Tell us a little bit about your position at Tinkoff, about yourself and what you are doing now.

I joined Tinkoff in 2010 as a portfolio analyst. I managed credit products (credit cards, cash loans, car loans, mortgages, etc.) and charge cards. Much of the portfolio management was directly related to credit cards. It's not a new area, it's just that when you have a portfolio of credit cards, you have to do something with it - raise customer limits, fight churn, run promotions. That's what I did. Over time, the role expanded to include prospecting, making project decisions, including the sales funnel and calculating NPV (net present value).

‍

What is the current state of fintech? What are the specifics of the market and why did you decide to enter the market in Mexico?

Cheap money is over and now everyone is looking for new money.

The focus has shifted more towards profit and therefore towards lending. We can clearly see that many companies that were originally focused on a payment product are moving into lending. That is where you can make money.

If you do not find the right growth and income trajectory in the settlement segment, it is almost impossible to make money in it. Especially on a small scale. Competition, maintaining a large team of developers to produce a quality product, office space - all of this costs a lot of money. Ideally, you need a large base that can grow and be profitable.

After analysing the market, we decided to invest in Mexico because of several compelling factors.

First of all, Mexico offers significant potential for digital financial innovation, as the local population tends to embrace new technologies.

In addition, Mexico has the second lowest bank penetration rate in Latin America. This presents a unique opportunity to contribute to financial inclusion by enabling the population to access and benefit from modern banking services. In addition, the regulatory environment in Mexico plays an important role in promoting competition in the financial sector.

We aim to take advantage of this favourable environment to introduce advanced financial solutions, thereby driving innovation and creating value for both our company and the local market.

‍

How do you even choose a country/region for a start-up or a new bank? Which is the most promising? What to look out for?

It would be weird if I didn't say Mexico, wouldn't it (laughs)? But look, in more detail:

1. The first and most important criterion is the size of the market. Let's take a hypothetical country with a population of one million. You can probably do something there, and it will even be interesting. There is little competition and the quality of the product is low.... But it is clear that a company serving a market of a million people is unlikely to be expensive.

2. the openness of the country. It is very important to consider the openness of the country to foreign investment. For example, it is very difficult to work in China for this very reason.

3. Competitors. You should study them. Who they are, how many clients they have, what products and projects they have, etc. Everything that affects the competitiveness of the market.

4. A separate, very important issue will be the question of regulation. This is very specific to each country. You have to study in detail how the regulator works, what the questions and requests are, what the laws are. Sometimes these things are so different that it is impossible to find similarities.

5. The last point is the question of culture, authenticity and the mentality of the country. In Germany, for example, people are more conservative than in Mexico and probably less open to new things. Mobility and dynamism is a characteristic of a developing country, where people integrate easily into new environments and are not afraid of change, which is exactly what Mexico is. In some cases, it is a question of religion, and Islamic banking is very different.  

In general, it is not easy to choose the right country. You have to take a lot of factors into account, and a lot of the information you need is not publicly available. Yes, you can find GDP or market size, but the legislative nuances are not always available. You have to go directly to the country, communicate with local specialists and find out how things really work on the ground. Especially as the laws are written in the local language, which is not your mother tongue, there can be translation problems. And then there is practice, and then there is the general way of doing things in that country. All of this is complex and requires deep and detailed study, time and resources.

‍

Let's talk about the specifics of new bank regulation in Mexico. Is there a separate regulatory infrastructure set up by the national or central bank? Or is this niche not yet standardised?

Mexico has a separate regulation for fintechs and even a special IFPE licence, but this licence is mainly used for payment services.

‍

So you need a bank licence to lend money.....

In Mexico it is possible to lend without a bank licence, but there is a consumer protection agency. Roughly speaking, their job is to make sure that the population is not deceived by false promises or offers. The logic behind the licence is that if you give money to people instead of collecting it from them, you need fewer controls than a traditional bank. And this logic makes sense because it lowers barriers to entry and encourages competition. But of course, to issue debit cards and collect deposits, you need a licence...

To get a banking licence in Mexico, you need about $38 million in capital.

‍

How many fintech startups are there in Mexico in general?

Quite a few. Mexico was the first country in Latin America to create and implement a fintech law, which has definitely opened up opportunities for many startups looking to carve out a niche for themselves. But the question is, what are their advantages? For example, our advantage is our experienced team - our people have tremendous core management and development experience. This is important because sometimes in startups, and not necessarily in Mexico, you have people with no banking or digital experience. All four founders of our startup used to work at Tinkoff, which is known as one of the largest and most successful digital banks in the world.

‍

Who dominates the market today? Traditional or digital banks?

In Mexico, traditional banks have the largest market share. In the last 5 years there have been enough digital banks trying to enter the Mexican market and there are also traditional banks opening their own neobanks. The competition is quite strong, but so far, if you compare it to Russia, where Tinkoff has 20 or even 30 million customers, there are no digital players of comparable size to the traditional market leaders.

‍

What do you think makes a financial product successful? For the user and for the founder/company.

We have always lived in the paradigm that there are two metrics of success for any business. The first metric is growth and the second is profit.

If a product is growing fast and still making money, that's great. It's worse if one of the metrics is low, more often profit. But companies are not always judged on profits. As you know, many investors used to put money into companies that were simply growing, even if they were losing money. This has been the case in recent years, but the trend today is that there is less money available and interest rates have risen. As a result, not-for-profit organisations and those that are loss-making are facing challenges. They are finding it increasingly difficult to attract investment and raise another round. So we are trying to build a business that is both profitable and fast growing.

