Alfa-Bank can regain its status as Russia’s most digitally sophisticated lender within three years, new chief executive Vladimir Verkhoshinskiy has told Euromoney.
The 37-year-old Citi and McKinsey alumnus, who headed VTB Bank’s retail operation before joining Alfa-Bank in August, says Russia’s largest privately owned lender had lost some of its competitive edge in recent years.
“In the mid 2000s, if you asked someone what’s the best bank in Russia, they would most likely say Alfa-Bank,” he says. “Over the past five years, however, the sector has changed. State-owned banks are showing tremendous growth in digitalization, while digital monoliners are emerging as competitors.
“You can’t say today that Alfa is perceived as the best bank in Russia. Our strategy is to get this position back again.”
|Vladimir Verkhoshinskiy, |
For Verkhoshinskiy, technology is key to Alfa-Bank’s renaissance. The lender, which is part of Mikhail Fridman’s Alfa Group, was the first in Russia to introduce both internet and mobile banking.
Last year, however, Russian rating agency Markswebb ranked the bank eighth in the sector for digital banking.
Verkhoshinskiy says this slippage was partly due to a lack of focus.
“Five years ago, many players in the Russian market – including Alfa-Bank – were in a situation where they didn’t know what to do about technological changes, so they decided to try to do everything,” he says.
As a result, by last year Alfa-Bank had 370 digitalization projects ongoing. “That’s too much by a factor of 10,” says Verkhoshinskiy.
His solution has been to implement a strategy of “smart simplicity”, which in terms of technology means focusing on a handful of key infrastructure projects such as the development of digital signature capabilities.
“This will be a game-changer for Russian banks,” he says. “It’s not just about efficiency. Having digital signature technology will affect processes throughout the bank.
“Everyone in Russia is talking about this right now but nobody has yet made a breakthrough. I believe we can implement this within the next 18 months and be the first to make full use of it.”
Verkhoshinskiy has also initiated a fundamental transformation of Alfa-Bank’s retail digital offering based on “customer journeys”. He identifies eight of these, including daily banking, salary accounts, small and medium-sized enterprise on-boarding, SME lending and investment products.
The new model has already been successfully introduced in credit cards and personal loans.
“I am super-satisfied with the results,” says Verkhoshinskiy. “The overall client experience has been dramatically improved and our growth in both segments was much stronger in the second half of last year.”
Alfa-Bank is now working on a similar solution for mortgages, including full digitalization of the mortgage application procedure as well as the integration of the customer relationship management systems of real estate retailers and developers with the bank’s mortgage process.
“If we can complete all of these projects, it will make us the bank of the future in three years automatically,” says Verkhoshinskiy.
The bank is also reaching out to fintechs via its holding company, ABH Financial. In October, the Luxembourg-based group – which also owns Ukraine’s Ukrsotsbank as well as subsidiaries in Belarus, Kazakhstan, the Netherlands and Cyprus – announced plans to take an anchor stake in newly launched fund Corviglia Capital.
The fund, which was set up by former Alfa-Bank chairman Petr Smida and Alior Bank co-founder Cezary Smorszczewski, is targeting a total investment in global fintech firms of $500 million.
Verkhoshinskiy is not, however, a fan of the concept trialled by some larger universal banks of creating a separate digital lender.
“It’s a sort of hedge – if you don’t succeed here, you might succeed there,” he says. “We don’t believe in the success of these ventures. Maybe five out of 500 will survive.”
He also has no ambition to follow the example of state-owned firm Sberbank by expanding its product range to create an Asian-style ecosystem designed to lock retail customers into a single platform.
“We are not an IT company,” he says firmly. “We are a bank.”
Verkhoshinskiy prefers “practical partnerships” with the likes of retailers and telecoms operators, whether external entities or other companies within Alfa Group, which includes X5 Retail, Beeline, Alfa Insurance and Alfa Capital.
He stresses, however, that increasing Alfa-Bank’s non-interest income is a priority.
“Alfa-Bank has always been a benchmark in terms of commission income but I want to improve this still further,” he says. “At present, our risk-free income is close to 80% of our cost base. I want that to be 100% by 2021.”
Last year, the bank’s net fee and commission income grew by 15.6% but fell as a proportion of operating profit to 31.2% from 35.8% in 2017. Overall net profit was up by 65.5%, giving a return on equity of 19.5%, while total assets increased by 5.5%.
Verkhoshinskiy’s new focus on simplicity also means reducing investment in less profitable parts of the business. These include corporate and investment banking, where Alfa-Bank has traditionally been strong but has more recently lost ground in a shrinking market to Russia’s state-controlled banking firms.
“We can be faster, more creative and more customer-friendly, but we still struggle to compete with the state-owned banks,” says Verkhoshinskiy. “We are deriving decent profits from it and plan to do so in future, but we don’t plan to make significant investments in digitizing or changing the division. It's not a priority for the group.”