In the business of doing business

Running one of the world’s largest super computers, with the biggest courier service in Russia and a raft of non-financial services, Tinkoff makes its billions by behaving more like an ecommerce giant than a bank, says CEO Oliver Hughes

When is a banking app not a banking app? Perhaps when it offers cinema tickets, access to stock markets, taxi rides, holidays, even a secure way to pay police fines.

Tinkoff entered the financial sector to popularise credit cards in Russia but, 13 years on, it’s now firmly focussed on consumers aged 24 to 37 and meeting not only their needs when it comes to the dull stuff of financial life, but also delivering the lifestyle services they enjoy.

With no branches, the bank was digital-only from the outset – which it claims gives it huge advantages over its bigger, bricks-and-mortar rivals. The bank’s founder – one of Russia’s super-rich, the serial entrepreneur Oleg Tinkov – has been dismissive of the ability of these, in his opinion ‘unfashionable’, institutions to get down with the kids.

He’s also pleased to point out that his bank-beyond-a-bank differs from similar challengers in that Tinkoff is hugely profitable. His attacks on the competition are famously robust, but the figures back him up. In July 2019, Tinkoff, which pulls in around half a billion dollars a year in net income, was named most profitable bank in Central and Eastern Europe by Financial Times Group publication The Banker, with a return on assets of 7.2 per cent and a return on capital of 46.4 per cent, the latter also the second highest globally.

Such a pragmatic focus on the bottom line helped Tinkoff survive both the 2008 global economic crisis and the 2014 Russian financial crisis. And it was evidenced by the bank ditching its home loans platform in May, because that particular income generator was failing to turn a profit. Now with net assets of £5.3billion, Tinkov himself considers the UK-listed bank too big to buy, and so it drives ahead with signing up millennial customers (almost two million were acquired over 12 months).

“Over the last few years, there have been all these great startups, the neo banks, the digital models, but there’s been very little emphasis on monetisation;  it hasn’t been completely apparent where the money’s going to come from,” says chief executive Oliver Hughes – clearly a man after Tinkov’s own heart. “I’m in the business of doing business, this is what Tinkoff is about,” says Hughes. “We deploy different ideas and approaches to acquiring customers and servicing customers, and we develop new technologies to do so. We want to give them a great experience so they’ll stay with us, buy more with us, and we’ll make money
from them.”

What clearly is good business is the portfolio offered via Tinkoff’s mobile app which, since June, has been fronted by a voice assistant called Oleg (well, of course).

Hughes says: “We have about nine million customers, half of them are borrowers and half are transactional customers, and in order to cater for the needs of our transactional customers we’ve been trying to push the engagement by adding more and more services. So, beyond all the financial services you’d expect to see – balances, repayments and transfers – we have loyalty systems, we have our own content, we give tips, advice, information about local events, sporting events, exhibitions. We’ve gone further, too.
We’ve integrated ticketing, so you can buy cinema tickets – we sell 300,000 a month – concert tickets, tickets to sporting events, travel tickets. We sell 100,000 airline tickets, you can book a taxi, book a table in a restaurant. The list goes on.”

Technology-focussed business

At its ecommerce core is backend technology, created in-house by the bank’s team of 2,000 young developers, which allows transactions to be carried out with one click. A customer’s personal data is used to automatically populate fields demanded by service providers on the Tinkoff platform – some required by the bank itself, as is the case typically with financial products, and others by third-party providers, such as passport details when booking a flight via the travel feature. The app’s traffic police fines payment facility, which looks quirky to a non-Russian, clearly meets a need in a country where random police checks of vehicles are common and the traditional way of paying fines is bureaucratic.

Another standout is the Tinkoff Investments service. Providing an online trading app isn’t so unusual for a bank, but the impact it has had on the Moscow stock exchange has been enormous – in 2018 it was responsible for 40 per cent of all new retail customers.

“In Russia, until a year and a half ago, investing in stocks, bonds, exchange-traded funds, whatever, was the privilege of a very narrow part of the population – a couple of hundred thousand people out of a population of 144 million, so it was completely undemocratised,” says Hughes. “So, we dipped our toe in the water and launched our direct market access mobile app. As well as being able to trade, there is no involvement from external parties, or annoying people pushing you stuff that you don’t want – or even misinforming you sometimes. We’ve now got 500,000 brokerage accounts opened, 400,000 in the last 12 months, so we’re absolutely skyrocketing. We’re changing the market and we’re opening the market up to retail investors who never did anything beyond having deposits before.

“They’re now educating themselves, using small amounts. It’s generally low-ticket, entry-level stuff. Some people like bonds, some like Apple stocks, some people like Sberbank [the state-owned Russian banking and financial services company]. But they’re all building up a position and experience. We have a robo adviser and customers can take investment tips from external parties, too.

“Over time, we anticipate that they will diversify their personal investments, so it’s a great trend that also helps to build up the capital markets, which are fairly underdeveloped in Russia.”

Customer engagement is the number one goal for Tinkoff. Its founder’s ambition is for the app to become indispensable to 20 million people by 2022; for it to be the ‘first screen’ on a customer’s phone and for them to look at it 10 times a day. Hughes, meanwhile, likens Tinkoff to an ecommerce company in both its scope and ability to attract customers. Powering this growth is the bank’s Kolmogorov cluster supercomputer, which was unveiled in spring 2019. Ranked as Russia’s eighth most powerful, it was created from a Tinkoff talent pool for which it can thank the science education legacy left by years of state-sponsored space programmes.

As well as providing the power to crunch data in seconds rather than months, Kolmogorov is allowing the Oleg voice assistant to develop by harnessing artificial intelligence. Beyond that, Tinkoff is developing the technology to automate customer service processes, including voice recognition.

Hughes says: “We have huge amounts of data and most of our people are analysts and technologists, so we know what to do with it. We use it not just to do targeted marketing and effective underwriting and risk management, but also to drive relevance for our customers.

“Kolmogorov informs our decisioning in terms of targeting content. We drive content to people that’s relevant, based on machine learning algorithms, because we know just about everything about them: what they buy, where they go, who their affinity group is. It means the user experience is second to none.”

Further development of the banking app, with the addition of both in-house and third-party services, is central to the bank’s plans to double its customer base and net income over the next three years.

One area being examined is Tinkoff’s courier platform, created to deliver its products to customers across Russia. That platform has grown to 2,500 couriers and 32,000 drops a day, and claims to be the country’s largest door-to-door logistics operator.

“We have been thinking about opening that up to sell partner services,” he explains. “We also have the largest distributed call centre in Europe, handling millions of calls with people everywhere in the Russian-speaking world. We can use that to sell other partners’ products, too.

“There’s always this trade-off, between focussing on our own stuff, sticking to our knitting, and opening up the platform to other players to sell or distribute through it. I think, over time, we’ll be doing more and more of the latter.”