Roman Gavrilov (PromSvyazBank): Technology brings bank closer to SMB
Roman Gavrilov, Vice President of the Small and Medium Business Unit at PromSvyazBank, told B.O (Bankovskoye Obozrenie magazine) readers about the role that small business plays for PSB and what the Bank can offer entrepreneurs in addition to financial products
– Roman, PromSvyazBank (PSB) breaks all stereotypes. The largest defense industry bank has took a significant share in the segment of small and medium business (SMB) and is striving for more. How does this fit together?
– It is a mistake to think that PSB is a solely base bank for operations on state defense orders and large state contracts. This understanding is wrong. In fact, PromSvyazBank is a universal bank; it has always been and still is a such one. We simply capitalized on the unique opportunity to serve enterprises that work with state defense orders.
Defense contractors include a rather interesting range of enterprises, which, as a rule, have a certain share of government contracts as well as a share of market contracts. Let me explain how this state defense order structure works. For example, someone makes a submarine, thus, this is the general contractor. The general contractor subcontracted electrical works with one firm, the cabin with another firm, the hull with a third firm, a torpedo with a fourth firm, and so on. Those firms, in turn, can use their own subcontractors.
If we talk about the upper level, then everything is really serious and secret there, but on the lower tiers someone, for example, supplies stew, another one supplies boots, jackets, etc. So these suppliers are the small and medium businesses that we are happy to serve.
Moreover, our common KPI is also about serving the state defense order customers so well that they entrust their entire business (including the market orders, too) to us. At the first time at PSB, I was also a little scared of the Bank’s overall image, but I just learned how to take it correctly.
– What is your position at the Bank? Surely you had experience working with small business, hadn’t you?
— Yes, I had. Since 2001, after I left the department of Bauman Moscow State Technical University where I was involved in the development of digital algorithms and processing decision signals, I have been working at banks. That time, I started in the segment of small and medium-sized business and since then I’ve never changed the focus. Moreover, the focus of my attention most often was on the microbusiness sector including venture capital business. I worked with this segment both at the Life Group and at Vozrozhdenie Bank.
Now at PSB I oversee the mass segment, and these are the “smallest” and most numerous companies. All our activities are in the framework of the electronic business development, which includes the corporate remote banking service for small and medium-sized businesses. My general task is to attract such companies to us for service.
— Now I better understand your recent case on the development of a comprehensive service for registering new business and opening a current account online. Please tell us more about this.
– It’s not easy to tell everything in short, but I will try. In addition to attracting existing small businesses to service, we are engaged in another initiative: we “nurture” such companies ourselves; we help people put their interesting ideas into practice. In fact, it is somewhere close to the venture capital market. Large business still has a staff of professional financial directors, accountants, and lawyers. They can put their ideas into action by themselves. But the same becomes much more difficult for the “smaller ones”, because the founder is usually the “chief cook and bottle washer”.
So, the case you are asking about is about entrepreneurs who want to register a business: now they can submit a request on the PSB website. All actions will take no longer than ten minutes. They only need to fill out the required fields in order to generate a package of incorporating documents and issue a qualified digital signature (QDS), upload a passport scan, and specify the address for the meeting by the visiting bank manager.
The manager will visit the customer at the indicated time to confirm the customer’s identity. After that, the entrepreneur needs to download the myDSS application on his mobile phone to use the QDS. The comprehensive solution by CryptoPro and SafeTech allows you to issue a full-fledged qualified digital signature to sign document on a smartphone.
After registering a business, the customer can remotely open an account at PSB and connect to Online and Mobile banking services using personal account. For six months, maintaining an account for new customers is free. Note that the service does not require a visit to the Bank office, the tax office, or a municipal services office and is absolutely free for the customer.
– Does it mean that PSB provides certain SMB services for free?
— Yes and no. We have a segment of customers whom we attract and offer products at our expense. For example, this can be a free service plan or free payment operations while the customer is “small”. Our venture background always reminds us that a certain number of these companies will inevitably grow, and then we will begin the process of returning the investments previously made. Moreover, SMBs get quite surprising benefits, which are due to the specifics of the Bank.
— Does such a business involve mentors?
— Yes, we have a sort of, as well as statistics on the growth indicators of these companies. There is also an escalation procedure by the customer manager. We have mass segment experts who are involved in attracting small companies, and also oversee the growth of these microbusinesses at the initial stage of their life. Next comes the CRM model (Customer Relationship Management), which is aimed at maintaining interaction with larger customers: there are still “pieces” of small business, but you can already find medium-sized businesses as well. And we transfer hundreds of customers from the mass segment to this higher segment weekly. On average, we have been transferring approximately 500 customers a month this way recently. Sometimes more.
– These are the customers who have outgrown your department, right?
— We are talking about those companies that began to show income amount above a certain threshold or have proven their market prospective. At this stage, they are assigned a personal manager who is engaged in their nurturing.
