trying to improve so that the outcome for retirement of our customers is going to be the best in the market.
Yeah, last year was an amazing year from a point of view of our growth. We finished the year with EUR 585 million under management. We had 9,700 customers. We added that year about 32,000 customers, so it's the fastest growth in the history of INDEXO in terms of absolute number of customers. As Valdis mentioned, we decreased the costs for our clients. Our revenue grew strongly, so we finished the year with a EUR 2.3 million revenue. The running rate of course, because we're growing so fast is higher.
If we were to go on, I would spend a few minutes discussing our pension fund, results on a basis of general, let's say, market view. As I said, our revenues grew over 42%. It's mostly driven obviously by the commission income because the investments that we make to banking, they don't bring us any revenue at the moment yet until we get the license. We had an improvement in terms of our customer engagement. Every year, despite our good results and our transparency and our brand value, some customers decide to leave, INDEXO. Last year that number decreased, so our customer retention improved significantly to 94%.
An important milestone was that our 75% equities fund, JAUDA, was converted into a 100% equities fund. We did that because the legislation changed and allowed us to invest more money into equities, which is the best strategy for most of the people participating at the moment in the second pillar pension system. That also promises statistically to deliver long-term better returns. To just give you a feel of what our history has been, we wanted to bring up a five-year time series of our growth. As you see, we started off in 2017 with half a year operations.
We reached EUR 30 million of assets under management, and in five years we have grown to EUR 585 million, and today we are obviously already much higher than that. Obviously also in the client thousands of clients figures have significantly increased over time and our sales channels are working really well. We expect to grow strongly also going forward. Market share obviously then improves as well as the customer number and assets under management are increasing. As you can see from here, our also, like most of our customers are more valuable in terms of assets than our competition customers.
That is, 6% of the customers' market share relates to 9% of assets under management market share. That of course shows that despite of the fact that we are already like getting to the 10% of market share, we still have a lot of room to grow. When we look at the across the competition, who was the fastest growing asset manager, then we just wanted to bring up like some comparison. As you can see, basically INDEXO is the by far the strongest growing manager pulling customers from all, pretty much all the other competitors. You can see that when we started five years ago, obviously we had like zero market share.
It has grown significantly, and we wanted to show this picture, from a point of view that, we are on a strong path to become the third largest asset manager, in Latvian in the second pillar, funds, within hopefully this year. We have already overtaken Luminor, in January and so next in sights is to grow, past SEB. This is now like a specific segment look on the second pillar, pension assets, which is the basically the bread and butter of our business. You can so see the same, strong growth rates that we talked about before.
Our customer number has annually grown almost 50% and our assets under management has been growing almost 70% on an annualized rate over the last five years. This growth in the assets is driven by several main ingredients, so to say. Firstly, as the customer join us, they will bring over their monthly contributions that go from social tax. This means that we constantly have a incoming cash flow that goes into the fund, on which we earn then our commission fees. Our successful client acquisition model allows us to add customers with already existing savings. They contributed last year EUR 143 million into second pillar growth.
Then we have some customers who pull out their their savings pots from from INDEXO. Last year obviously was not the greatest year in the financial market, so last year growth was actually dampened by the market returns, where S&P 500, which is the sort of biggest part of our in-investment strategy, to decrease significantly. Again, we want to emphasize that over long term, the equity markets will grow. So we are not worried about the volatility. If there are, like, some years when the markets are dipping, there will be many years when the markets are growing. Wanted to also show you more specifically our monthly contribution increases. As our customers' numbers grow, this money flow constantly increases.
It also increases due to the fact that the customer salaries grow, and Latvia and the whole Baltic countries have been on a very fast salary growth track record for five last years. We expect strong growth also to continue to the future, mid-midterm future. Third pillar, which is an important product for us because we think that before INDEXO came to the market, third pillar as a voluntary saving was mostly to get back the income tax that people could get by making a investment into the third pillar fund. We want to make sure that people understand that this is actually a great way to save long-term for, to supplement their retirement.
Retirement income will consist of first pillar contribution, second pillar contributions, and ideally, also third pillar contributions. Tax incentives are a great way to motivate people to save, but also due to the fact that we came to the market with lower fees and also very clear passive strategy, we expect that our third pillar customer funds will also show similar growth that we have shown in the second pillar savings products. That keeps compounding to add to our customers' pensions once they retire. The growth in third pillar was good. Last year, we added almost 7,000 customers. Our assets keep growing.
