Russia’s most successful incumbent and challenger retail banking players have added mobile phone services to their product offerings in a bid to ramp up returns.
Online financial services provider Tinkoff Bank and state-controlled giant Sberbank are currently rolling out mobile virtual network operators (MVNO), after launches late last year. Both are using the network and infrastructure of Tele2, Russia’s fourth-largest mobile operator.
Sberbank’s mobile service is targeted at the lender’s existing clients, who comprise around half of all retail customers in Russia. Called Let’s Talk, it offers a package of free minutes and data via a mobile app and is designed to slash the bank’s own telecoms costs. At present, Sberbank spends around $100 million a year sending text messages to customers.
By contrast, Tinkoff is looking to attract new customers with its mobile offering, which is aimed at the premium market.
Oliver Hughes, CEO of Tinkoff
“Our target customers are travellers, economically active and socially mobile in all senses of the word – in other words, the Russian middle class,” says Oliver Hughes, Tinkoff’s chief executive.
He estimates the size of this segment at up to 20 million people, of which Tinkoff is hoping to capture a substantial chunk.
“We’re looking to add millions of customers over the next few years,” he adds. “This isn’t small or niche. We’re thinking big.”
In keeping with its premium branding, Tinkoff Mobile’s pricing is relatively high by the standards of Russia’s fiercely competitive market. The firm is, however, offering attractive rates on data and international roaming to tempt its target customer base.
Hughes also believes Tinkoff’s focus on customer service will prove as effective in the mobile business as it has in consumer finance, banking and insurance.
“Service levels in the sector are shocking and the level of customer engagement is probably negative,” he says. “It’s ripe for disruption.”
He is keen to stress that Tinkoff Mobile is a “full MVNO” rather than a simple white-label service.
“We’ve built a lot of our own infrastructure in terms of smart routing, deep packet inspection, billing etc,” he says. “What is more, we built it really quickly.”
Launching a mobile operator has been a long-term ambition of Tinkoff’s owner, Oleg Tinkov. The flamboyant Russian billionaire was apparently inspired by the success of Virgin Mobile, the MVNO launched in the UK in 1999 by his friend and sometime role model Richard Branson.
For the first 10 years after its launch in 2006, however, Tinkoff Bank was kept busy building up a successful credit-card franchise, now second only to Sberbank in Russia. More recently, the firm has added insurance, mortgage and investment products via online financial supermarket Tinkoff.ru, as well as small and medium-sized enterprise banking.
At the end of 2016, the MVNO idea was revived and Tinkoff Mobile was formally launched last April. George Chesakov, who helped set up Tinkoff Bank and served as board chairman for five years before spells in venture capital and as head of OTP’s Russian subsidiary, returned to head up the new unit.
The build-out of the new systems began in late 2017 and the first calls and texts using Tinkoff Mobile were sent in early November. The service was soft launched for bank staff on December 1, before a full commercial launch two weeks later.
Marketing was initially focused on Moscow and St Petersburg, but it will be rolled out to cover other large cities and then the rest of Russia over the course of this year. So far take-up has been strongest among existing Tinkoff clients – who currently number close to seven million – but Hughes says the service will also attract customers from outside the group.
He notes that this, rather than revenue generation, is the primary aim of Tinkoff Mobile.
“Whether this service will make a big contribution to our bottom line remains to be seen,” he says. “That’s obviously what we’re gunning for – but even if it doesn’t, this is still a way to bring new customers into the Tinkoff ecosystem in large numbers, to whom we can then cross-sell other products. That’s where we’ll make our margin.”
At the same time Hughes is clear that the mobile operation will have to pay its way.
“Everything we do has to at least break even,” he says. “We don’t operate business lines at a loss, or not for long.”
Sberbank also sees the creation of a mobile operator as an important step in the development of its retail business, according to a statement announcing the expansion of the service in early December. The state-controlled lender already offers non-banking products in areas such as healthcare and real estate to its retail clients.
As with Tinkoff, work on Sberbank’s MVNO began in 2016. Testing began on the network in St Petersburg in August and roll-out in the city began at the end of last year. By the end of this quarter, it is due to be extended to all the bank’s branches in the wider Leningrad region.
To date, Sberbank and Tinkoff are the only banks in Russia to enter the mobile market. Leading private sector lender Otkritie was preparing for the launch of a white-label MVNO with mobile operator Beeline last year, but the project appears to have been shelved following its takeover by the central bank in late August.