That is if we are talking about the business as a whole. Now let's look at the product from the customer's point of view.

There are many different opinions on this. Our philosophy is that a successful product should please the customer. A person should get pleasure every time he or she uses the product. It may sound strange because for a long time banking and finance was the most conservative area. But now banks have changed a lot, they are no longer about branches or managers in ties, they are about mobile applications.

I would even say more radically that a bank today is an app.

We all like apps that look good and work well, that are pleasant and convenient to use. That's how people choose a bank today - by the application and the native feeling of whether it's pleasant to use or not, convenient or not so convenient. If you can create a product that gives the customer positive emotions and the impression that everything is clear and convenient, that is great. And vice versa.

Let me give you an example. I recently tried to pay for a transponder. It's a simple process. You buy a device, scan the code and top up your account via the app. It took me 25 minutes. All because of a terrible app. So how do I feel about the transponder company? Bad, of course. It's the same with banks. If you go to a bank where you have to enter a 10 character password every time, with three punctuation marks, capital and small letters, do you feel comfortable? Of course not, you will leave such a bank, even if it has the best rates and the best service. Of course, the conditions should be competitive, but all things being equal, the client will stay in the bank where he feels comfortable, and that is the bank he will recommend to others.

Many successful banks, including Tinkoff, have grown dramatically because people have recommended them to each other. And it's not just about the referral programme. Many customers came to the banks for free, they didn't have to spend any money to attract them. It is about virality, because when you find it, the growth of the customer base goes up. And that is an indicator of success.

There are a lot of products where the economics don't allow you to spend a lot of money on acquisition. Debit cards, for example, are much harder to sell than credit products. It's not enough to put up a nice banner with the terms and conditions, the customer has to want to use your product, and that's essentially virality.

‍

Customers are often irrational in their choices. If a service meets their needs for speed and ease of use, and they get a cool user experience, could that lead them to choose a less favourable rate on a car loan, for example?

Loans for major purchases are a different case, with different rates and terms. That's where the customer is most sensitive to the rate. With credit cards or consumer loans for small amounts, the rate is less important.

The customer chooses a better service and a higher level of comfort, even if it is a more expensive banking product in terms of conditions - but this is just a matter of rationality on his part.

Why go to the trouble of going to a branch and waiting in line when you can pay a dollar more and not have to worry about anything? The application works perfectly, you don't have to go anywhere, you just press a button.  For the customer, that is rationality. People behave quite logically. They value convenience and pleasure more than insignificant financial benefits.

‍

Let's take a closer look at your project to launch the Plata credit card. What customer scoring infrastructure are you using?

Here, as everywhere else, there are services that we use to understand our customers better. But we make the credit decision ourselves.  

Some services provide credit histories, others give instant scores. We collect and analyse all the data because, conceptually, this is a competitive space. Strong analysts, data scientists, can analyse data more deeply, break it down in more detail and find exceptions. A credit bureau is a place where many credit organisations send information in different ways. Inconsistencies can arise, and it is good for a company to have strong in-house expertise.

In general, there is enough data in Mexico to make a credit decision. But sometimes it's messy, and on the whole that's a good thing. If everyone had the same perfect score, they would approve the same clients, and how would you compete? With imperfect data, competitiveness increases - a lot depends on the analysts. Good analysts, like ours, create models that are better than the competition's. They can make better credit decisions based on the data. Using only Scoras, especially when a company has an issuing base, is unwise. A strong company will try to get the maximum amount of data, analyse it correctly and build its scoring around it. And build their credit expertise.

Our philosophy is quite simple: if our client's estimated income is greater than what we will spend to attract them, we will approve them.

‍

How will you attract customers? After all, you have to teach your customer to trust you, to give them a new user experience. Aren't you afraid that your engagement budget will be very high?

We'll try, we'll find out (laughs). Yes, we have to keep learning about our client and the Mexican culture in general. The challenges can be many and varied, but we are not afraid of them - we believe in our team and that we can do it better than anyone else and grow fast enough. What is important to us is the speed of growth of our customer base, but at the same time a quality base. It's about profit. Even if each of our customers brings in one person they know, that's x2. What if it's more than one?  Mexicans have a lot of acquaintances - a hundred or even a thousand. So if clients bring other clients, in a few years the company will be quite large.

Of course, someone will still want to go to the bank in person, so let them. But there will always be someone who brings a friend, mum or dad, who doesn't need it. Over time, more and more people will realise, and I am deeply convinced of this, that there is no need to go to the branch. Except to put money in a safe deposit box, nothing more. One day the whole world will come to this realisation - some faster, some slower, it's just a matter of speed. But I am convinced it will happen.

‍

What will your next product be?

It's too early to think about new products. Right now we want to focus on understanding the market better, testing our approach to it and taking a position on our main product, the credit card. Of course, we are proud of what we have achieved in just seven months, because we are really offering a high-tech financial solution to Mexicans. But our vision is still a long way off. In the meantime, we are still scaling, growing and establishing operational processes.

‍

Is there any technology right now that you could call a revolution in the world of finance?

We are used to hearing about new technologies and innovations almost every day. Digital banks appeared quite a long time ago, Tinkoff was created in 2007. It became a full-fledged digital bank - with an app and all its attributes - in 2014/2015. But in most countries, digital banks are still small. Of course, there are some success stories with digital banks. The technology is there, but there is not yet mass adoption. The revolution will happen when digital banks become really big in most countries.

For now, traditional banks are holding their own and doing quite well. And in most countries, the neo-banking revolution has not happened yet. I am not even talking about anything radical. People just continue to go to bank branches. That is why it is important now to change the paradigm of thinking.