Instalment finance some banks in Russia try and use to save their bargaining power in the POS Credit business
Where originally POS merchants asked for lavish fee from the loan issued in store, instalment reverses the bargaining power in an unstable market
POS credit has always been a major thing in Russia, kick-starting overall consumer credit drive since 1999, when in the aftermath of a major crisis and a bank run, a newcomer to a market, Russian Standard Bank, founded by a entrepreneur with his roots in retail, pushed a LatAm conceived in-store 15min credit scoring and decision making process, sparking a major resurgence in consumption.
Cash was the hard-won currency and where banks started to use neural networks and distribute follow-up loans via mailer with cards, these were still used to withdraw cash, earning banks up to 5 per cent in additional earnings:
one major bank for long fought against promoting savvy usage of cards since “unauthorised” withdrawals brought up to 60 per cent of the credit-card portfolio revenues.
Back to POS:
As the market saturated and more banks were able to reliably extend liquidity through the in-store channel, merchants saw a way to get into the fray and earn from each loan issued in store. At some point, amid the low rates on debt allowing for profligate behavior by both banks issuing loans and consumers enjoying the low rates that ensued from the competition, merchants saw little difference for one bank over the other and demanded up to 20 per cent of the loan interest levied, where banks compensated with hidden or mandatory insurance. As insurance protection is now outlawed and user can opt-out, while POS is pushed out by cards, some banks have largely stoped the POS loans business: Alfa-Bank for example shrunk its presence lately, its share eaten by Postal Bank.
Hence, instalment card is a long-sought saviour for some banks, originally in heavy competition mode, like the above-mentioned Alfa and Home Credit and Finance Bank (a PPF-group owned bank from Czech Republic). Both were active and battered by liquidity dry-out lately and had to take up certain measures: the former in total reshuffle of its management board and the latter in focusing on building internal cross-sales efficiencies like focusing on building a branded marketplace and also issuing an instalment card:
- The ultimate denominator for all banks is the acquisition cost — seeing the share taken by merchants while also participating in the adoption of remote channels and e-commerce consumerism, banks are building their own channels to build a long tail of services for its customers;
- Largely 1-million-customer-base+ banks are able to reap certain rewards;
- To secure the long-term future of building a full stack of services offered through the bank-branded channel, banks are offering a card the simplicity of which allows to buy goods in instalments — and win back the interest originally shared with the merchant, since in instalment card the bank negotiates the volumes bought through customer activation it take as a responsibility and so acts as a ad middleman, receiving a discount from merchants;
- When times are low, instalment will trigger bank marketing prowess to continue spending, where profligate stages lure people away for traditional means of spending: instalment craze in Russia (as about 7 banks now offer these) can be an indication of tough times ahead.
This blog will continue with Tinkoff and Sberbank building two different ecosystem visions (based on either scale or scope) this blog will elaborate on later.