Neobanks/digital banks are transforming the way banking is perceived by consumers and markets; they are simplifying the financial world by creating a customer-centric digital approach to services. Global neobanks are catering to multiple target segments and have successfully validated their business models by providing excellent customer services. The critical ingredient for success has a customer-centric approach by using technology. However, there is one major challenge—profitability seems to be an issue for most neobanks.
Tinkoff, a Russian neobank focused on providing financial services, does not have any physical location. Headquartered in Moscow, the bank has seen an upward trend in the number of customers. Up till Q3 2020, it had approximately 12.1 million users; the number grew by 7% (from 2.1 million users in Q1 2015). This spectacular growth has made Tinkoff the third-largest bank in terms of the number of customers. In addition, the bank had 7.6 million monthly active users and 2.4 monthly active users up till Q3 2020, making it the best mobile bank in Russia during 2013–2019 (according to Deloitte and Markswebb) and the Best European Retail Bank of the Year at the RBI Global Banking Awards 2020.
How did Tinkoff achieve this growth? The answer lies in its business diversification. From the very early stages, Tinkoff expanded from a Tinkoff alternative credit system providing credit card products in 2007 to a super app in 2020. The bank included retail Internet and mobile banking, insurance, business banking, investment products, banking for kids, entertainment services, travel booking, booking doctor’s appointments, and mobile network services. Like WeChat in China, Tinkoff started its own version of the App Store with mini-apps from its partners providing products and services; the bank plans to incorporate fitness and wellness, food and flower delivery, car products and services, and several other features. The bank has heavily relied on technology and has invested significant amounts of money in artificial intelligence, machine learning, blockchain, and biometrics to achieve this goal.
It is important to understand how Tinkoff has performed in various business segments that generate revenue when we talk about diversification. For any bank, the assets it holds are critical; the assets allow the bank to create new products and dispatch loans, and indicate customer trust. In terms of SME business accounts, the balance held by the bank surged from RUB 8 billion in Q1 2017 to RUB 69.9 billion in Q3 2020; the bank has earned RUB 3.1 billion from fees and commissions in Q3 2020, an 18% CQGR growth since Q1 2017. The investment balances of users increased from RUB 6 billion in Q4 2017 to RUB 221.3 billion in Q3 2020, an incredible growth of 38.8%. The assets increased from RUB 48 billion in Q1 2017 to RUB 302.2 billion in terms of current account assets. The per-account holding balance also rose from RUB 24,000 to RUB 28,240 during this period.
Tinkoff started as a credit business, and its credit vertical has been growing strong YoY. The bank’s loan book increased from RUB 111.4 billion in Q1 2017 to RUB 346.313 billion in Q3 2020. The bank’s net interest income increased from RUB 9.7 billion from Q1 2017 to RUB 24.43 billion in Q3 2020, at a 6.75% CQGR.
The final question is whether the bank is profitable. The bank has been generating consistent profits since 2014; it registered profits even during the Russian credit crisis and the subsequent recession. Tinkoff generated a profit of RUB 3.4 billion in 2014, which increased to RUB 36.12 billion in 2019, posting a CAGR of 60%. It is already on its way to surpassing 2019 figures; it registered a profit of RUB 31.89 billion until Q3 2020. Tinkoff’s growth story is simply astounding—starting its journey as a credit business to becoming a super app. This is what every Fintech aims to be—a one-stop destination for everything.
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