Moscow, Russia — 26 October 2016. Oleg Tinkov, the Founder and Chairman of the Board of Directors of Tinkoff Bank, spoke with Sberbank CIB’s research team as part of their report ‘Who Innovates Wins: Lifting the Lid on Fintech in Russia’. Oleg Tinkov shared his thoughts about the Fintech sector and talked about growth plans for Tinkoff.ru. Full version of the report is available to Sberbank CIB clients. Please find full text of Oleg Tinkov interview below. Tinkoff Bank was founded by Oleg Tinkov in 2006, and is the only pure online bank in Russia. It is now the number two credit card issuer in the country, behind Sberbank. Prior to setting up Tinkoff, Tinkov owned and operated a number of successful consumer businesses in Russia, including Tinkoff Beer, Tinkoff Restaurants and Daria. As the founding shareholder, BoD Chairman and one of the best known entrepreneurs in Russia, Tinkov plays a key role in driving Tinkoff’s dynamic strategic vision and fostering its culture of initiative and innovation. We caught up with him to discuss his plans for Tinkoff.ru and views on the future of banking. Tinkoff Bank is close to a decade old now. What is your vision for its future$140 For us, the next step is to develop a financial supermarket, offering either our own products, white label or partner financial services. There have been attempts to do this before by others, but I think they were a bit too early. The next three to five years is now the right time. Consumers want to receive all kinds of financial services in one place, like a shopping mall. I believe we can build Tinkoff.ru into a financial intersection: we know how to bring traffic, we know how to convert it into clients. We are still learning, small and young, but we are well ahead of other players in Russia at least. Now we have about 10 mln unique visitors each month, when we are in the top 20 banks — which will happen — and have for example 30 mln unique visitors, people will know they can come to our site and get any type of financial service, there is no need to go elsewhere. However, over the next five years we will still make more money on credit products than on commission products. But the outlook for the latter is very good. I believe we will make a lot of money in SME services, and we are launching mortgages, insurance. My dream is to have 90% of revenues coming from non-credit sources, and for Tinkoff.ru to become a digital supermarket which can licence out its IT platform if it wants. I don’t think about whether this model can work in other markets, Russia is a huge market, 140 mln people, but we could look at the UK, as continental Europe is over-regulated. But they would copy us before we enter that market. I want to keep the company public. But we will no longer be a «bank» rather a supermarket, we will drop any bank name and be just «Tinkoff.ru," and we will make money based on commissions. My aim is for us to be a $10 bln company, traded at 30 times P/E. This is my dream, my goal. We are doing this little by little and our non-credit revenues are growing. Do you see mobile as the key customer interface for Tinkoff.ru in the future$141 Of course. Sooner or later we will become mobile first, we are moving toward that end, and with smartphone penetration soon to approach 100%, I don’t see any more convenient, fast and geographically precise type of communication. Mobile banking will change the financial industry to a larger extent than digital banking did. At the moment, over 60% of Tinkoff’s total staff are IT people, and the mobile development team is larger than the web one, which gives you an idea of where we are heading. How do you think the way people make payments will change$142 Will there still be a role for plastic cards, upon which you founded the business$143 In reality, it doesn’t really matter whether plastic cards survive or not. They will probably not exist in 10 years, but they are already being used less. For sure, everything will go onto your phone and we will be delivering «cards» not through our couriers but by air, uploading them onto our phone app and clients will immediately be able to pay or get cash anywhere using Apple Pay or Android-based NFC. So plastic will cease to be used, except for those people who would use it for backup. But cards will remain as virtual cards on your mobile device. So nothing is seriously changing for our business, except maybe that card printing and delivery costs will decline. Who will be the winners in digital financial services$144 The winners will be the companies that have access to data. It’s obviously Google, Facebook, Apple, messenger services etc. Visa and MasterCard are also strongly placed given the infrastructure they have; Apple can’t really bypass them unless it buys them. Those companies that can stay closest to the consumer will win. In Russia, it could be Yandex or Mail.ru, as they have access to data. I believe the more data you have, the more you will be successful in financial services. If Google decides seriously to launch a credit or transactional business tomorrow, they ultimately could become the biggest bank in the world. They know far more about consumers than any bank. If they want to offer me services, they have all the information they need. Thank God that Google and Facebook are not really interested in seriously developing financial services! Do you think branch-based banks will survive in the digital age$145 At some point some I believe the largest banks will start to transform. The banking system is very regulated, money is a serious issue, huge banks like JP Morgan Chase, Bank of America, Barclays, etc