Our innovation in the third pillar is that we allow people to make a kind of a life cycle automatic management where the risk of the portfolio will change once the person starts getting closer to the retirement age. Here I hand over the microphone back to Valdis.
Thank you, Henriks. What it means from for our profit and loss statement, as Henriks mentioned, our revenues have increased considerably, and we have, before customer acquisition, we have managed to achieve last year EUR 1.5 million profit. As we were growing so far, we're investing a lot of money in new customer acquisition, so the customer acquisition spending has been considerable, but we are not absolutely afraid of that. We are acquiring customers substantially below their lifetime value. Actually, if we would find a way how to grow even faster, we would be glad to invest even even more.
After client acquisition costs, our accounting result is a small minus, then we have the bank development project with IPO and all other costs. There we have invested almost EUR 1.2 million. Our net result for the year, including our core operations and the new bank development project, is almost negative EUR 1.3 million. To be completely transparent, I'd like also to reemphasize that our customer acquisition cost you see in our P&L statement consists of two parts.
Or actually, on top of what you see in our P&L statement, there is also a small part of the total cost we capitalize and then amortize over a five-year period. That is all disclosed in our financial statements and described in details. I just wanted to be completely transparent that there is this additional component of our customer acquisition costs. Before the seminar, actually all pre-submitted questions we received, they were all about the bank, not our not about our asset management business, and I understand. We are very impatient ourselves, and we are very eager to start providing our banking services.
What I can tell, we have invested EUR 1.2 million in our bank project. Our ability to start serving first customers depends on two things, of course. The first is a bank licensing. We submitted receiving a bank license, and we submitted application to the Bank of Latvia, FKTK still at that moment, FCMC, in December. We are currently in a close dialogue and actively working with Bank of Latvia on this, let's say licensing component or licensing part of our project.
Another part is our technical ability to start serving our customers, and we are working towards the goal to be able to start servicing our banking customers this year, and most likely that is sometime this autumn. Although first of all, we need a team, and we have recruited key staff members. We are actively investing and selecting our key IT systems, and we have communicated about Mambu, Microsoft Dynamics and other systems we have decided to use, and that process will continue, and there will be more similar announcements coming.
Then mobile bank development is well in progress. We are emphasizing that because that will be a very central part of our banking offering and our distribution of the banking products, especially when it comes to private individuals. We believe that that is the way banking products will be consumed in the years to come. We really want to make a positive difference, create something different and better than what is currently offered in the Latvian banking market. We are actively engaging our customers in our product design, and we are very glad to receive a lot of responses, a lot of valuable suggestions
So we have asked, as I said, customer opinion about many things, starting from our credit card design and application design and application navigation, certain product features, et cetera. I'm very happy to say that the response rates have been very encouraging and even phenomenal. Within hours we usually get sometimes thousands of responses. That not only helps us to develop the design, the better products, and that is not only very valuable feedback to us. What we get also another feedback that customers really appreciate that we care and that we listen to their opinion. Probably that is not very common today in the banking market. That was basically our main highlights.
I think we are, we are open to questions now. Oops, sorry.
Henriks, Valdis, thank you for the presentation. Indeed, let's continue with the Q&A session now. For the participants, a reminder that you can submit your question to the company through the Q&A window that you see beneath the presentation. Couple of investors are interested in the process of starting the banking operations in Latvia. How far is the INDEXO from opening the bank, and when could INDEXO Banka start operating in Latvia? Is there anything that you would like to add in addition to what was said already?
Yeah. Unfortunately not much. Again, it's a licensing. It's our technical readiness. It is a complicated process with a lot of interdependencies, and, but, we still are working on targeting to be ready definitely by the end of this year. Of course it depends on many things, and there are risks. For instance, bank licensing, that's not fully in our control, and that is subject to ECB and Bank of Latvia decisions, recommendations. Henriks, if you have anything to add?
I think you covered it all. I think like. What I want to emphasize though is that the process is very productive in a way that we are not spending time idly waiting for anything to happen. We are working actively with all the participants in this process to make sure that it happens as swiftly as possible.
Thank you. Janice would like to know, in the context of the new bank, are investment brokerage services also planned?
In a longer run, definitely yes. We want to be, let's say in this couple of years, in several years, we, I've always said we don't want to be some sort of a niche bank offering something and not, and not offering something else. Definitely yes, in a longer run. Probably the only difference from some of the traditional banks would be that we would emphasize primarily or only digital distribution channels, meaning internet, mobile app, et cetera. We don't have intention to develop any branch network. At the same time, I must say that the brokerage services is not very easy.
