Alfa-Bank is the largest universal privately owned bank in Russia. It has been a leader across all banking business segments for 32 years. The bank serves more than 850,000 corporate clients and 19.8 million retail customers. Alfa-Bank is evolving according to the phygital model, combining digital innovation with an effective physical-presence network, and has around 400 offices in Moscow and Russian regions; courier delivery in 900 cities; and 27,900 of its own and partner automated teller machines. The bank is developing “A Next Generation Branch Network” with customer recognition based on biometrics and geolocation while still welcoming live communication with clients. According to IFRS (International Financial Reporting Standards) financial statements for the first half of 2021, the Alfa Banking Group, which comprises ABH Financial, AO «ALFA-BANK» as well as its subsidiary financial companies, had total assets of USD $66.8 billion, gross loans of USD $47.1 billion, and total equity of USD $9.6 billion. Net profit was USD $0.9 billion.
International Banker was delighted to have the opportunity to ask Alfa-Bank’s chief executive officer, Mr. Vladimir Verkhoshinskiy (who has himself been awarded for his performance leading the bank), several questions about the bank’s progress during challenging times, especially with its pioneering technological advances.
Mr. Verkhoshinskiy, welcome, and thank you for being with us today….
What has been the single most challenging aspect for Alfa-Bank to date in dealing with COVID-19, and how have you endeavoured to overcome it? Also, can you provide an example of how technology has helped ensure business continuity during the pandemic?
For Alfa-Bank, it’s not our first crisis, and we are always ready for challenges. We appeared to be prepared for this pandemic much better than many of our colleagues worldwide. Alfa-Bank is a large structure, but we managed to change our processes without changing our strategy and main goals thanks to our proactivity and flexibility.
Alfa-Bank is a technology leader in Russia, according to independent ratings agencies such as Markswebb. Most products and services are available online—both for retail customers and business entities. It means that our clients were much less affected from not having access to our branches. During the quarantine, Alfa-Bank was the first to offer remote mortgage formation to clients as the fastest-growing Russian bank in the mortgage segment. We were the first to switch over to paperless banking, making it possible for our clients to upload documents online without visiting offices.
Alfa-Bank is widely known as a financial institution of considerable technological and innovative pedigree in Russia and, indeed, beyond. What would you say is the single most significant way in which the bank has a stronger culture of innovation than its local banking peers? And how do you think your success is measured?
For over 30 years Alfa-Bank has been the best bank for smart and free people in Russia throughout its history. And we have a secret: our corporate culture, the Alfa DNA created by our shareholders. We attract bright leaders, for whom we create a comfortable environment for innovation – we give authority, resources and flexibility.
We have got a flat management structure: decisions are actually made by the leaders of a large number of teams. We call these executives “internal CEOs.” These are the owners of key products, channels, territories, internal startups, with an entrepreneurial spirit, knowledge of technology, understanding of the principles of working with data and soft skills. As real CEOs, they should be prepared for the fact that leadership is not only a reward for results, but a risk and responsibility as well.
Our success is measured by client confidence. We earned the trust of over a 1 million new clients last year. Over the past three years, the number of retail customers has increased by more than 4 million people. The number of corporate clients has doubled, by more than 400,000 companies. We are grateful to them and everyone else who has remained loyal to us for years. We are greatly appreciating of their trust in us.
According to the bank’s 2020 Annual Report, 85 percent of Alfa-Bank clients regularly used the mobile-banking app before the pandemic, meaning that the lockdown did not impact those customers significantly. Given that digital innovation is evidently not a new concept for Alfa-Bank, how crucial has it been for the bank to have the infrastructure already in place to continue seamlessly servicing your customers and ensure business continuity? Would you say that having this mature, existing digital infrastructure has put the bank at a distinct advantage over your competitors?
Even before COVID, about 76 to 78 percent of our clients regularly used remote channels of mobile applications. During quarantine, this figure rose to 85 percent. Online sales also grew; at their peak, they accounted for nearly 60 percent of total sales. Currently, this figure is around 50 percent.
In my opinion, there is a more interesting trend that is somehow not talked about: The value of physical human communication has grown. When banks closed many of their branches, but we did not, our client flow fell for literally a week. And then quite quickly, in two or three weeks, it returned almost to the pre-crisis level. Despite the risk of getting sick, people came to the department, although they had the opportunity to do everything online.
While a number of banks have implemented a digital-transformation strategy for their branch networks, Alfa-Bank has decided to undergo a phygital (physical + digital) transformation. Can you please briefly outline some of the key features of this strategy? And what benefits does such a strategy hold over pursuing a purely digital transformation?
Despite the development and general popularity of digital technology, people live in the physical world and cannot get along without face-to-face human contact. Today, the possibility of visiting a bank’s office is still very important for 80 percent of bank clients. People want to discuss complex products, big decisions and emerging problems with other people.
There are examples of banks in Russia that started as 100-percent digital but, over time, had to build physical infrastructure by increasing the number of agents on their staff and call centres. Indeed, digital technologies are the best way to achieve business efficiency. But by focusing on developing online services, banks and companies from other industries have created environments in which face-to-face human contact has become so much more valuable for clients. Рaradoxically, now, in the era of digital technologies, the possibility of providing quality face-to-face contact to customers has become a competitive advantage. Live human interaction is a luxury and value, which is why we believe in our concept of phygital.
