Remote customer identification will be launched in Russia’s banking market to become the main 2018 event. A respective bill was signed into law at the end of 2017 while the mechanism itself will be enacted next summer. Russia generally follows the European approach, i.e. once a bank has established identity of a personally present individual, all other banks can then use personal data of that individual for a remote identification. To perform a remote customer identification, an Integrated Biometric System (EBS) will be arranged. The System will be likely operated by Rostelecom Russian Telecommunications Company. A customer of a bank who agrees to submit his or her biometric data (voice sample and photo) to the EBS and registers at Integrated Identification and Authentication System (ESIA), will be able to become customer of other banks (and thus open accounts therein) online, without personally visiting their branches.
Competition build-up
Potentially, the major result of launching remote customer identification mechanism may be a dramatic surge in competition since residents of, say, Samara will be able to get services at banks of, for example, Kostroma or Magadan. That will shape a national market of banking services for individuals.
“Previously, banks competed for the clients at the locations of their physical presence only. From now on, locations of a customer and of a branch of a bank are irrelevant”, Svetlana Shmykova, Director of Electronic Sales and Services Department at Uralsib Bank, notes. “A customer who used to open deposits in a nearby bank, even if that bank was offering unfavorable interest rates, will from now on have equal access to all banks which have installed remote customer identification technology. A customer will then choose the bank with the best interest rates and the most convenient means for remotely opening a deposit”.
Some experts approached by Invest Foresight, believe that will expand the population covered by banking services.
“Customers residing in remote areas will be able to contact banks remotely with no attachment to any specific location”, Svetlana Naporova, Director of Risk Process Department at Home Credit Bank, believes.
But for these expectations to materialize, Internet must be present in remote locations well before branches of banks are opened there. Besides, it is also necessary for a resident of such remote areas to at least once visit a branch of an authorized bank to submit his or her biometric data.
Small banks’ chance
At first sight, the new situation gives a new chance to small and medium banks. Their weak point has always been their limited geographical presence. Within the new arrangement they will be able to draw customers from all around Russia, Vassily Potyomkin, Director of E-Business and Plastic Cards Management Department says.
According to Potyomkin, “The advantage of the larger banks, their broad branch networks, will be gone. The presence of a bank in some region will no longer be a precondition for it being chosen by a customer”.
Still, while the factor of a physical presence of branches becomes irrelevant, a new factor of technological sophistication is emerging. New technologies require financial investments and expertise. A small bank may at a decisive moment fail to have necessary resources and qualified personnel available.
“Remote customer identification is a sophisticated technological process. Therefore access to it will only be granted to the banks authorized by the regulating agency and capable of technically ensuring services of high quality and security”, Home Credit’s Svetlana Naporova points out.
“In my view, it is unlikely an essential redistribution of the players may take place”, Platon Begun, Head of Contact Centers at CTI (Communications, Technology, Innovation), claims. “Introducing remote customer identification technology will require financial investments to be made by the banks. It will also require amendments to the servicing business processes. The current major players have already started the respective work and do not intend to give up their present leadership”.
Sergei Mokryshev, Senior Vice-President of Avangard Bank, believes that disappearance of small banks from the market is barely related to the scope of technologies.
“Market redistribution is not due to technologies, but to inequality of conditions set either politically or legislatively. In Russia, for example, there are cities where local authorities have approved a list of five to eight banks where government and private entities may be serviced. But how could private entities complain if government orders make up to 100% of their business? For many sectors of the market, authorities have set authorized banks. That is a narrow closed club of large banks, primarily of government owned banks, where smaller bank are therefore not admitted. Implementing a remote customer identification platform will resolve none of the said problems. But if all that is left apart, then, on the one hand, large banks operate many branches where they can offer the service of identification for the ESIA supplemented by a full range of their other services. They will also fund – regardless of the costs – improvement and adjustment of their technologies to match new possibilities. Besides, they will traditionally ignore some risks, because, in their own words, the Central Bank will guarantee their financial immortality”.
Marketing goes online
Anyway, acceleration of marketing strategies reform in all lending institutions should be expected, with focus on remote operations. Marina Frolova, Deputy Director for Operations at Rosbank, underlines that over 70% of Russian nationals use internet, and that percentage will only grow. The strategies of banks have over the recent year been focused on developing remote services and the remote customer identification technology will further simplify interaction procedures and make banking services more accessible.
A criteria of a bank’s appealingness to the customers will change accordingly. The parameters which are of significance for internet-commerce will have prime importance. Yakov Stavrinov, chief of interacting with lending institutions at Aladdin-RD, says, that such parameters for choice-making will traditionally include technological convenience and simplicity of usage. The third top criterion will hopefully be safety of remote customer identification for the clients, and the forth, safety, reasonable costs and convenience for the banks themselves.
Branch networks’ end?
But will remote customer identification become an additional factor accelerating shutting down banks’ branches? Some experts told Invest Foresight that it will be a lengthy process, though. Yakov Stavrinov of Aladdin-RD believes that in a few years’ time, in case remote customer ID projects are successfully implemented, subsequent personnel and branch network cuts of up to 50% are quite possible, with the pace of the change directly dependent on the implementation success.
Svetlana Shmykova of Uralsib Bank thinks in the long run, in five to ten years from now, the process may result in a substantial reduction in the number of branch offices, while in short- and mid-term that will hardly happen. First, customers’ persisting habits are the major factor which will make people visit branches personally to draft and sign banking instruments and to collect sealed hard copies. The share of such people is so far much greater than the share of those who are familiar with advanced technologies, use plenty of gadgets, and shop online. Second, banks will need quite some time to master selling full range of their products remotely. Uralsib Bank’s experience shows that remote services are very good for such simple basic products as consumer loans or bank deposits, while for getting more sophisticated products such as mortgages or investment life insurances, customers want a personal advice of a respective specialist at a bank’s branch.
To be continued…
By Konstantin Frumkin