Oliver Hughes, CEO, Tinkoff Bank
Please give us a bit of background on yourself, and how your organisation plays a leadership role in the financial technology space.
Tinkoff is a digital bank that provides an extensive range of financial services products with over 5 million users across Russia. We do this with no fixed infrastructure and are completely cloud-based. We provide the full range of consumer lending products, current accounts for individuals and SMEs plus a wide range of payments solutions through mobile as well as solutions for retailers, including online POS loans, loyalty and data mining. We span just about everything in online retail.
What underpins this is our unique platform, which is unlike any other financial services company we’ve come across. This platform is built on four main blocks. The first is our ability to generate and process a huge inflow of applications across all products. We are currently handling over one million applications per month with 600-700,000 credit card applications alone.
The second block is our ability manage customer follow-up. We know how to manage the marketing funnel to optimise conversion of leads through our use of metrics and the touch points we have with customers. In this way we share a lot in common with e-commerce companies.
The third block is our distribution and fulfilment network. We have 1,500 smart couriers that between them cover the whole of Russia; from the largest cities to the smallest towns. As a result, you could apply today and get the product delivered to your home tomorrow. We are the largest door-to-door fulfilment company in Russia and currently do over 12,000 deliveries per day.
The final block is our service platform that comprises the best mobile and internet banking solutions in Russia and high volume call centres that deploy innovative solutions such as chat and biometrics.
It's this marriage of online and offline capabilities that makes us a high volume and high growth business. To give you some more sense of our scale, we are issuing over 130,000 new credit cards and are opening 80,000 individual current accounts and over 10,000 SME accounts each month. Rather unfashionably for a ‘fintech’ bank, we're profitable too. Our ROE was 43% in Q3 2016. That makes us one of the most profitable banks in the world by ROE.
How well are financial companies adapting to the rapid pace of fintech development? What fields are furthest ahead of the game, and what sectors are being left behind?
There are some pretty seismic changes taking place in the financial services industry at the moment. The area that’s leading the way in terms of change, from a user’s perspective, is mobile. Particularly among younger people, transactional banking is increasingly being done via mobile. The lighter end of the retail product chain is also moving towards online and mobile. Payments is part of that, and to an increasing extent retail investments.
The areas that are getting left behind are corporate and B2B products, although that may well change with the advent of the practical application of blockchain technology. The more heavy-duty retail products too - like mortgages or car loans for example - that require more detailed discussion and documentation. We might see that change over time but at the moment, if you take a mortgage application, the process is pretty convoluted and while elements can be completed online or via mobile, particularly at the front end, it’s not conducive to being carried out fully online.
What challenges do you see for fintech development and disruption, both from a user's perspective and from a regulatory standpoint?
I see one of the main challenges being parochialism. We've been able to innovate and find solutions to different challenges be they in customer interfaces, retail distribution or regulation. These sorts of approaches work for particular local markets. The challenge for digital players, such as ourselves, that have grown up very successfully in their home countries is how those approaches will travel across borders, from market to market where operating environments, regulatory frameworks and customers are very different. That's probably one of the biggest questions for us right now.
What impact do you think Brexit will have on the broader financial technology industry in the UK?
We look at the UK market with interest. There's clearly a lot going on there right now but also because we've been thinking about international expansion ourselves and the UK could at some point be one of our targets.
If you think about what has happened there from a banking perspective since the financial crisis, there's been liberalisation of licences in an effort to promote greater competition. As a result, there has been a lot of hype and capital available to start-ups in the financial services arena. We’ve seen the likes of Shawbrook and Metro Bank enter the market early and establish themselves. They have done very well. Others, particularly in the fintech space, the ‘digital challenger banks’, are just coming through now. The capital raising efforts to date have been relatively easy with VC and early-stage PE money flooding in and this is where the focus has been rather than on the business model or on the product.
In the wake of Brexit, however, capital providers are beginning to get cold feet and the new banks will see their business model put to the test. There isn't the same abundance of capital for the second, third or fourth round of funding so it will be interesting to see how that impacts the fintech and challenger bank scene. Tinkoff launched just as the global sub-prime crisis was happening and found it very difficult to raise capital. As a result we learnt very early the importance of cost discipline and about the scarcity of capital when times get tough.
What will you be discussing at The Economist's Finance Disrupted Conference on January 25th 2017 in London?
I suppose the central topic is whether banks have been written off too early. I don't want to sound too reactionary, but over the last couple of years there’s been a sense that the banks have had their day and are on their way out to be replaced by the fintechs. The picture that’s emerging though is that it's not that straightforward. Some fintech start-ups will find a viable business model, probably based on a single product offering and the question for them will be how they diversify away from their one business line to create a sustainable business. They may partner with incumbent banks or may get bought up by banks - as we've seen in the case of BBVA and Atom Bank.
There's the other phenomenon, that I'll be presenting, which is that there are many innovative banks worldwide that have the advantage of working from the cloud, are infrastructure light and operate with a low fixed-cost base. It's possible for these banks to thrive by adopting new technologies and approaches without being a non-traditional financial player.
I will also be talking about how we're looking to build an online financial supermarket. We are beginning to offer non-Tinkoff, partner products such as mortgages, insurance, investments, alongside Tinkoff own-brand products. This will be ramped up over the next 12-24 months as we move towards becoming a hybrid of a digital bank and a financial market place.
What role does fintech have for the unbanked/underbanked?
If you compare fintechs to the traditional branch-based banks, they tend to be infrastructure light. They don’t require the heavy-duty infrastructure to provide financial services. If you're working in the cloud you don't have those limitations. You're able to do a lot more in terms of service provision and financial inclusion and can go deeper down into different geographies and customer segments.
To learn more about the Finance Disrupted event, please click here.