Svyaznoy Bank has leveraged a partnership with Russia’s second largest mobile phone shop. The bank aims to expand further by persuading Russian consumers to change their preferred payment method from cash to cards. Zak Garner-Purkis discovers how they plan to do this
By assets, Svyaznoy Bank ranks as only the 76th largest bank in Russia. But it is growing at a rate of knots following its 2010 formation.
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Svyaznoy Bank attracted 500,000 consumers in its first six months, and by the end of 2012 had registered nearly 2 million account holders.
To an outside observer, the bank does not carry the familiarity of a Sberbank or Gazprombank, but for most Russians the Svyaznoy brand is already very familiar.
With 2,300 outlets situated across the country, the multi-coloured Svyaznoy logo is a well known presence on the Russian high street. This gives the bank a head start in developing consumer awareness, and a far-reaching distribution network for its financial services.
The bank was formed when Maxim Nogotkov, Svyaznoy Group’s founder and owner, decided that he wanted to enter the banking sector. In 2009, he purchased the banking license of AK Promtorgbank and launched Svyaznoy Bank on that basis the following year.
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By GlobalDataIt is tempting, considering Russia’s vast population to dismiss the bank’s early growth as being strong, but still only a small fraction a large market. What makes the Svyaznoy Bank’s customer base unique is that the account holders are drawn from 42,188 different towns and cities across the country. Demonstrating a reach that even some more established players lack.
Selling cards, loans and mobile phones
The extensive geographical coverage is a result of the partnership with Svyaznoy Group and its large number of mobile phone stores. Crucial to the banks success will be utilising these outlets, whilst maintaining a distinct identity, which is clear to the consumer.
Evgeny Davydovich deputy chief executive of the bank, tells RBI: "It is a similar model to Tesco Bank: in each retail network’s store there are one or two members of staff who specialise in financial services, but other employees are aware about what packages we offer".
Although it has built 33 branches in major Russian cities, Svyaznoy Bank’s main strength is in its distribution network. The mobile phone outlets give the bank a presence in the less well served areas of the country.
In these rural locations, Svyaznoy Bank often represent the only local alternative to Sberbank: The former state-run financial institution and owner of the largest number of branches in Russia. As the areas outside the Russia’s traditional economic centres continue to develop Svyaznoy Bank remains well placed to establish itself even more.
Changing habits: from cash to cards
The most fundamental challenge that faces all banks in Russia is convincing the consumer to end their dependence on cash as the preferred payment method.
Card ownership in Russia has risen from 18% to 63% in the past five years, according to statistics from the Russian Central Bank in 2012. The problem is that of this figure, only 11.5% of consumers used cards to pay for goods and services, more than half used cards strictly for cash and 37% did not own one at all. Like most of its competitors, Svyaznoy Bank has recognised that success will be derived as much from winning customers over from cash as it will be poaching them from competitors.
"When we launched the bank, we had a joke that our main competitor is the Goznak factory, the factory located in Moscow that prints national bank notes. When you compare Russia with other countries you see that cash is the dominant form of payment, and we’re about changing people’s attitudes" says Davydovich.
Statistics from the Timetric Payments Intelligence Centre reveal that while POS transactions are growing in Russia, ATM withdrawals remain significantly higher. Providing consumers with the motivation to use their cards for payment has become a priority for Svyaznoy Bank: it believes that one of the most effective techniques in encouraging consumers to change their payment patterns is through value-added schemes, which offer rewards for card transactions.
To promote card use, the bank has run a series of cash back promotions, in partnership with specific retailers who might also benefit from card purchases. One example given by Davydovich was of the petrol station: "Traditionally Russians will give a RUB1000 bill and ask to fill up their tank with whatever amount of petrol this bill is enough for. We want to encourage people to use their card so we ran a 5% cash back promotion on petrol, the result was that more customers chose to pay by card and fill their tank up completely".
