The Russian government is committed to creating a strong fintech community to rival other global innovation hubs, and domestic banks are playing their role in providing start-ups with know-how and backing, writes Heather McKenzie. 


While the UK and the US share most of the financial technology (fintech) limelight, other countries are emerging as strong players. Digitisation is a disruptive force; status as a traditional global financial centre does not necessarily guarantee fintech domination.

Singapore-based bank DBS and consultancy EY recently claimed that China had leapfrogged the UK and the US to become the “undisputed global fintech hub”. Neal Cross, DBS chief innovation officer, says: “China’s landscape has operated in a sandbox-like environment conducive for fintech – a strong domestic market, coupled with a constant push for innovation and experimentation driven by leading banks, unhindered by international influence. Much of this can be attributed to the favourable government policies and regulations.”

Funding for innovation

Russia is also giving government backing for digital innovation. In his address to the country’s Federal Assembly on December 1, president Vladimir Putin announced plans to create a “next-generation digital economy” based on domestic innovation. Russia’s IT industry is rapidly developing and exports hit $7bn in 2015.

Russia has solid foundations on which to build a strong fintech industry, including a long tradition of academic excellence in science and mathematics. Moreover, many of the country’s banks are relatively young compared with their Western counterparts and are unencumbered by legacy systems, processes and thinking.

Lev Khasis, chief operating officer and first deputy chief executive of Sberbank, says many Russian banks began innovative fintech developments in the early days of the internet. “There are a few banks in Russia that may be considered state of the art in technology and innovation. Sberbank was probably the only Russian bank facing legacy issues. During the past eight years, we have been catching up, investing in technology and building up digital banking,” he says.

In June, Sberbank teamed up with the Russian government-backed Internet Initiatives Development Fund (FRII) for internet start-ups to launch an accelerator for fintech projects. FRII will select projects while Sberbank will provide start-ups with expertise and funding for pilot projects.

Leading the way

Fintech in Russia is led by the large banks, particularly Sberbank and Tinkoff, according to an October report by Sberbank, Who Innovates Wins: Lifting the Lid on Fintech in Russia. Sberbank’s online retail banking platform is the largest in Russia, with more than 33 million users. Growth is increasingly driven by mobile, with mobile-only users increasing from 1.4 million at end 2014 to 10 million by the end of the third quarter of 2016.

Tinkoff Bank is relatively new; established in 2006, it is now the world’s largest standalone online bank (by number of customers). It has 5 million customers and a return on equity of 43.4% in the third quarter of 2016, making it one of Russia’s most profitable banks. Sberbank’s report states: “Tinkoff is almost a decade old and, having proved that a fully branchless model can work in Russia, remains one of the most successful fintech stories in the country.”

Oliver Hughes, chief executive at Tinkoff Bank, says fintech means “a new way of doing business or a new way of providing financial services, typically digital but not necessarily exclusively so. It also means using data to drive insights to run the business”.

Tinkoff began as a credit card monoliner (and as Russia’s first direct bank) and has since added products to its portfolio, including individual current accounts, deposits, small and medium-sized enterprise servicing, partner mortgages and investment services. In the fourth quarter of 2016 the bank launched ApplePay and Samsung Pay. An online financial supermarket,, is being developed that will distribute Tinkoff and partner products. At present the bank operates within Russia, but Mr Hughes says it is looking at where its model can be applied abroad

Russia’s know your customer regulations require identification via an in-person meeting, and Tinkoff met this challenge via a network of ‘smart couriers’. Mr Hughes says: “A potential customer can complete an application form over the internet or on their mobile, which Tinkoff Bank processes remotely. Then our representative will deliver our product at any place and time convenient to the customer.” A network of 1500 couriers covers more than 10,000 meetings every day.

Fostering in-house talent

Most of Tinkoff’s IT development is done in house: more than 60% of the staff at Tinkoff’s headquarters are IT specialists. They develop user interfaces, customer relationship management and innovative systems such as biometric identification, voice-to-text and chat servicing, and a cloud-based call centre. “We have become a fully fledged IT company that develops its own systems,” says Mr Hughes.

Developing in house is challenging, not least because Tinkoff has to compete with large IT companies and Silicon Valley for programming talent. “While it is challenging, developing in house also gives us flexibility to build integrated solutions for our customers that are second to none in Russia and cannot be found elsewhere, even in developed markets such as the UK.”

Tinkoff also acts as a fintech incubator. There are many fintech companies in Russia with which the bank collaborates and sometimes even buys. However, more often than not innovative ideas are generated internally. The bank monitors the global fintech scene, says Mr Hughes, but one thing that “doesn’t fly” is the idea of sinking endless rounds of funding into start-ups that may never get a product to market.

“A product has to give a good service and a return to shareholders. If something is not profitable, we don’t do it,” he says. “Some of the unicorn start-ups – the ones that have capitalisation of $1bn plus – don’t make money and in some cases their business models mean they never will. It is a mystery to us why that can happen.”

Despite the severe geopolitical and economic headwinds Russia has faced, Tinkoff has remained profitable as of September 2016, says Mr Hughes, posting a Rbs7.3bn ($164m) net income.

International collaboration

While tension between Russia and some Western countries is high, delegates at the recent Eastern Seasons Russian-British Business Forum in London were told that at the “highest government levels” trade between the UK and Russia is encouraged.

Fintech is one area of potential and international collaboration that is already under way. Dmitry Politov, director of the international relations department at the Skolkovo Foundation, describes digital technology as “one of the deepest changes for humanity that will change the way we all interact”.

The foundation is a non-profit managing entity of the Skolkovo Innovation Centre, which was established near Moscow in September 2010. As an incubator for innovative start-up companies, it now helps 1600 companies, including Cashoff Laboratory, a developer of systems for cash-flow analysis.

Cashoff chief executive Dmitry Gorkov says the company will establish operations in London in 2017. While the Russian government encourages investment via the Russian Venture Capital fund of funds, Russian companies prefer to invest abroad, he notes. By setting up operations in London, the company can gain access to a wider market and a bigger pool of potential funding.

Skolkovo’s collaborative efforts include a big data solution to detect fraud in retail lending designed by DoubleData and US companies Equifax and Fico. Payment solution provider CardsMobile is working with London-based Tedipay in a $9m deal to create an open wearables platform for secure contactless payments, mass transit and access control.

Visual recognition technology company VisionLabs has worked with Facebook and Google and is developing products and applications with Intel, Cisco and Deutsche Telecom (as part of the global Internet of Things accelerator ChallengeUp!). In 2015, Wells Fargo piloted VoiceKey.OnePass, which was developed by Skolkovo’s STC Group.

Russia in front

Despite London’s strong fintech scene, Ilya Sachkov, CEO of cyber security firm Group-IB, says in terms of innovation such as internet banking, UK banks lag those in Russia. “Russian banks such as Alpha and Tinkoff are very innovative and use technology in an interesting way for retail and corporate customers. Their online presence is also very secure,” he says.

Online security is increasingly important and Mr Sachkov says Russian companies have been “on the front line” in fighting cyber criminals, with attacks on banks common since 2013. Russian criminal groups are experienced in successful hacking of almost all types of banking systems, including payment gateways, ATMs, card processing and trading terminals. Europol and Interpol use products from Russia’s Kaspersky Lab, but UK banks are generally reluctant to work with Russian companies, he says.

Speaking at the forum, Matthew Sebag-Montefiore, a partner at management consulting firm Oliver Wyman, said that while initially UK banks might be reluctant to work with Russian companies, if a product “does what it needs to do”, quality then dominates the discussion.


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