What is the advantage of a big bank in this case? We can support continuous customer growth. Most of our fellow competitors are still focused on only one part of this mass business segment. Usually, they work with their customers only at the initial stages of growth. But when a customer grows up, its range of needs and requirements to the bank expands. What can the customer do with them? Customer goes to the “green” or “blue” bank.
– And what is the pleasant “benefit” that you mentioned earlier?
– A market customer may first be scared by the proximity to the state defense order. But then it turns out “surprisingly” that the PSB’s IT infrastructure is more fault tolerant than most spacecrafts. All systems are not just duplicated, but use triple redundancy. Moreover, they are all geographically distributed, etc. We must have one hundred percent fault tolerance, and it is practically attained.
In other words, both a newcomer microbusiness who has just opened a company and launched a business and the monsters of the domestic military-industrial complex will use this same IT infrastructure. Isn’t that a benefit?
– Looking from the outside in, it seems that you are providing some kind of financial services, but there is much more. Is this part of the strategy or is it “just happened so”?
– We are trying to go beyond the role of a regular financial services provider, so the trivial sale of products should be left behind. This is part of our strategy and not a momentary tactic.
More specifically, we are now widely using Big Data featured by AI in the mass segment to make our offers to customers as personalized as possible. What am I usually frustrated personally with banks? Dozens of SMS with stupid offers even to “old” customers. We want to offer the business exactly what it needs right now or, in our opinion, will need in the near future. For these purposes, PSB has developed and implemented a special policy for contacting customers, which prohibits spamming with SMS or any other way.
How should communication with customers look like in our understanding? Our approach is: you should not mass mail everyone telling about a product created, e.g., about property or real estate insurance. Thus, we will never send a message to everyone like: “Insure your real estate.” It is much more efficient to first select those customers who have real estate, then examine their balance sheet, and see who the property is registered for. Then we add some more filters and only after that we make an offer to those who most likely needs this product. This is a simple rule that is plain to see.
There are other crucial rules that are formed on the basis of modeling. This is not just a search for a sequence of some kind of matches. We talk about a certain mathematical model that “highlights” us the probability of this exactly customer buying such a product at the moment.
This model works especially well for relatively long-time customers, because their complete transactional history is open to us. We understand who they pay, when, how much, and for what, as well as how they live and who their founders are.
By consolidating all this information, as well as data from other open sources, we can make targeted proposals fairly well. Unfortunately, the model is still being developed, and the purchase likelihood in fact is lower than we desire. However, the predictive accuracy of models is constantly growing.
By now, the response rate to our offers is 25%. This is simply a fantastic result! If anyone tells you that someone makes sales with a conversion rate of 40 or 50%, this is a lie, I am absolutely sure of that. If I had an average conversion of 10-15%, I would jump with happiness. But we still have a long way to go.
Again: Our global strategy is our customer’s growth strategy. If two or three out of 100 customers grow, move into the medium business category, and begin to show a turnover of 3-4 billion rubles, then they will pay back most of the investment.
As for attracting customers, there are quite a few ways. One of the most powerful of them is to go digital. This, in turn, is divided into different sub-directions. One of them (the most rapidly growing one and, in my opinion, becoming mainstream) is attracting customers through helping them register a business. Until recently getting your business registered was like a quest, so people were simply afraid to do this and stayed under the radar. Shady people were always nearby, who were ready to help with anything for a certain amount of cash. And then the second round began with the opening of a bank account.
Now a lot has changed. Partly because the state became more citizen-friendly while implementing initiatives like Digital Russia. Therefore, we are not expecting digital banking to reach a certain growth ceiling. On the contrary, I think the market will actively develop for years.
Here we can mention the mutual project with our partner 1C-Start we talked about in the beginning of our conversation. 1C-Start helps entrepreneurs prepare a full package of documents for business registration, file and pay a state duty, and submit a package of documents to register, all free of charge.
In this project, PSB together with SafeTech went in an evolutionary manner from going to the Federal Tax Service offices and using the sophisticated legacy cryptographic information protection hardware thanks to the mobile QDS.
In addition, customers can now automatically open a current account at our Bank. That is why I was talking about the business registration service as the mainstream of attracting customers.
— What about consulting services? For example, in respect of how to unlock account under FZ-115.
— You know, everything is much easier now with Law No. FZ-115. However, I must admit we had a difficult period. Today I hardly see complaints, although we have a special team that tracks complaints in all open sources, social networks, as well as those received by phone, etc.
However, I can’t say that the problem “resolved” on its own. After all, the Bank constantly releases training materials. We invite our customers to our office, regularly share certain information with them and ask for their feedback. For example, a new law has been released, it concerns you and us in such and such a way. Either our own lawyers or our partners are invited as experts, who make reports and presentations about features of new taxation systems, certain nuances of law, and Anti-Money Laundering and Countering Financing of Terrorism (AML/CFT) requirements.
