A bank without branches would be considered unusual twenty years ago. Now, with increasing pressures on margins and developments in digital technology, it seems ridiculous to ignore digital-only options. One of the latest digital-only offerings is Russia-based Touch Bank. Having recently celebrated its first birthday, Patrick Brusnahan talks with its CEO

Launched by the Hungary-based OTP Group in 2015, Touch Bank is a digital-only banking offering targeted at the mass affluent segment, particularly young professionals.

Services include deposits, loans, convenient top-ups, transfers, credit lines, payments and more. All of this is capable through a smartphone, website or via e-mail.

While its existence is limited to just over a year, Touch Bank, in collaboration with FICO, seems to have made an impression. Having already garnered 80,000 customers and over €50m ($56m) in deposits, the future looks bright as people are engaging with the solution. Approximately 60% of Touch Bank customers are active (three or more transactions a month). In addition, the average transaction value of Touch Bank customers is just over €30.

Speaking exclusively to RBI, CEO Andrei Kozliar stated that he was ‘fairly pleased’ with progress so far.

He said: “The project started from scratch. Basically, we had to build all of the processes from zero so that was a big challenge. We did that in twelve months. The overall results have exceeded expectations in some places with some underachieving because of global economic factors and geopolitical issues.

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“Generally speaking, we are very pleased. We have 80,000 customers to date and we’ve attracted over €50m in deposits and extended credit lines of just over €30m.”

Despite the early encouragement, there have been some setbacks, particularly regarding customer acquisition.

Kozliar explained: “We were targeting 200,000 customers by the end of this year. We will be coming under target in terms of customers as we are targeting the mass affluent audience. That is a shrinking segment in Russia because of the economy shrinking. It is not growing as originally expected.

“If you look art customer behaviour, it exceeds expectations with regards to the number of transactions per month, average transaction value and average deposit rate. This has exceeded expectation by around 30%. You can’t say that we are very disappointed because we’re compensating for the lower customer level with better usage of our products. This means that the customers like what they get.”

While digital-only offerings are becoming more prominent globally, customers are largely hesitant to sign up. This is different in Russia.

“The Russian market is somewhat ahead of the rest of Europe in terms of the digitalisation of banking. If you look at the landscape, we’ve had purely digital banking players for a few years. The customer base is more adventurous and already more accepting of this new behaviour of accessing products and services online. It doesn’t scare them,” said Kozliar.

“In terms of the attractiveness in general, when we were building the bank, we did quite extensive research of our potential client base to understand their needs and invested quite heavily in technology to be able to provide flexibility for our customers. It’s quite successful so far and has been working for our customer base. We’re unique and we’re proud of that.”

If Touch Bank is to expand its reach, changes may need to be made. An engaging proposition for the mass affluent may not be attractive to other segments. However, to combat its below expected customer acquisition, other segments need to be brought in.

Kozliar explained: “Like with anything, a product is not for everyone. There are different expectations and some flexibility that may be advantageous for one client sector might be complicated for the mass segment.

“Generally what we do, instead of saying we know better than the customers, we talk to the customers and find out the troubles they are facing and what would make them switch their primary relationship. We can work on that and if we already have that feature, fantastic. That’s less work for us and faster access to the market.”

Expanding its target segment is one thing, but expanding to other countries is another prospect altogether. Luckily for Touch Bank, the lack of a physical presence could make the process easier.

Kozliar concluded: “We selected Russia for a few reasons. It is a large market, OTP was already present and it we were interested to see how they would take digital. From that point on, once we fine tune everything, we will be ready to move onto other markets.

“Our proposition is very competitive and in many ways unique, not only for Russia. We believe we can have a competitive advantage in other markets. We can use this digital banking strategy in other markets where it is highly costly to enter the market with a classic branch model. This is a more flexible and cost effective model. It would make sense for us to concentrate on markets where we are already present. We are growing dynamically.”