The young Post Bank is one of Russia’s most rapidly developing financial organizations and it intends to operate throughout Russia by opening outlets in post offices. Dmitry Rudenko, chairman of the Board of Directors, told BRICS Business Magazine about the progress in the network’s development, the way the bank works with pensioners, and its understanding with the Postal Bank of China.
You are really sprinting in opening new branches, even though you are running a marathon distance. How does it feel, and what are the 2016 results?
Frankly, the workload makes you so dizzy that, even though the financial results are optimistic, successes are the last thing you think about. At one time, we were talking about opening 10 outlets a day; I mean customer centers in post offices with a bank employee and an ATM. This task itself was ambitious. Today, when we also have outlets manned by a Russian Post employee, we can launch up to 100 locations daily. This is a record development pace for Russia’s banking market, and we will keep the pace up for the next two years. The regional network already ranks second in Russia in the number of outlets.
Today, we are laying the foundation for our history, which is why we are setting this pace. Initially, we planned to open 6,000 locations of different types in 2016. Today, we are on target, with minor adjustments for technical aspects (connection quality, Internet link capacity).
Do you already know the kinds of adjustments you will have to make to your business model?
Globally speaking, Post Bank’s business model is not changing. We are striving to build a low-cost bank that maintains tight control over its expenditures in order to offer customers loans and deposits on the most favorable terms. Using the network of post offices allows us to save a lot of money on office lease and renovations. All financial transactions are carried out through ATMs, so Post Bank does not have the usual armored teller windows, thus saving us money on installing them, too.
Naturally, adjustments are unavoidable, but they will hardly be strategic. Rather, they will be tactical, situational. This year, we gained great experience and now we are analyzing it. We will draw conclusions while keeping a very cool head: Given our development pace, it is important to place the correct emphasis and to understand which tasks we handled perfectly and where we could have done a bit better.
Looking at the work of the outlets manned by a bank employee, they demonstrate good sales. The limitations here are essentially infrastructural. We are limited by the number of post offices where we could have a window with a bank employee and an ATM, because post offices vary greatly in size. Naturally, opening outlets with a bank employee depends on the population of each individual town or city. If a town has 10 post offices, opening an outlet in each of them makes no sense, because they will not build up enough customer traffic.
The story is a bit different with the outlets serviced by postal employees. Managing the launch of such outlets is largely the responsibility of the Russian Post. Depending on whether there are people capable of doing such work and willing to be trained, whether new software is installed, whether communication links are good, the Post determines where specific outlets will be opened.
On the one hand, such outlets are easier to open; on the other hand, they have low efficiency. Here, a forced doubling of functions takes place; the employee works simultaneously for the Russian Post and has their own target to meet there. At the same time, they are supposed to be working for the bank. And this is something to think about; adjustments will be done at the technical level, not at the conceptual level. Maybe we will alter the motivation, introduce specialized training. We could discuss with our stakeholders expansion of our geographical program, or we could open more outlets serviced by a bank employee.
Our goal is clear, and we are progressing toward it. If some outlets are more efficient, outlets of this type should be opened before others. It is standard business logic.
What is the difference between customers in towns and in cities?
Frankly, I don’t see any particular difference. We have a large-capacity product range that includes basic services used by people irrespective of whether they live in a metropolis or a village. Of course, in cities, people have wider choices, including the choice of banks, and their level of income is higher than in the villages. Yet, I cannot say this has a great impact on Post Bank. We have a very balanced clientele; we do not work in private banking, so we do not see the superrich either in Moscow or in any other city. Cities with a population of over a million gave us 24% of our customers last year; big cities gave us 18%; smaller cities 27%; towns 24%; and villages and other country settlements seven percent (their share will grow).
There are some differences in deposits. In cities, people sometimes deposit large sums of money with us. From the point of view of loans, the average amount does not vary depending on whether it is a city, town, or village location.
We do not position ourselves as a bank for the rich or the poor, pensioners or the younger generation. Post Bank is for everyone who wants high-quality, prompt banking services at a reasonable price. Our customers’ principal needs include loans, paying for maintenance and utilities, and opening of a banking account for their salary or pension to be deposited in, for keeping their money, with interest accruing on the balance. Moreover, Russia is actively developing the e-commerce segment, and the number of people using online shops is growing. Post Bank automatically links the ‘Internet Customer Package’ to savings accounts, which guarantees the best price when shopping online, free repairs if the goods are damaged, and free returns if, for instance, the item does not fit.
There are certain megatrends now, such as increasing life expectancy, an aging population, falling employable population, and the slow depopulation of large territories in Russia. How will they influence you and your competitors?
The falling employable population is certainly a negative trend, and I think it is Russia’s No. 1 problem. We need our population to grow. Otherwise, taxes and social payments from the budget will increase.
At the same time, increasing life expectancy is a wonderful trend, the best indicator of an improving quality of life. From the human point of view, this is an excellent trend. Besides, throughout the world, postal banks want to work with pensioners. This is an important target group for us, too. At our client centers, pensioners may apply to receive their pensions at Post Bank, and we offer them special terms on loans and deposits.
Of course, not all banks take such megatrends into account. I think only the top three players make full use of them as factors that would influence their work, mid- and long-term. We are not in that bracket yet, but we are looking at those global trends.
I think the growing older population will result in pensioners playing an ever greater role in big players’ customer bases. Thus far, banks have not engaged the older population segment significantly but competition for servicing pensioners will gradually increase. It will be won by banks that not only offer them the most favorable terms for pension services and financing, can tell pensioners about those services in the language they understand. Today, bankers that fail to take pensioners seriously as a target segment, that are not flexible enough to build efficient relations with them, are digging themselves into a future hole. If you hear the word ‘pensioner’ and you still imagine an old lady stuck at the time of the subsistence economy, who can hardly be a valued customer, you have clearly missed the arrival of the 21st century.
