Citibank opened its first retail branch in Moscow in November as Russia’s leading commercial banks begin to slug it out for Russia’s retail banking business.
The branch is not for everyone. The names of its two tiers of service – Citi-gold and Citi-platinum – give the game away; with Soviet-era big bank Sberbank dominating the mass market, Russia’s commercial banks are aiming at the increasingly wealthy middle class, for whom service is as important as solidity.
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Recent economic growth “has made it possible for Citibank to bring here the same kind of services that we offer to over 100 million clients all over the world,” Citibank’s president for Russia Allan Hirst said at the opening.
A Hungarian model Citibank is hoping to repeat the success it has had in Hungary, where it opened its first retail branch in 1995. By the start of this year it had collected $795 million in deposits there, while it holds only $20.8 million of Russian personal deposits.
With their eyes on the stable, low-cost funding that deposits might provide, many of Russia’s leading commercial banks are moving into retail banking. Most have spent the past three years building up business by offering accounts and plastic cards to the employees of their main industrial clients but in the last six months some have looked beyond this captive audience.
Guta Bank took over many defunct branches of Inkombank, one of Russia’s larger retail banks until it collapsed in 1998, and is using credit and debit cards as the main incentive to win custom. Sergei Abramov, its first vice-president, says: “The demand for plastic cards is even bigger than we were expecting.”
The bank planned to issue 80,000 bank cards over the first half of 2002 but actually handed out 120,000.
In November Guta Bank also tied up with Rosintern, a leading Russian fast-food chain, to issue a co-branded debit card that gives members a 10% discount at Rosintern’s restaurants. Likewise Sberbank’s tie-up with Aeroflot was backed by a big advertising campaign in September. Many other banks have adopted a similar ploy.
Commercial banks are hoping to attract the lucrative middle-class business away from Sberbank, which accounts for just over 75% of all Russia’s individual accounts. The next biggest retail bank has a little over 2% of the market.
The only bank catering to the population in Soviet times, Sberbank had whittled down its branch network from 38,000 in 1995 to just over 20,000 by the start of 2002. Its biggest rival, Gazprom bank, has a mere 200 branches. In a third of Russia’s 89 regions there is no bank except Sberbank.
The problem is the cost of opening branches, estimated at about $400,000 each. Stealing customers from Sberbank is not hard but with average incomes of about $144 a month, opening in cities other than the 13 millionki – cities with more than a million residents – is not economical.
Many of the top 30 commercial banks have opened new branches or bought regional banks outside Moscow over the past three years but they are all chasing industrial clients and have begun offering retail services only as an afterthought.
And now Sberbank is fighting back. In November it announced plans to reverse closures and will open the doors on a chain of VIP branches aimed at middle-class customers this year.
Analysts estimate that the sheer size of Sberbank’s branch network means that even with the new deposit insurance scheme the bank’s share of the retail business will fall to 55% to 60% by 2005.
However, the central has made life easier for banks wanting to get into the retail market and in October scrapped most of the regulations that govern how bank branches should be built, rules on security and rigid specifications for bank vaults. The first bank to take advantage will be Alfa Bank. One of Russia’s leading commercial banks and already a top three retailer, it plans to revolutionize the retail business with its Alfa Express retail services.
The new branches will use the latest in teller cash dispensers (TCD) technology. Something between a glorified ATM and a slimmed-down branch, the new machines cut out the need for expensive vaults and heavy security. Customers and tellers interact in an open-plan office and both have to swipe smart cards through a reader before the dispenser will count out cash and open a drawer for the teller. The bank’s employees have no direct access to cash and everything is controlled and monitored by sophisticated IT systems.
Maciej Lebkowski, Alfa’s head of retail banking, who set up retail banking systems in Poland, says: “Retail today is about managing costs. Russia is huge but highly fragmented. If you want to do mass banking you have to watch the bottom line.”
Competition in retail banking is stiffening and Lebkowski won’t say how much the Alfa Express branches will cost to set up except that it is “significantly” less than for traditional banks, which will allow a rapid expansion beyond the millionki.