A phygital bank brings the client a lot of benefits. Imagine that one needs to get a complex product from the bank. One can inform the bank of what he or she needs using the mobile application, contacting the call centre or addressing the bank’s website. The bank, for its part, prepares whatever is required and invites the customer to the branch. When entering the branch, the customer is recognized by special IT-driven technology, a system which greets them by name and calls the relevant employee, who is ready to provide any assistance.
As I understand, Alfa-Bank has made considerable efforts to transform itself into a paperless financial institution in recent years. What are some specific examples of those efforts? And do you believe becoming fully paperless is a realistic objective?
As part of the development of ESG (environmental, social and corporate governance), Alfa-Bank not only finances the “green” projects of clients but also implements its own projects aimed at combating climate change. In 2019, Alfa-Bank switched to using eco-friendly packaging for bank cards and saved 29 tons of paper per year. Thanks to the strategic initiative Paperless Bank launched in 2019, 200 tons of paper were saved in 2021. Since 2021, all our corporate clients are connected to electronic document management.
For example, our retail customer can apply for a loan through a mobile app or website, get approval by phone, come to the branch, in a conversation with a bank employee, solve specific issues (insurance conditions, payment schedule, etc.) and get the loan by entering a digital signature through a mobile application. Further, the client can evaluate our work in a mobile app (as, for example, in a taxi app). Bank employees also work paperless with tablets or laptops. And we have already implemented almost completely paperless process.
Biometrics seems to be a key technology being adopted by the bank to optimise customer experience, particularly within retail banking. What are some of the main applications in which it is most extensively used? Have any of the ethical concerns raised recently regarding the deployment of facial-recognition technology impacted the bank’s digital strategy, and if so, what is the bank doing to address such concerns?
Indeed, biometrics is one of the important elements in our concept of phygital offices. Several million of our clients have shared their biometric data. As I told you before, at the entrances to bank branches, the system recognizes our clients without any queues or coupons. However, the bank intends to use biometrics not only in offices. In particular, biometric data will be required when registering in a mobile application, for which it is now necessary to have a physical card and a passport.
We securely protect the data of our customers. Moreover, we may also use biometrics for security purposes. If we receive a signal from our fraud-monitoring system that an operation may be being performed by a fraudster, then we will also ask to confirm it with biometrics to make sure that it is our client who is performing the operation. It is beneficial for clients in today’s world to take biometrics, as their money will be better protected.
Alfa-Bank also seems to be prioritising the development of new partnerships, with around 300 partnerships already formed. For what reasons has the bank decided to pursue such a strategy? What advantages does forming partnerships have over, say, internal expansion?
I believe more in the effectiveness of mutually beneficial partnerships than in ecosystems. It is not necessary to “buy someone” to do business together. Each partner brings something different. Specialization is critical to success. In a partnership, unlike an ecosystem, no one absorbs anyone. No one dominates. This is such a mutually beneficial balance of economic interests. Everyone stays in their culture, in their team.
We partner with the same market leaders from every industry. The first type is partnerships with Alfa Group companies. The second is large strategic partnerships that allow us to attract new customers. The third is technology partnerships.
How important are concepts such as sustainable banking and green financing to Alfa-Bank? Does the bank’s current level of exposure to fossil-fuel companies, such as oil producers—the oil industry is the bank’s biggest customer industry for loans—give you much cause for concern?
As part of our strategy, sustainable banking is a priority for us. In 2020, Alfa-Bank set a course to implement ESG principles in all areas of its activities. Now we will comprehensively manage the ESG agenda and integrate it into our products and services in accordance with the best international practices. Alfa-Bank strives to set for the market an example of responsible development in terms of ESG principles, which allows us to contribute to the achievement of the UN Sustainable Development Goals.
We support our clients’ projects that contribute to the fight against climate change. For its part, Alfa-Bank is ready to provide special conditions to borrowers if they invest in technologies that reduce their carbon footprints. Our goal is to reduce the volume of indirect greenhouse-gas emissions from our loan portfolio by increasing the volume of ESG lending. In addition, we offer clients a wide range of solutions for raising capital for environmental transformation and implementing environmental projects.
What does the term superservice mean to you? And in what key ways is Alfa-Bank pursuing a financial superservice?
There are several key characteristics that define superservice. First of all, we will propose products that are relevant to customers, in the channels that are relevant to them and with consideration of the context of their respective locations (at home, on the street, at work, in transport, etc.). And digitalization has made the transition from bank-to-bank lightning fast. Customers want to influence the products they use.
Secondly, we take customer feedback seriously. We recently launched a customer experience innovative center – Alfa Research Center. For example, a neural network system analyzes emotions from a banking product. Perhaps the person himself does not remember why emotion flashed across his face. Artificial intelligence will “see” when it happened and follow his gaze. We have put these and other studies on stream.
In fact, we do not create products, customers create products. Due to this, we are sure that our customers receive the best service, are as satisfied as possible.
It definitely appears you are way ahead of your peers, Mr. Verkhoshinskiy. Thank you again for your time.