will not just disappear, they will be transformed, they will develop digital services, will become like «Tinkoff Lite» banks. They have lots of capital, liquidity, regulatory and government support, they won’t just disappear and die. Mid-sized and small banks, particularly those with branch networks, may well be in trouble, but the huge systemic banks will transform. They will need to create new «lite» IT models in addition to existing platforms, such as the Tinkoff system. This is not very expensive for big systemic banks. In the next decade or two, people won’t go to branches unless for very complicated investments and services. I believe 80–90% of branch networks will be shut down in years to come. Most transactional banking has no need for branches. But I do think the bank era is over, no one cares about banks. Banking will exist, but as Bill Gates said, «people don’t need banks." This is true: people are tired of banks. People just need to satisfy their financial needs. What do you think of the competition in Russia$146 We have just two retail banking competitors in Russia: Sberbank and Alfa Bank. The rest are simply rubbish in my opinion. Sberbank is our biggest competitor; we really need to watch them. They have unlimited resources. They want to build a financial supermarket, and while they have challenges as a huge bank, eventually I am sure they will succeed. I trust in what they are doing; strangely enough, they are quite innovative given their size and they have a good team of people. ApplePay has just launched in Russia. How do you think it will do$147 I think Apple will trample over any payment competition based on its brand. It is simply the best brand on this planet, and the user experience with Apple products is unmatched. They will eat a huge piece of that cake. Do you think Russia offers a supportive environment for fintech startups$148 I don’t believe in fintech startups, I personally believe it is a bubble in many ways. Once I see the first fintech startup that succeeds in breaking even, or that is bought for a solid business reason (don’t tell me about Simple), I may change my mind. So far, I see it as a trendy game, and an easy way to extract money out of investors’ deep pockets. In Russia, it doubly won’t work given that we don’t have early-stage investors or in fact any investment ecosystem. What do you think about the prospects of the many digital bank startups we are seeing globally$149 The only company that is really doing great things is Tinkoff. I can explain this. There are lots of new digital banking startups out there like Fidor, Atom, Simple, Monzo etc. They are all very cool and funky, but none of them is profitable. And I know it is not very fashionable these days to be fintech and profitable, but for me this is rubbish — the business needs to be profitable. If the business is not (just look at Twitter), it will struggle. We are and have always been profitable. Those new companies, they are for fintech conferences. They don’t get the customers in, and they are in transactional business, which is a 2% game, and 1% you pay to the payment networks. It needs to be a huge business if you charge 1%. QIWI used to do well when charging higher fees, but now it is much tougher as banks like us, Sberbank and Alfa Bank have very advanced and free payment services. So then these new fintech players have to move into the credit business, but this is a huge leap, a totally different game. You need technology, data, people, IT, statistics. It is so easy to go into transactional business because there is no risk, there is no rocket science. The credit business is a huge risk and has huge potential gains. The only winners could be Google, Facebook, Apple, etc, as they have data and they know the customers. The bottom line is that without a credit business you cannot do much. These fintechs want to build nice apps etc and sell to big banks. They can do this, but it does not make for a sustainable standalone business. Tinkoff.ru is lucky enough to have 5 mln clients; we are on the threshold of large scale. Chinese fintech companies can do it, but it is not so easy in the West. Given you think it is very hard to succeed in transactional banking rather than credit, why do you think Tinkoff.ru can make a success of this shift$150 Because we have got the scale, brand and a great team. New players simply don’t have any of those. Even for us it will be a tough and long fight. What do you think about new technologies such as blockchain$151 It is too early to be excited about technologies like blockchain, or digital currencies. There is lots of speculation now, people want to look smart and cool, but let the technology evolve and then we will see what we can do with it. But my team at Tinkoff is obviously actively looking at blockchain. What advice would you give to a young Oleg Tinkov now looking to set up a financial services company$152 My advice would be, do not think of building something just to sell to a bank. Think about how to build a standalone company that can survive by itself. Therefore, you need to think about data, about analytics, credit business and volume business. Try to build a business that has its own standalone value, something innovative and sustainable. And then you will be able to sell for any price if you want. Too many fintech startups are built to sell to big banks; there are simply too many mobile applications out there. For enquiries: Tinkoff Bank Darya Ermolina Head of PR + 7 495 648-10-00 (ext. 2009) d.ermolina@tinkoff.ru Tinkoff Bank Larisa Chernysheva IR Department + 7 495 648-10-00 (ext. 2312) ir@tinkoff.ru