It's not the simplest, the product, and that will not be part of our initial offering, and we will not be able to offer those services this year. That would be part of some other following, how to say, deliveries or expansion, expansions of our offering, our services. So yes, but not this year, let's say.
Thank you. Thomas would like to know, are there plans for further share offerings as the banking subsidiary is starting up?
Yes. We have communicated also during the IPO process that the bank is a capital intensive business and we will need, we'll likely, most likely will need further capital increases and share issues. That here I would like to emphasize that we don't need like in other businesses, we don't need cash. We have cash for developing the products, et cetera, but we need regulatory capital to comply with all the regulatory requirements and to grow our balance sheet and to lend money to our customers, we need to also increase our capital.
It is very likely that we will need such further capital increases and in agenda of our shareholders meeting at the end of this month, that is, that will be also one of the items we will discuss. Yeah, that's on agenda.
The next question is about your partnership with Mambu. Can you please elaborate on the decision to choose Mambu as a partner for banking services? What were the main arguments supporting this choice, and how would it support your further growth?
Hmm. Yeah, I'm feel sorry that we don't have our Chief Technology Officer present, so he probably would be better person to answer. That was quite lengthy process already started in spring. We approached several leading core banking service providers and that was a very complicated matrix and actually not an easy decision at all. There were several really, really good alternatives. We looked at things like okay, the functionality, the technology. We are looking for cloud-based services, modern IT architecture and also track record and reliability of the service provider.
Mambu scored well in most of those criteria, and that's what, why we eventually picked Mambu. Henriks, yeah, please add.
Obviously you didn't mention, one of the most significant parts of the equation, that was price as well. We obviously, software as a service is sold, normally as a long-term contract. We had actually, like, our business aspirations mapped out for all the possible bidders. We were discussing how that pricing is going to be changing when we grow and so on, so forth. From that point- of- view, it was also, like, not just a kind of one decision, but it affects our life, obviously for quite a, quite a long while.
As general, I think the exciting, the exciting thing about launching a bank actually, this day and age is that the flexibility that the systems offer, mean that, we hope that we will be able to produce something which is much more agile in change, dependent on the customer needs. Also, let's say, that we will have, we will avoid having a large number of people working in-house to provide basically services for ourselves. That's a very important consideration looking at our growth aspirations.
Thank you. Continuing on the same note, regarding the bank, are you hiring cybersecurity management?
Yes. Well, we, of course, we pay a lot of attention to that and also that's. That is something we have to demonstrate to the regulators, otherwise we will simply not get the banking license. Currently, we are using external consultants, mostly, but yeah, we will have people with adequate expertise also in the team. Yeah. Henriks?
Yeah, just wanted to add here that if that part-particular person is, wishing to apply for a job with us, we invite everybody who is interested.
Yeah.
In changing the world, changing Latvian financial markets to talk to us. We will be growing our organization and everybody who has the attitude that they want to make this, our Latvian country a better country or the financial system better, then please drop us a line, email us, connect us over LinkedIn, and we're looking for talent.
Yeah, indeed. Some, in our recruitment process, of course, we're using a traditional ads, but some people have joined our team actually by themselves reaching out and, yeah, willing to join the team, yeah. We are open. In general, we are hiring and we'll hire more people before we open the bank.
Thank you. Will you have an option to change from Mambu to anyone else if necessary?
Of course, Mambu will provide us, of course, very important but just a part of the services and we are there will be several systems integrated through APIs and another sort of technology. Don't ask me to go into details because I can't. So in theory, in theory, yes, but of course we didn't choose, didn't make this decision to replace it next year or a year from now. Hopefully, that will be not needed. That won't be. I am not saying, pretending that it will be super easy, but that would be possible. And it's not only for Mambu, but it's also for other systems we are using.
It's more like a, let's say, what we are building, it's more like a something like from a Lego bricks and where you can, if necessary, like replace one's provider with another and interface it with the rest of the systems.
Thank you. We're out of the questions. All have been answered. I would remind that this recording will soon be available online, therefore please follow INDEXO announcements to stay up- to- date with company's news. Valdi, Henriks, thank you for the presentation, and participants, thank you for a very valuable hour spent together. Have a nice day.
Thank you. Bye.
Thank you. Bye.