Another promotion, run by the bank on New Years Eve offered a select number of customers 10% back on card purchases. This was partly responsible for Syvaznoy Bank recording higher rates of non-cash transactions in comparison to ATM withdrawals for the first time in its history.
A major stumbling block in the development of electronic payment in Russia is infrastructure. Whilst the number of POS terminals has increased it has predominantly been within the big cities such as Moscow and in larger retailers, although the bank was keen to stress that these facilities are gradually improving.
Inevitably, it is the consumers demand that drives adoption, and in Russia this remains the stumbling block: "there has been a 40% growth in non-cash payments, but there is still work to be done to move Russia to the same level as other countries" added Davydovich.
Svyaznoy Bank would definitely benefit from an increase in the sale of card-based financial products. The bank is the 6th largest credit card issuer in the Russian market, according to information from the Russian Central Bank.
Prepaid: An overstated alternative?
Prepaid cards are often portrayed as an effective way of demonstrating that electronic payments are a viable alternative to cash-reliant consumers, particularly in markets such as Russia. It acts as a stepping-stone, eventually leading customers to credit and debit cards. Unfortunately, Russians have not embraced prepaid products with the same widespread enthusiasm as other markets.
In December, Svyaznoy Bank partnered with Dutch technology giants Gemalto on a prepaid offering. But the bank is under no illusions when it comes to the market appeal of these products: "Our prepaid card aims to serve two types of customers predominantly" says Davydovich "people who don’t want a bank account and those who are concerned about fraud particularly when travelling or online. It is an important part of our offering but the usage is fairly small".
According to data from the Timetric, there are only around 30,000 cards in Russia, and although that figure is predicted to rise it still lags way behind credit and debit cards, let alone cash.
Innovative and traditional
Being associated with new financial services is something that Svyaznoy Bank is particularly wary of, its connection with a major retailer of mobile phones frequently leads to the bank being characterised as a modernising organisation: "Often we are portrayed in the Russian media as being only an innovative bank, we are innovative but we also offer regular services that appeal to all customers even those without a mobile phone".
It is unsurprising that in a market so dominated by physical currency a new bank sees the importance of being considered alongside established financial institutions as well as innovative technology companies. Svyaznoy Bank launches its first mobile banking app in April of this year but was keen to emphasise that although it is willing to embrace technology, pricing is what makes the bank stand out from competitors.
Marketing the bank
The combination of "regular service" and "innovation" was particularly apparent in the banks marketing campaign. Syvaznoy has predominantly used online and television advertising platforms to raise consumer awareness.
But there was also an effort to engage with the customer directly in person, using the distribution network as a tool to promote the bank. Staff in the Svyaznoy mobile phone shops introduced customers to the financial products on a face-to-face basis. They were assisted by Svyaznoy Bank information stands within stores, which helped to differentiate the two organisations offerings.
Significantly, Svyaznoy chose not to advertise in print media, directing funds instead to targeted Internet banners and television adverts. These two platforms featured a collection of animated characters, representing the different products on offer: "We wanted a fully integrated campaign with a clear idea at the heart of it" says Davydovich "We are proud of the result and in particular the ‘EFFIE – Brand of the year’ award in Russia.
"The bank won this award for its marketing campaign, in which different advantages of our basic products were described by usage of a set of animated characters".
The campaign extended to branch design with colourful displays that depicted the characters from the adverts giving the 33 branches and numerous information stands a distinctive look. This was accompanied by an effort to directly communicate with consumers via social media such as Facebook and using a Youtube channel engage the public with the advertising campaign.
Often a financial institution will undergo a period of rapid expansion in its early years. The real test is in maintaining this growth and augmenting the customer base that it has already acquired. The potential for Svyaznoy Bank to grow is definitely there, particularly through its geographical reach. However, if the bank is to achieve more it will need to demonstrate that it can step away from Svyaznoy Group and command respect as an individual commercial entity.