For example, here is a case: an entrepreneur decided to withdraw money from an account to pay employees in cash, and the account was blocked. In fact, he does not even know that he could choose a salary project allowing him to withdraw cash cheaper, pay all necessary taxes, and help to avoid problems in general! We need to educate not only individuals, but small businesses as well. Therefore, one of our strategic goals is to make our manager into a sort of financial director, a consultant for the customer.
— How did this model come about? Was it taken over from the previous incarnation of PSB or was it brought in from outside?
— Most of the banking industry players do much of what I spoke about. The question is how they do that, better or worse, and what degree of the strategy implementation they have attained.
PSB has always been a cutting-edge bank; we have done a lot on our own. At the same time, certain details were brought in by the new team formed in 2017. If we talk about my experience, I have worked for more than 10 years at the Life Financial Group earlier. All the operational technologies there were state-of-the-art. Employees literally “lived” in Europe, in the USA, studying how everything worked there. And what have we encountered lately? Many of the initiatives taken recently in Russia are based on much more advanced technologies than those in the West. Thus, copying from abroad is almost impossible today.
Banking in Russia has gone far ahead, and technology is pulling it forward. Firstly, the Internet has changed everything, and secondly, people are used to the fact that their choices are made for them and this is usually done quite well. Few entrepreneurs will try to understand the nuances. With financial services well developed in our country, customers want industry to proactively prepare certain product offers for them. It is the same way a clerk prepares a report for the management and highlights the important places with red, and the boss then looks and makes a decision within the framework of a simple and clear interface. So developers are striving for creation of such a unified RBS interface.
— And what about abroad? What does small business want from bankers there?
— Everything is simpler there, because in most cases their reporting is fully open. You can get all the data at the touch of a button. Talking about the United States, they rely on personal investment consultants who teach how to properly manage money increasing the retirement benefits, or how to properly invest as an individual. However, I have not seen such consultants for small businesses there yet, but here we have AI-based technologies that have allowed us to do this.
— You several times mentioned AI and robots. To what extent are the elements of artificial intelligence in demand by the Bank when working with SMB?
— Everything is the same for both individuals and businesses! Consider chat bots, for example. Their use dramatically reduces the load on the call center, while labor costs are among the largest expenses of banks. If fewer people can be kept in the call center staff while maintaining customer loyalty and the proper level of service, then we will immediately transfer them to other areas of our business that are not completely automated yet. But for the widespread use of robots, we need to solve a lot of legal, moral, and ethical issues. This is a must!
I believe that about 40% of incoming calls will go through chat rooms or voice robots. We already possess decent speech recognition systems, and I think that next year we will put a similar system into production. Now it works on a sample base of about 1 thousand customers, i.e., it is in pilot phase. Then the solution will be built into all communication tools: to the website, the Online bank, and the Mobile bank.
— Are these solutions developed only by PSB experts only?
— To be honest, I nevertheless came to the conclusion that it is impossible to be competent in everything alone. As a bank, we must manage money well, programmers, say, from Yandex, should be able to work with speech technologies, and SafeTech should understand information security and digital signatures. Something from this list can be contracted to (or even outsourced to) third-party developers.
But we will never outsource customer relations. Building digital channels or personal relationships with customers is mine. If a bank loses its “front”, it will become just a “money pipeline”. This is not our way.
However, there are alternative schemes like those offered by AFT and the Bank of Russia: The quick payment system, UBS, and others. These are large infrastructure projects, useful for everyone. So we are actively working in all relevant project groups. For example, I believe that everything related to biometrics is still in its infancy, but at the same time I am confident in the future of these technologies.
— You mentioned the role of the state in the development of SMB. What initiatives does PSB participate in?
— The state is doing enough to support SMB. We are closely interacting with the OPORA RUSSIA and participating in other initiatives. But, unfortunately, most of them are rather about lending money. In our business process, lending to SMBs relates to more “grown-up” customers within the CRM model. Here we participate in all subsidizing initiatives related to rates, their provisioning, and so on.
However, the market participants are not waiting as well. For example, a certain bank (for example, PSB) has a webpage or a landing page. Any interested entrepreneur can go there, register, upload some data from their accounting software, and provide an extract from the online bank. Within 24 hours, the entrepreneur will get the bank’s decision on a loan and its amount. If everything is fine, a courier will visit the entrepreneur to remotely open account with already credited money. Result? A loan in less than 24 hours of waiting, without pledging any security and at a competitive rate. This is how, in my opinion, the procedure for issuing a loan to small businesses should look like.
Customer experience today is not an empty promise. If your customer does not say “wow” to you, then he will surely go to your competitor. And it doesn’t matter if it is a small business or a big one! Naturally, any support system or program becomes very valuable. Therefore, we do our best to be ahead of the others and participate in everything!