Russia’s largest bank has committed itself to the digital revolution. Not one for resting on its laurels, Sberbank has recognised the value of investing in online and banking solutions. And, despite having operations in 22 countries, Russia's largest lender is also refining its focus on its domestic business.
“The majority of our assets are in Russia, and the bulk of our business is in Russia,” says Lev Khasis, chief operating officer and first deputy chairman of the executive board at Sberbank. “We have to be focused on being strong in our domestic market. Even large companies can disappear very quickly if they are not ready for challenges.”
While it is unlikely that an institution such as Sberbank will disappear – after all, the bank accounts for 29% of all banking assets in Russia and nearly half (45%) of the banking sector’s deposits – it is never a bad idea for a bank to strive to be better. And, as a formerly state-owned institution, it is widely believed that further efficiencies can be found, especially with the incorporation of new technologies.
A digital dialogue
Sberbank is targeting a cost-to-income ratio of less than 40% by 2018. After the first half of 2015, it stood at 42.5%. First and foremost, the bank is cutting costs in order to bring the ratio down. “We are seeking to be the most efficient in everything,” says Mr Khasis. “Efficient in using our real estate, our staff and our IT infrastructure.”
New technologies play a pivotal role in the bank’s strategic business plan. This digital revolution has already allowed Sberbank to close about 1000 branches aimed at corporate clients, as businesses are predominantly banking remotely, with as many as 95% of businesses using online banking, according to Mr Khasis. The bank has a total of more than 17,000 branches
The cost savings are immense. Sberbank has decreased its real estate portfolio by 1.05 million square metres in the past two years, and expects to dispose of another 1.3 million square metres by 2018. Even after the closure of further branches and real estate disposals, Sberbank believes that it still offers sufficient branch services. The bank emphasises that employees are there to help, especially with advisory services, which is what Sberbank estimates the large majority of its clients are using its branches for.
In branches customers can also learn how to bank from home, another attempt by Sberbank to further digitalise its business in the future. “[Our employees] will show how our mobile or tablet application works – this is one of the ways we engage with our customers,” says Mr Khasis.
From January to September 2015, the number of active Sberbank online users increased from 17.7 million to 26.6 million. Sberbank is already increasingly selling products through digital channels, says Mr Khasis, which creates additional savings, as the costs of the client acquisition and sales are decreasing, which, in turn, grows Sberbank’s margin.
People power
Cost reduction is only one part of the formula to lower its cost-to-income ratio, with increasing income the other. Sberbank’s digital strategy intends to boost client acquisition both by attracting new customers through its innovative products and utilising its existing customers in its marketing efforts.
It is doing this through its mobile phone and tablet apps, which allow customers to transfer money to anyone with a bank account. While transfers to customers of other banks incur a fee, transfers between Sberbank customers are free of charge, in the hope that clients will lobby their friends and family to also become customers. “We are creating an ecosystem, because sending money from one person to another creates a community of customers loyal to Sberbank. And with the approach that within Sberbank it is free, they are encouraging each other to stay with Sberbank,” says Mr Khasis.
The number of users of Sberbank’s mobile app is increasing by an average of 800,000 per month, putting its active users at about 3.6 million. In any single day, an average of 1.73 million customers use the app.
Customer care
It is not just client numbers that Sberbank is targeting; the bank wants to better understand its customers and their needs. “We need to be client-oriented,” says Alexander Torbakhov, deputy chairman of the executive board and head of retail banking at Sberbank. “We need to learn what our customers want.”
A rethink was required to achieve this, according to Mr Torbakhov, who explains that Sberbank sent some of its staff to California to learn how to cater better for its customers.
“We use different channels for campaigning, including call centres and text messages with offers,” he says. “In the past, the view was: ‘Text messages come at practically no cost. Why not send them?’.” But a rethink was needed, according to Mr Torbakhov. Depending on the client, sending three text messages, which miss the target, can annoy a customer and this can get to such a level that they want to leave the bank.
“This means that three text messages come at a great cost: a reputational cost,” says Mr Torbakhov. “It is actually the relationship with your client.”
Sberbank needed to learn empathy, according to Mr Torbakhov, and feel what its customers are feeling. “If you feel the same, you are putting on your customer’s shoes and you start to understand what they really need – not your wonderful advice and advertising, but fulfilling needs,” he says.
He adds that this is a difficult concept to incorporate into Russian culture, "because people tend to keep their feelings to themselves and, in turn, also not bother with someone else's. We are teaching and trying to promote a cultural change,” he says. “It is a path that only a few of our competitors are thinking about, which gives us a tremendous competitive advantage.”
Future thinking
With its retail strategy on the right track, Sberbank is planning to extend its ecosystem concept to its corporate business. A service for legal entities, similar to what the bank currently offers its retail clients, is in the making but has not yet been launched. “And then, again, we are able to provide benefits for corporate customers, saying: you are a legal entity,” says Mr Khasis. “If you send money to another company within Sberbank it is almost free, if you send money to a company with an account outside Sberbank, it is more expensive.”
Looking even further into the future, Sberbank sees an opportunity to create a new and different service for inter-bank transactions. Sberbank has created ‘FinLine’ to attract other financial institutions to open an account within the application, to then use the system to send and receive payments with any bank within the community. This could create another potential source of revenue.
The bank is also co-operating with financial technology start-ups across the globe, and even holds shares in some of them. “Our main goal is not only to receive a return on our investment, but also take these technologies or business models to the market, in addition to our existing ones,” says Mr Khasis.
Ideally, Sberbank is hoping to create a marketplace interface, such as those belonging to Apple and Android, for other institutions to use and create apps on. This provides yet another example of Sberbank's efforts to reach its 2018 targets and stay one step ahead of its domestic rivals.
