Banks of The
Digital Age or
The Digital Age
Without Banks

Literally in the last two days, two significant events took place on the banking market.

First, one of the world’s biggest digital banks — Tinkoff announced the sale of itself to the Russian Google — Yandex. Second, the largest bank in Russia — Sberbank held its first conference as Sber — Sberbank without the word bank.

And if there were few jokes on the first news, the Internet exploded with humor on the second news — at the end of the Sberbank conference. In particular, as some say, the word bank can be thrown out of the name Sberbank, but the word cash desk (kassa in Russian) is unlikely. (For those not closely following Russian financial market, Sberbank — initially the Savings Bank of Russia — is the largest and oldest bank in Russia. Its offices were commonly called Sberkassa as the Bank is famous for its vast — more than 13 thousand offices — branch network that is associated with traditional cash operations).

There are many meanings in this joke, but I would like to dwell on the topic of bank branches. The number of bank branches is steadily decreasing. At the same time, we already know many banks without client offices at all: Tinkoff, Modulbank, Tochka, Sfera, Revolut. What is interesting, these are all the newly created banks. Medium and large banks that have existed for a long time and have decided to abandon branches, are not yet visible. On the contrary, we see banks trying to find new meanings and a new reading of their offices. For example, everyone is very fond of talking about serving coffee in their branches.

In my opinion, retail branches for clients of the mass segment will go into oblivion in 10–15 years.

The population is rapidly learning digital literacy. Even nowadays almost any person under 50 has no difficulty in using the bank’s services through a computer or a smartphone. Almost everyone without exception uses the phone for their daily tasks, from searching for information to ordering a taxi and shopping. Those who do not have the ability or do not know how to use digital services will be perceived as a marginal and disappearing segment of the population in 10 years.

The same will happen with another reason for going to the branch — the disposal of cash. I bet that in the same 10–15 years cash will disappear from circulation.

Maybe branches are needed for the reason of trust? This is also extremely doubtful — we have never been to the office of Yandex or Google, Netflix or Ozon. At the same time, we actively use their services, we trust not only our personal data, but also access to our money, we store the most intimate information and moments from our private life on their servers. The same is true for banks. The only problem is that Internet companies, technology giants did not initially have a physical presence and we do not expect it from them. And we are accustomed to banks as brick and mortar offices with columns of marble. We need time to understand that a bank is as much a technological player in the services market as an online store or a provider of search, document storage and e-mail. Therefore, I think that playing in coffee shops in branches, phigital and other concepts is temporary.

We are confidently moving towards the fact that branches should disappear.

Let’s talk now about the main content of this news.

Both players — Yandex and Sberbank — are confidently moving towards building large-scale ecosystems. What is the future of retail banks in this brave new world? In my opinion, there are only two options: either to become part of an ecosystem capable of fighting on equal terms with these two monsters, or to become a niche player, feeding on crumbs from the ecosystem table.

So, is there room in the market for other ecosystems and who can qualify for it? MTS stands for its own ecosystem. Unfortunately being the largest telecom company in Russia they still lack scale and resources to compete with Yandex and Sber.So let’s wish them luck. Who else can apply in the Russian Federation? Definitely Mail.ru, but it’s already lost being engaged in many strategic partnerships with Sberbank. Or not. Unclear. If Mail.ru wants not to cede leadership to Yandex, it needs to divorce Sberbank and look for a partner with whom it will be in charge. In the way things are going now, Mail.ru will simply dissolve into Sberbank. Top-2 and top-3 in Russian telecom market — Beeline and Megafon as centers of gravity and ecosystems — alas, no way. Only as part of someone else’s ecosystem.

Marketplaces and ecosystems tend to be monopoly, or at least oligopoly. The investment is too large and the multiplier effect when scaling the business is too large too. The bigger you are, the exponentially your opportunities increase.

Alfa Group could have — let’s recall Beeline — but this contradicts their corporate culture and established rules for managing businesses as separate business units. So I doubt that they will dare to break the system that has developed for decades in order to jump and run — and it will not work otherwise — after Sberbank and Yandex.

So the role of the rest — that is, all the retail banks — is to pick up the crumbs from the ecosystem lunch. Independent banks will work with clients only where it is unprofitable or not interesting for ecosystems. Plus, they are to be product factories in terms of those products that ecosystems themselves do not make. For example, Tinkoff does not provide mortgages, and therefore Yandex will be glad to partner with banks in providing mortgages to its users. But as soon as Yandex makes an ecosystem in the field of real estate, for example, it buys the leading Rissian real estate marketplace CIAN, Tinkoff will immediately launch mortgage business and the banks will only have mortgage deals that are not interesting to Tinkoff.

We live in such an interesting time. The time of a radical shift that is already knocking the door. Unfortunately after the door is open many of the still quite young and healthy players on the retail banking market will not find their fortune in this digital world of the future.