This segment is changing rapidly. Pensioners’ financial literacy is gradually growing. We can see that ‘new’ pensioners make active use of banking products (loans, deposits, cards), compare offers from different banks to find the best ones, and are beginning to use digital services. We are talking not only about ATMs and terminals, but also mobile apps, Internet-banking, terminals.
As a rule, pensioners are very responsible borrowers – 60% of Russian pensioners save money and maintain a stable positive balance on their accounts. Yes, they are hardly likely to borrow a million, but that is not important; today, the quality of borrowers is more important than an expanding portfolio.
Post Bank grew out of Leto Bank, where you were building a system of rapid manager response. The new structure has a more complex hierarchy and it is simply larger. In what ways has decision-making changed?
We haven’t changed the management structure. It has become broader, not higher; the management pyramid itself has not changed. More tasks, greater responsibility, new territories – this is all about covering new ground. We have not created a large number of new departments; if we featherbed our administrative departments, our business model will simply not take off.
More on management. The bank’s ‘brains trust’: Is it tied to a certain location, and is it mobile or distributed throughout the organization?
Let’s first define what a ‘brains trust’ is. Of course, I would like to say that my office is the bank’s brains trust but, in fact, local managers make decisions within their area of responsibility. They do not change the general processes but, for instance, they determine which locations will provide top efficiency. We form a target program in advance, but, as a rule, it is adjusted in account of the specifics of each individual town. Hiring personnel and motivating them is also within the competence of territorial managers. Globally, the bank is managed by the Advisory Board and the Board of Directors, which I chair. Locally, management is the responsibility of ‘local’ managers, i.e., heads of macro-regions and regional center managers.
Regional managers can and should influence strategy. What is important for us is that such managers do not merely carry out orders sent from above but express their opinions on certain issues. Exchange of opinions is a two-way street, and we do not have the dictatorial logic that forbids people of a rank lower than the bank’s president from speaking their mind. We listen to feedback; in Post Bank, feedback is part of our corporate culture, our internal communication. We have our own social network; my email address is known to all; good suggestions are considered and analyzed, no matter whether the person who makes them is a macro-regional director or works on the front line. Business vision, as it is shaped at the head office, should correlate with reality, which is why it is important for us to know the way things are going at the local level, how our products are perceived, how they could be improved or adjusted.
You personally know all the regional directors. Do you manage to communicate with regular employees? Do you like field work?
I certainly like field work and I like communicating with employees, but I don’t have many opportunities to do so. When you speak with people who work at actual locations, you learn many things you do not see from your office. Managers who work with the retail network visit the regions far more often, which is logical, since this is their professional duty. I handle business plans, finances, risks, etc. This is why I largely analyze data collected by my colleagues, rather than collect the data myself. I think this should be the leader’s job.
You have recently visited China and met with the president of Postal Savings Bank. What are your impressions? What did you talk about at the meeting?
We talked for a fairly long time with the bank’s top management and team. This is a huge organization with 500 million customers and ambitions for growth. In its retail section, Postal Savings Bank is very like us, just the size of the population changes the picture dramatically. Of course, the economy drives their development, but the most important thing is successful bancarization of the postal flow. Another issue is that the state of their economy has a major impact on the bank’s investment and corporate elements, which we don’t have. Once they attracted a very large number of deposits, they faced the next task: learning to invest it.
I hope our development pace impressed and interested the Chinese. For instance, regarding the digital aspect, when I described where and how we were going, our mobile app, and the Internet Customer Package, our colleagues listened to us very attentively. The same thing applied to developing the loans segment: The Chinese loan portfolio is much smaller than the deposit portfolio. In essence, they are only beginning to develop it.
We compared notes; we saw that our formats are similar. They are 10 years ahead of us, so they promised to compile an advice digest with descriptions of mistakes made. We plan to form a working group on knowledge coordination.
In addition, we are taking a closer look at the Chinese ATM market. There are not that many manufacturers of cash recycling ATMs in the world. As a low-cost bank, we naturally want to save on many things that regular banks do not save on, but the intention to save will never affect the quality of our services. We purchased a consignment of cash recycling ATMs from GRG International, one of Asia’s biggest manufacturers, and we are now assessing how they are doing under our hard conditions. Their functionality and quality is on a par with American and European cash recyclers, but they have a much more attractive price tag. Post Bank has great plans for expanding the ATM network and economies of scale will save us a lot of money.
At one session of the 2016 St. Petersburg International Economic Forum, your opponents kept repeating popular predictions that banks would soon disappear. In other situations, this thought is followed up by the idea that traditional businesses mostly survive on the population’s conservatism and habits. How true is that in Russia and in the rest of the world?
This is true for everybody, but let’s see what the population’s conservatism means. For instance, you can open a factory that manufactures shoes only for right feet and complain that sales are bad, because the conservative population also has left feet, and then you can complain, “Why can’t those conservatives jump on one foot?”
The same applies to banks. The essence of our business is to lend, loan, and transfer money. This business is thousands of years old. There are many forms: money-changers, pawnbrokers, banks, fintechs. No matter what the name, the essence is the same. As long as there is money, there are banks. For as long as banks make money on loan interest, on fees for money withdrawals, on exchange commission, there will be banks. People may say what they like, but do not look at the banks’ image in the public space; look at the source of their real revenue. This is what determines the nature of the organization, its true face.