Olexandr Dubilet, Chairman of the board of PrivatBank, on how the bank is coping with the turmoil in the region
Suparna Goswami Bhattacharya
May 17, 2016
How is the financial sector doing in the context of the current political and economic instability in Ukraine?
The economic situation in Ukraine is determined by several factors. First, due to the ongoing military operations, no new investments are coming to Ukraine. Second, the structure of our foreign economic relations is completely changing. In the past year-and-a-half, economic relations with Russia and the CIS countries collapsed. Developing these relationships in other places, like Europe, America, China or India, will take time. These factors combined with the downturn in global prices for chemistry and metallurgy products, which constituted a significant portion of Ukraine’s exports. The agriculture sector has been doing more or less okay. Sufficiently large businesses that operate in this sector are connected with industrial land processing. The IT sector is another industry that is actively developing in Ukraine.
With regards to the banking industry, the major risk factor is not a decrease in business volume. In fact, banks experienced an increased in volume of business due to the natural increase in the customer base from the regulatory process of removing unsafe banks. For example, with PrivatBank, the volume of transactions increased by 20% over the course of the year.
Instead, the risk factor is the fall in profitability; the lion’s share of banks operate in Ukraine with significant losses. On the one hand, the profitability of banking business fell because corporate customers were under pressure due to the economic situation. Although, despite the falling profitability of the corporate portfolio, the quality of the retail portfolio improved along with that portfolio’s profitability.
On the other hand, today the value of transactions processed by banks in Ukraine is comparable to the size of the commission which is taken for such a transaction in the West. While the number of transactions has not diminished, people have become poorer. In this situation, the mass processing of small payments is on the verge of profitability. But use of paper is not cost effective. All these retail payments should be electronic and switch to mobile devices. This is what we are doing today at PrivatBank.
As a result, PrivatBank is one of the few Ukrainian banks that operates with a profit. Due to this, the number of our customers grows because not all banks operating in the country see their future in retail. Retail is costly and if the bank did not invest in this sector earlier, it is unlikely to build the infrastructure of branches, ATMs and staff today. The process of doing so is very expensive.
How is PrivatBank going to overcome this crisis?
During the political and economic turmoil, the bank has also faced attacks from terrorist forces on our physical locations, major attacks on our Internet facilities, including the server. The military action in the country has made it difficult to plan the usual activities of the bank. In spite of the turmoil, it is important for us to continue with our technology development. Advanced technology allows us to reduce banking costs, thus providing more support to customers.
Today, PrivatBank serves 1.6 million to 2.5 million unique clients daily. Every day, many people reach us through smartphones, our ATMs, branch locations and self-service terminals. The bank was able to significantly reduce the cost of operations and increase their number by switching clients to remote service or self-service. Today, we can confidently say that PrivatBank is a technology company. Not only are we financiers, but we are technologists to improve our customers’ financial experiences.
We primarily focus on retail lending to entrepreneurs and micro-credit for the development of self-employment. This business segment does not require large capital expenditure. We have accumulated a large amount of data in order to provide these loans. Additionally, the cost of borrowing for small business can be reduced through new lending formats. In April 2016, we launched the first CUBE service in Ukraine, which many have called ‘the Ukrainian Kickstarter’. The service allows entrepreneurs to represent their businesses and its development projects, and receive direct investment from private clients. These are small amounts of loans —$ 15,000 at the highest end — but it’s an important tool for growing the real economy.
PrivatBank acts as an operator of the CUBE platform: we score loan applications and help investors hedge their investments so that this method of investment is safe. According to our estimates, these programs can now give Ukraine a million job positions while investing about 20 billion hryvnias into the real economy.
The bank has implemented a lot of ideas related to improving the efficiency of interaction with customers, not only at the stage of implementation of payments but also while buying anything. This includes migrating web-based applications to smartphones, and not only connecting banking services to these applications but also services that help customers solve their tasks. In addition, we want to teach everyone electronic banking. The screen on the tablet in our branch is the same screen you see on your computer and smartphone. Once the customer sees and understands how to carry out the transaction, the next time he will not need to come to the branch. With this infrastructure it only becomes necessary for the individual to come to bank for the first time. It is a worldwide practice to not allow remote opening of accounts, and this is about financial identification. Once the financial identification is carried out, we just have to make sure that you are able to obtain services through smartphone.
What is the range of new services and products offered to clients?
Over the years, PrivatBank has launched a variety of new services and products that directly change the banking landscape, not only in Ukraine, but also worldwide. Today, our technological achievements have allowed us to seriously change the mechanism for the management of our internal business processes, make it digital and rapidly expand the transformation of business processes using the Corezoid cloud operating system. By the way, today we openly offer to use the Corezoid system for our colleagues around the globe. Corezoid is a platform, on the basis of which Western Union, in cooperation with PrivatBank, launched money transfers in Ukraine. Once created, processes can now be easily copied throughout the world, adding necessary local settings. For example, it may take our bank from a few days to a few weeks to introduce new services from concept to practical implementation — a truly rapid pace for the banking industry.
We believe that today banks should give the customer not only those services which have been typically provided by banks since the advent of modern banking, but also take a broader look at the processes. Instead of relying on successful competitors to innovate, we prefer to go into a creative mode and develop ideas on our own. For example, today in our mobile Privat24 bank, in addition to traditional payments, there are opportunities to purchase tickets, clothes, food, and order taxis.
Our offices now use iPads instead of PCs. The reasoning behind this is not only better quality, but also the ability to easily learn how to do the same operations using the tablets and mobile phone you already own without leaving the comfort of your home.