After the Russian crisis began in September 2008, the markets completely shut down. You would have to have been Gazprom to place bonds or attract loans. We were not counting on it. Our bank’s model had assumed, initially, that we would buy cheap debt in bulk and then place it via the credit cards. But there was no wholesale financing available. We decided, therefore, that we needed to turn to the public investors’ market. We had inherited membership in the deposit insurance system from Khimmashbank. But how were we to attract deposits when we had no branches? Russian law requires that, upon acceptance of deposits, a representative of the bank must be present to confirm that each customer’s identity corresponds to his or her documents. Necessity is the mother of invention, however, and so we came up with the following model: we reached an agreement with Russia Post on a deposit-acceptance pilot project. We began with three regions: Permsky Krai, Chelyabinsk, and Kemerovo Provinces. And why these? Each of the three is very similar to the other two: all three are typically Russian in terms of population, GRP, and the number of post offices per capita. In November, too, in order to continue testing the concept in Russia’s central zone, we added Ulyanovsk Province to the list of regions.
We were geared towards ordinary Russian citizens, people who were tired of waiting in lines, of endless paperwork, and of the low interest rates in traditional banks. Our economics enabled us to pay the most attractive interest rates; our remote service technology allowed us to offer proven service at the highest level, without having to open cumbersome and expensive branches. We offered twenty-two percent annual interest on deposits, which was a little higher than that offered by other banks in 2009.
In the summer, the Central Bank began fighting excessively high interest rates on deposits. But we could not suddenly drop our rates. They were written into our standard client agreement forms and appeared in the marketing materials that we had sent out to two thousand post offices. We needed time to establish a new rate, to produce new documentation, take our new material to the postal branches, retrieve the leftover, outdated material, and so on.
Ultimately, in the fall, we lowered our interest rate by a couple percentage points. By then, though, our new rate was once again the highest on the market. And again this raised questions at the Central Bank. I trust that we have cleared up the details of our mail-based project with the regulator. Our rates certainly did not threaten the banking system’s stability. By the end of six months we had attracted no more than two hundred million rubles. This constituted only a few percent of our entire currency balance—which is laughable compared to banks where public deposits make up seventy to eighty percent of liabilities and equity.
Later the Central Bank set a target rate calculated as the average of the ten maximum bank rates, plus 1.5% annually. It became even harder to follow the rules. Obviously, if every bank changes its rate even once per month, and if there are ten such banks, then the average rate will change once every three days. In consequence, no retail-level bank will chase after such frequent changes. Given our model, in accordance with which changes in deposit terms take months to effect, this was a problem.
We are ready to work with the postal service in any way that we can, but the vulnerable aspect of this approach pertains to something that does not depend on the bank. Our model was very cumbersome and did not lead to any breakthroughs in funding. Thus we decided to develop a more technological approach to the problem of attracting deposits. I have no intention of giving up my commitment to remote client services though. In the long term, to create a network of offices in an age of new technologies seems wasteful and pointless. Nevertheless, if clients cannot come to the bank, then the bank must go to them!
How do things work now? Suppose that a client wants to make a high-interest deposit. He comes to the bank and he sees a line of people, waiting. He might stand in that line for an hour or two. People who value their time find this unacceptable. We have therefore devised a way for people to make deposits without leaving their office or home. All they have to do is to dial the number for our call-center or fill out a form on the bank’s website. Immediately, the bank issues a free, black MasterCard Platinum debit card to the client and, within twenty-four hours, a bank representative comes to where the client is, with the card. They then sign a deposit agreement with an annual rate of 14.5% (which, when you consider the capitalization of interest, amounts to an annual net rate of over 15%).
Clients can deposit additional money in more than one way: by bank transfer from another bank or through Cash-In machines, which have a well-developed network all across Russia. And how does one make withdrawals? This is possible through any bank machine, anywhere in the world (a service for which our bank charges no fees), or via electronic transfer to another bank. Representatives at our call-center make it easy to transfer money from the bankcard that we issue to a card from another bank.
Some clients may find this model complicated, but it really does save time. And, in a city like Moscow, where the enormous distances and traffic jams are a colossal problem, time is the most valuable resource that there is—something of which even Richard Branson was made aware, when he could not make it to my house in December 2008 due to Moscow traffic.
Our first clients in the online deposit program came on board in February and, judging from the dynamics of new arrivals, they like the product. We plan to set up a new online banking system too: not only will clients be able to maintain their high-interest accounts and make payments using their cards, they will also be able to conduct all of their financial operations via accounts at our bank—and they will be able to do all of this over the Internet. I am sure that our future lies on the Internet. It is crucial that we stake out territory there now. Ten years from now, it is unlikely that anyone will react with surprise when they hear that Tinkoff Credit Systems Bank does not have a single customer service branch; ten years after that, people will find it surprising that any bank has a large number of offices. Why waste time going to the bank and standing in line, when you can deal with everything online or over the phone?
It is possible that the Internet will be inextricably connected to my next business. To be continued…
In 2008, when I issued Eurobonds, I jumped on the back of a departing train.
I hope that my work in preparing this book is not in vain. I hope that, as a result, the number of entrepreneurs in our country will increase a little.
Every depositor gets a black MasterCard Platinum debit card, with which he or she can withdraw cash at any bank machine in the world—without paying a fee.